The best argument I’ve heard for JetBlue to acquire Spirit Airlines is that they simply had no choice. They don’t have options for organic growth, and at best they’ll stagnate and could face serious decline. For instance,
Seems likely that JetBlue pushed so hard for this deal because losing it might have assured a slow death sentence
— Jarrod West (@jarrodwest_) July 28, 2022
I do not think this argument is correct.
- JetBlue is taking valuable assets and shifting them from a more profitable strategy to a less profitable one (Spirit has had higher margins than JetBlue operating as an ultra-low cost carrier)
- They are taking on cost – JetBlue employees are in many cases paid more than Spirit employees, and those Spirit employees will be getting a raise; JetBlue will be taking on the expense of converting Spirit planes to JetBlue interiors.
- The merger cost isn’t just the amount paid to Spirit shareholders, it is years of IT and labor relations costs and distraction to integrate another airline. And this is an airline that has already had challenges focusing on running a reliable operation for their current planes and schedules.
- This could cost JetBlue their American Airlines partnership, since the federal government opposes that already and they face anti-trust scrutiny for this deal.
In other words this costs more than the almost $4 billion they’re spending on Spirit. They’ll have ongoing costs, and now they can’t take that $4 billion and do something else with it.
Let’s look at the different arguments for the merger in turn, and then address what JetBlue should actually do if the thesis holds that they had ‘no other options’ besides overpaying for Spirit.
Acquiring Spirit Gives JetBlue More Pilots
The pilot shortage is real and this deal gives JetBlue more pilots, but that only means more flexibility if they exit Spirit routes. Remember that Spirit has had better operating margins than JetBlue has, so they’d be taking pilots off of more profitable flying to deploy those pilots to less profitable flying. They can do so, but that’s not an argument for the deal exactly.
Airlines can’t just go hire new pilots at higher pay. The union contract specifies what the airline can pay. New pilots have to go to the bottom of the seniority list. Government regulation keeps the supply of pilots limited (1500 hour rule, mandatory retirement), but unions keep pilots locked into their jobs and they can’t seek a higher wage on the market. Unions are often good for senior employees at the expense of more junior employees rather that at the expense of the company (although work rules can be bad for the company, too.)
In the longer run there are solutions to the pilot shortage. In the short run they’re getting more pilots who are already doing something that’s more valuable than what JetBlue will do (Spirit business model) and they’re paying far more than what they were doing is worth (since the deal costs about two-thirds more than Spirit’s market cap before the Frontier merger agreement was announced). Surely $3 billion can solve the pilot shortage more creatively than this.
JetBlue Gains Access to Slots And Gates At Congested Airports
It’s tough to expand in airports that are full, either because they’re slot controlled (or schedule-facilitated) or because of lack of available gates. However JetBlue has already stipulated they’re willing to give up Spirit’s assets in New York and Boston to gain anti-trust approval for the deal. Access to a modest amount of Chicago O’Hare flying, for instance, isn’t going to get them very much here.
And Spirit uses its assets already, again more productively than JetBlue, so it’s not clear how the value of the merged airlines becomes worth more rather than the same or less in order to justify the big price premium relative to Spirit’s market value before merger agreements were announced.
Spirit’s slots and gates weren’t worth two-thirds more than the value Spirit was extracting and JetBlue, with higher costs, will likely extract even less value. Plus they’re going to shed some of the most valuable slots and gates they’d be acquiring.
JetBlue Is Going To Get More Planes
It’s not really clear that the binding constraint on JetBlue’s growth is aircraft, which are available on the market (including the used market) without buying an entire airline. It’s also not clear that Spirit’s leased fleet solves the specific expansion needs JetBlue faces. While both airlines operate Airbus narrowbodies with Pratt & Whitney engines (fleet commonality), JetBlue may need more longer range aircraft to reach thus-far underexploited destinations.
Here’s What JetBlue Should Do Instead
JetBlue doesn’t fly to Hawaii. They’re not strong on the West Coast. They’ve just launched their first transatlantic destination. There are markets to expand to. The question is whether those are profitable markets, but that’s the same question as whether Spirit Airlines assets will be deployed profitably and indeed whether JetBlue can earn an acceptably high rate of return on their investment.
