Six weeks ago, we asked the question What’s next for JetBlue and Spirit? after a Federal judge blocked their merger on grounds it would reduce competition and raise prices. Now, despite an original pledge to appeal the decision, the two airlines have called of their merger plans.
The break-up, which leaves JetBlue on the hook for about $500 million in break-up fees, may actually be a good deal for JetBlue, which had originally agreed to pay $33.50 a share for Spirit’s stock, which has now fallen to around 20% of that; paying the break-up fee saves it from a huge overpayment.
And that’s important to JetBlue, which had hoped to absorb Spirit’s fleet and routes as a way to grow itself faster into a stronger competitor for the big legacy airlines that handle about 80% of U.S. air traffic. It now needs the cash not only to grow ‘organically,’ but also to return to profitability. That’s also linked to its recent rash of added fees and paid services.
For Spirit, whose leaders had testified in the court case that Spirit was too weak financially to continue on its own as an ultra-low-cost carrier, the future is less clear. Although officials deny it, many in the industry see a possibility that it may be headed to bankruptcy or to ceasing operations. Or, it might need to sell itself to another buyer—even possibly, to reviving its original merger deal with its fellow ULCC, Frontier Airlines, whose bid was pushed aside by JetBlue’s offer.
