Spirit Airlines Inc., known for its barebones service, is currently in dire straits. The stock value is close to reaching record lows. The possibility of bankruptcy is becoming more prevalent since its potentially lifesaving merger with JetBlue fell apart. But while Spirit’s fate has very real implications for its employees and customers, its struggles are also a reminder that the airline business is one of the most fluid, and competitive in the world, defined by microscopic margins, high debt and ruthless battles for market share.
It wasn’t always so. Prior to the 1970s, the airline business was a highly regulated, highly profitable industry, with almost no low-cost carriers. Then an unlikely coalition of leftist activists, free-market economists, and publicity-hungry politicians took a sledgehammer to this arrangement, launching a mania for deregulation. How that happened offers a case study in how to unleash market forces, and the unanticipated consequences of doing so.
JetBlue is leaving 2 cities and cutting routes after its merger with Spirit Airlines collapsed.
JetBlue Airways will eliminate several unprofitable routes to domestic and international destinations as it looks to slash costs in the wake of its failed $3.8 billion merger with budget carrier Spirit Airlines.
The Long Island City, New York-based operator will reduce almost a third of its flights from Los Angeles International Airport in June. According to Bloomberg News, the decision includes routes to Miami, Las Vegas, and San Francisco. The airline will eliminate flights from Fort Lauderdale, Florida, to five cities — including Nashville, New Orleans, and Salt Lake City — and flights between Detroit and John F. Kennedy International Airport in New York.
Jetblue will completely exit Kansas City, Missouri; Newburgh, New York; Bogotá, Colombia; Quito, Ecuador; and Lima, Peru, on June 13.
“With less aircraft time available and the need to improve our financial performance, more than ever, every route has to earn its right to stay in the network,” Dave Jehn, JetBlue’s vice president of network planning and airline partnerships, said in memo to staff Tuesday. “It’s more important than ever that we are surgical about every route in our network.”
In addition to saving money, the changes will help the airplane deal with the grounding of some of its planes for inspections of their Pratt & Whitney engines. The company will have, at most, between 12 and 15 of its aircraft idled for almost a full year, JetBlue chief financial officer Ursula Hurley said at an investor conference on Feb. 22.
The changes come just weeks after JetBlue announced it would no longer contest a federal judge’s ruling against its proposed merger with Spirit. The deal would have merged the nation’s sixth and seventh-largest carriers. It would have also helped JetBlue compete with its larger rivals.
JetBlue stock sank 1% in premarket trading Wednesday after shedding 3% after the market closed Tuesday.
Under the companies’ agreement, JetBlue will pay Spirit $69 million and resolve all outstanding matters related to the deal, such as the appeal. While the merger agreement was in effect, Spirit shareholders received about $425 million in total prepayments, according to the airline.
In recent years, JetBlue’s operations have faltered and they have been losing money. Its woes have even opened it up to a public activist shareholder campaign from Carl Icahn, who led a successfully led a campaign against Illumina’s acquisition of cancer test maker Grail last year. Icahn has taken a 10% stake in the company and secured two seats on JetBlue’s board of directors.
In January, JetBlue said it expects revenue for the first quarter of 2024 to drop between 5% and 9%, while capacity for that period will be down as much as 6%. For the last three months of 2023, the carrier reported a net loss of $104 million, compared to a $24 million profit in the previous year.
JetBlue dropping service to these cities after deals with Spirit
The New York-based airline will drop several destinations from Los Angeles including Seattle, San Francisco, Las Vegas and Miami. It will end flights between Fort Lauderdale, Florida, and Atlanta; Austin, Texas; Nashville; New Orleans and Salt Lake City, and service between New York and Detroit.