When Alaska Airlines acquired Virgin America they were supposedly doing it for slots and gates at congested airports. They’ve turned out to make little progress exploiting those. But at least Alaska had the argument that in acquiring Virgin America’s San Francisco hub and presence in major business markets they were acquiring customers for their co-brand credit card which is profitable. JetBlue doesn’t have the same degree of opportunity with Spirit.
If it’s true that JetBlue really faces the choice of grow or die, and this is the only way to grow, then they should be thinking about other ways to deploy their capital. There is nothing written in stone requiring JetBlue to grow in the airline business, or even to maintain their current airline operation. As a company JetBlue should find the most profitable ways to deploy its assets.
JetBlue should consider pivoting away from the airline business if they can’t earn a good rate of return in the airline business. Surely they’d even do better for shareholders by giving the cash used in the Spirit deal to Jack Bogle.
This applies to every airline. None are profitable flying. All depend on their loyalty programs to make a real profit (some more than others, of course). Jetblue needs to address TrueBlue to unlock the full potential of the Spirit acquisition.
The better Jet Blue play would have been to purchase some slots from a combined Frontier/Spirit. It would have provided a growth path at a much lower cost and it would have helped Frontier reduce the overall cost of the purchase. I frankly think JetBlue overpaid by a lot and this will not end up well for them.
I have no respect for this post. Get your credit card sign on bonuses , fly in your business class seats , let us know how amazing the reheated TV dinners are and stay away from spreading this stupidity. Based on your argument all airlines should stop service and you should walk everywhere. JetBlue is an incredible success story that no modern startup airline in the 21st century can match. Shame on you Gary… no class whatsoever.
I remember years ago when I first started reading this forum … it was a break from normal media. Now it’s the mainstream media of aviation. Just trashy stuff.
@SMR – how on earth is it stupid to say that there are ways to deploy capital to earn a higher rate of return than (1) overpaying for (2) an airline – and that earning the best return on capital possible is what a company should do in most instances?
Stick to your credit card bonus posts. Some of your posts are just beyond cringe.
An airline stuck-between being a LCC and a Full Service Carrier? Sounds like every OneWorld carrier in the USA/Europe.
@Gary. You said JetBlue should exit the airline business. I am sorry , I read my own text and it never comes across they way we mean it to but absolutely that’s a ridiculous comment. JetBlue is an extremely passionate aviation organization that put itself in an incredible place .. not insolvent like American Airlines. JetBlue has made it through the toughest times as the youngest major airline in the USA. JetBlue also has an extremely loyal following even with the recent operational challenges. Making a comment suggesting they should exit the airline business shows a lack of tact in how you report. I can’t even believe you are the least bit serious given I assume you have some industry knowledge. Either way stupid was not the best world to use but this is the lowest class post I’ve seen on boarding area. JetBlue will have a successful future … as an airline.
Gary,
first, thank you for writing good industry articles this week. I know mergers don’t come along every week but you have had good content this week and nobody misses the anecdotal wierd passenger stories or airline bashing over some relatively small and unique incident.
I agree w/ your general thesis that JBLU needs to figure out how to run its business profitably. The root issue is that JBLU was gifted a bunch of JFK slots in order to get started and has never figured out that the most profitable airlines have niches (moats as Warren Buffet calls them) where they dominate the market. British Airways has LHR, Lufthansa has Frankfurt, Air France has Paris, Delta has Atlanta, Detroit etc, American has DFW and Charlotte even Southwest has MDW, DAL and HOU…. JBLU has none of those. It chose for 20 years to build its network around highly competitive markets where competitors have matched every move JBLU has done and JBLU has no advantage. JBLU should have realized that long before covid.
Their answer is to engage in the Northeast Alliance which is being challenged by the DOJ for anti-competitive elements and now to acquire (it is not a merger but an acquisition) of an ultra low cost carrier that has stimulated a whole new level of demand at price points which JBLU wants to eliminate. The DOJ isn’t going to look kindly but it is hard to know how they will rule. It isn’t the American traveling public’s job to eliminate low fare options in order for JBLU to survive – but that has been the outcome of every merger. There are too many discount seats chasing too few customers that are willing to pay profitable fares.
