Carl Icahn Swooping In On JetBlue

Carl Icahn has taken a 9.91% stake in JetBlue.

There’s no secret that JetBlue is struggling.

  • Shares of the airline are down 29% in a year and two-thirds in three years.
  • Their on-time performance has been poor.
  • They’ve degraded their inflight product over the years, reducing the differentiation between them and competitors (although still offering a bit more legroom, seat back TVs, and free Wifi).
  • Employees are unhappy.

The airline lost anti-trust trials over its partnership with American Airlines and its acquisition of Spirit Airlines (for which it was likely overpaying, and would be taking on significant operational complexity to execute the merger). And its CEO announced his exit.

While the airline’s shares are actually up nearly 10% over the past week and 20% over the past month, that’s off of a very low base. Icahn quite reasonably sees an airline that’s underperforming and that should be able to turn itself around, though perhaps not with its current (lack of) strategy. There may be money to be made here, and shares are up in after hours trading.

However Icahn is a lightning rod in aviation circles, given his past involvement with TWA. He acquired that airline in a leveraged buyout in 1988 (after first having purchased half the airline three years earlier). Icahn entered with union support, having been seen as a better alternative than Frank Lorenzo.

He then sold off the airline’s assets to pay down the debt he incurred acquiring the carrier. He sold TWA’s London routes to American. And he eventually left the airline with over half a billion dollars in additional debt when he walked away having earned a similar amount.

Icahn also walked away with the Karabu agreement, the ability to purchase TWA tickets at 45% off for a decade, except those to or from St. Louis. He then started to sell TWA tickets for less than TWA pricing, pocketing the difference. This pushed TWA back into bankruptcy in 1995.

Ultimately, though, TWA was an airline with problems. It paid below average wages, yet had above average labor costs due to work rules. Hubbing in St. Louis no longer made sense from a passenger perspective, since it lacked the full fare passengers of competitor hubs. And TWA 800 crushed it as well. It wound up in a prepackaged bankruptcy sale to American Airlines.

While Icahn is often blamed for killing TWA, it had problems which may have been insurmountable even aside from Icahn.

(HT: @crucker)

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. Sadly, I thought Icahn had died. He ran TWA into the ground and I see that JetBlue in his sights. JB and do bad all by itself and doesn’t need any help.

  2. So, which is it? Is he a lightning rod or did he kill TWA?

    Also, you can’t say B6’s product is INFERIOR as you did in bullet 3 then say in the next line what makes them different.

  3. As a former TWA employee during the Ichan era, good luck to all Jet Blue employees. You’re gonna need it.

  4. Icahn stepping in means an eventual break up of B6 through a sale of its parts. American Airlines will be likely fixing its NYC problem then.

  5. You found some posts from employees at B6 and now the employee are not happy. I can confirm that’s not an overall picture of the company. Fly on JetBlue and tell me how the employees behave and act compared to employees on other airlines.

    Nothing this guy writes really holds value.

  6. I used to have the misfortune of having easy access to the old Midwest Express. They would fly you somewhere and then without fail, the return flight would be cancelled due to some equipment issue. I flew back on TWA more than a handful of times, including on a ticket completed in triplicate and handwritten by Midwest Express for travel on TWA. I have no fond memories.

  7. He ruined TWA and is about to go for round 2. Good luck to B6, they damn sure are going to need it if this clown has his way.

  8. People like Icahn and Lorenzo should be banned from ever running an airline again. Parker is another.

  9. I’ve wanted B6 dead and buried for a long time. The Grim Reaper has just walked in the door. I couldn’t be happier.

  10. What Carl Icahn managed to pull off with TWA is a legend.

    Can’t foresee that he will manage to pull a repeat of TWA with yet another JFK-hubbed airline this time around, but I am sure he’s got ideas on how to pillage the company for his own gain.

  11. If one wants to destroy an airline, call 1-800-TWA-ICAHN.

    If a storm was brewing before, disaster surely looms now if this Robber Baron gets anywhere near the C-Suite & Boardroom.

    What a shame.

    As the expression goes, I’ve seen this movie before & know how it ends.

    Spoiler alert: total destruction of the company after stripping it of its assets: gates, slots, aircraft & future aircraft delivery slots, which, with Boeing’s many problems, especially its 737 MAXes further delayed (and likely doomed if there’s any kind of major mishap anytime soon), JetBlue’s Airbus A321neo/LR/XLR orders & options are more valuable than ever.

  12. poor Joanne won’t even get her chance to make here mark.
    JBLU’s board should have taken the fall in stock price due to one strategic miss after another more seriously.

  13. With Ichan on the Board that is certainly not a good omen for jetBlue. More often than not the sum parts of a Company are more valuable than the entire Company together and piecemealing is more valuable to the Board. jetBlue has made some serious blunders over the years and three glaring mistakes were #1 not acquiring Virgin America, #2 the foolish attempt to Merge with SPIRIT and #3 initiating Transatlantic Service on Narrowbodies. All three were very poorly conceived ideas and piss poor in execution. Companies are Public Enterprises and the role of a Board of Directors is to make sure that these enterprises are Profitable and this is where jetBlue is at. The JFK Operation has value due to the slots. The JFK Terminal is decent but who needs it? Boston Operation is impressive but anyone can build what JB currently has. FLL is a Big Operation but is of value to limited players due to low cost operators.Same goes for Orlando. jetBlue is Big in the Caribbean (esp San Juan, DR) but those are not high revenue flights and anyone can fly them. jetBlue’s best days were when they started and having lower costs but as the carrier approaches 25years they are learning they are Not Big enough to compete with the Legacy Carriers in network and every day becomes a bigger challenge just to compete. No competitor will want The Entire Operation but there is value in some of the pieces.

  14. Corporate Raider Carl Icahn is here to save the day? Lots of luck! The guy gives vermin a bad name.

  15. very well said, Roger.
    And it confirms why so many of the people here that argue that financial performance doesn’t matter don’t understand how business runs.
    If a company is privately owned, they can do what they want but when you become publicly owned – as all of the largest US airlines and most global airlines are – you have to answer to your shareholders that are not interested in catchy marketing and legacy accomplishments.

    JetBlue started as a revolutionary concept to bring high quality discount travel but has increasingly failed to deliver that while chasing a million different failed strategies. JBLU stock is horribly undervalued compared to what the company COULD deliver but no one has stepped forward to fix the decade long slide.

    Robin’s departure provided hope but it might have been too late for B6 to internally control is own destiny.

  16. @ Tim — It only costs about $100 to start your OWN blog. You know, one where people will actually want to read your writing.

  17. I thought that corporate raider pig was dead. The worse they are, the longer they live.

  18. Right about Ichan, he is a butcher only hope that the stick price reached my investment so I can sell it and move on

  19. Carl Icahn is a disastrous and should be banned from the airline industry and any other business as far as that goes. Let him start his own company only. Didn’t JetBkue agree to pay Spirit a very large sum of money if the merger wasn’t approved? I believe it offered a significantly higher amount than Frontier did in this provision to win the bid for JerBlue. No one is talking about this right now. Can anyone comment on what the amount is that JetBlue now owes Spirit, and if they are going to pay it?

  20. Carl Icahn is a Stage 4 cancer for JetBlue. Or anybody else.

    I was a proud TWA employee for 35 years, and I know what I’m talking about. He’s vermin.

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