The US propped up the airline industry during covid and allowed some of the finally weakest airlines (which would have been American and United) to survive and now it is the low cost sector that is paying the price. JBLU and SAVE are not expected to be profitable for the 2nd quarter and probably not for the year. In other words, the bailout of the airline industry during covid is now facilitating this acquisition that will eliminate low fares and raise the price of air travel in the US – which will benefit every other airline including the big 4 – AA, DL, UA and WN. Interferring in the free market always has collateral effects.
Airline loyalty programs only have value because of the airline they are attached to. It is also not true that other airlines weren’t profitable without their loyalty programs. WN has already returned to profitability above the revenues they get from their loyalty program. DL was before covid and will return to that again. UA likely will but its profitability will be hurt as it spends massively on new aircraft; their proftability on a margin basis was no better than AA’s – which is the key example of loyalty program profits over airline operations.
The airline industry is following other large American companies that dominate their industries to the point they can be profitable. This is perhaps the last chapter of airline deregulation. Remaining airlines will be large enough to prevent any other upstart airline from growing enough to be meaningful competition.
JBLU does need to get this deal over the finish line to be one of the survivors but it will messy and they will make costly mistakes – JBLU has never demonstrated strategic prowess beyond the upscale low cost concept. The airline industry might finally reach sustainable profitability thanks to JBLU’s deal-making
Suggesting B6 should stop flying planes because of profitablity when many others are in the same boat, is a bit sensational.
With proper operational leadership – likely coming from NK – this has a ton of potential. NK is operationally average, has a diverse leisure route map & has good employee morale. B6 has a great hard product, above average soft product & healthy company morale to leverage, which can potentially differentiate them from everyone in the market with scale. I’m not a huge fan of either – I’m on the west coast & fly B6 on their daily red eyes to BOS & JFK occasionally – but certainly can see a successful outcome in spite of the negative talking points that are pointed out here.
I think @Gary should exit the “reporting “ industry and become a financial advisory for the airlines. Why not use your assets where they are most valuable and can produce the most profit ? For sure you can work out a bonus structure for yourself that can 10x your earning from this blog. We should all go do what makes us the most possible profit. That’s our only goal as companies and individuals right ? That’s exactly what you have implied.
@Tim Dunn. JetBlue load factors and RASM at JFK is actually incredible. They have many niche markets and literally own the US-DR routes … ALL of them. There are many places B6 has niche markets where other airlines do not.
The thing is that airlines are as much glamour investments as anything else, and they’re also the most addictive business on the planet. You can’t expect the management to be entirely rational about staying in the business.
Maybe the board and/or investors will force them out of the business. Maybe not. If nothing else, it will be fascinating to watch. From the outside.
This is going to be a messy merger, the two airlines are too different and it will take 4-5 years for this thing to work out or for B7 to file for bankruptcy. AA can get out of the NEA and make NYC a “destination hub” with One World (same as they are doing in LA). AA can get the routes back and expand Terminal 8. They can easily grow past B7 and become #2 at JFK and hold that position at LGA. DL and UA and slug it out over service to Montauk and Harrisburg. DL can ramp up in BOS (which they are still #3 behind AA which I’ve never understood) and really build up the NE. In FL, AA is just going to crush B7 since MIA has grown into the #3 hub for them and truthfully, FLL is just a cruise ship transfer airport with Low fares.
This will be another UA and CO merger fiasco. I am getting my popcorn ready to watch this mess. If AA can get their balance sheet cleaned up by 2025, they can buy B7 out of bankruptcy court for a song.
B6’s main constraint is lack of competent management. Its hard to see how their operational performance can get any better with this.
The idea of them giving the shareholders money is hilarious. They overpay for Spirit (execs get their bonus for completing the deal so they don’t care), then burn through crazy money with the mess they will make of the integration process. Finally enter chapter 11 to reset course, emerging either with with new leadership or as part of AS. The shareholders will be eaten alive.
@Gary This is all to assume that the BOD of JBLU did not do their due diligence in reviewing all the financial considerations of this deal. On its surface, you make a great argument. However, I would guess that the BOD of JBLU didn’t pursue this deal just to satisfy some ego driven desire to be larger. Finally, shareholders if displeased with this deal, could rid themselves of the C suite.
@Steve – I do not think boards of directors are always right in their mergers and acquisitions, after all many acquisitions turn out to be suboptimal and many turn out to be disasters. And the due diligence process is often a CYA exercise more than an illuminative one, IMHO
@SMR – First, this blog isn’t my only source of income. Second, becoming a consultant wouldn’t increase my income. Third, I don’t owe a duty to shareholders, so I can pursue things that interest me and I find most enjoyable rather than that are revenue-maximizing.
I agree with Tim; JetBlue has nothing that sets them apart from anyone else, especially in the last 10 years. Network? Nope, basically the US Airways of the present; stuck in the NE. FF program and CC offering, garbage. In-flight experience, no longer demonstratively better than any competitor. Fees, they are just as bad as the Big 3. Their IT is worthless. Basic Econ offering, worse than most with no carry-on. Operation, in the dumpster. JetBlue is just a smaller DL, AA, UA with none of the upside and all of the downside. They are trying to be everything to everyone (Mint, International) with no focus. No one cares about your “quirky” culture if you can’t deliver a good product consistently.
@SMR re-read what I wrote, the best argument for acquiring Spirit is that ‘without it their future is doomed’ and I suggest that, assuming this is true, then they should exit now because they face a future of extremely low or negative returns on their capital. They should deploy their capital to the most profitable investments possible. What on earth is wrong about that statement?
This is really outside the box thinking. Fascinating.
@SMR doesn’t appear that you have ever run a business in your life.
If you wanted to enter the airline business from scratch, would you intrinsically overpay for that airline just to get into the business ? Does that equation change when your already in the business and you drastically overpay for a competitor that has an inferior product and different type of customer ? You should be ashamed of yourself.
smr,
yes, B6 has a large presence in the Caribbean including from JFK; it was the NYC-Caribbean market that AA used to own, B6 started, and AA keeps going back to B6 to try to have a partnership -with the airline which AA could not or chose not to compete with.
The Caribbean is heavily leisure oriented and DR is a heavy friends and family type destination – not high margin. DL does serve most routes B6 flies from JFK but at lower frequencies – but that is true of Florida. There is very little B6 marginal gain of flying 6X/day vs. 2-3/day for DL. And B6′ average fares in just about all markets are not any better than DL. And B6 is not much of a low cost carrier when their stage length is adjusted to comparable length as other carriers.
sunviking.
AA re-added BOS flights faster than DL but DL is clearly the strong #2 in flights and #1 in available seat miles with its transatlantic expansion which now includes 9 or so destinations. DL already bypassed B6 on local market revenue in Boston and that will grow even more once data from its transatlantic expansion is in. DL has also added or is adding a bunch of new domestic cities – BWI, DEN, SAN, PHX – that give it a total US route system pretty comparable to B6.
AA has nowhere near the BOS network on its own metal that DL has.
DL’s “secret” in BOS is the same as it is in SEA – fly to nearly all of the key markets as competitors, even at lower frequencies, and pick off passengers with fares as good as or better than the competition – and then add DL strength to its own hubs – which AS can’t match from SEA or B6 from BOS – plus a robust international route system that neither can match.
@jerry. I have run a very successful business before becoming an airline pilot. @Gary.. your comment about duty to shareholders is again ridiculous . Any company only pleasing shareholders will fail. American tried it very hard !! Now they are -11 Billion insolvent. You have to actually care for Customers and Employees too. I’m sure the shareholders will be thrilled when JetBlue ceases their airline operation and all the employees quit , customers go elsewhere. Sounds like a plan buddy!!
A good company works with employees to please customers and create long term value to shareholders.Spirit may have had good books but failed miserably if they couldn’t hold their brand. Their shareholders went for cash now and didn’t see their vision. B6 had the buying power.
SMR,
it is hard to argue that AAL tried too hard to please shareholders.
They did have one of the largest stock buybacks in airline industry history but that was after AAL’s market cap ended being at parity with DAL shortly after AMR emerged from bankruptcy to now being worth about 40% of DAL. AAL has simply been much less profitable than any other US airline on a margin basis over the past decade. It is hard to argue for taking care of shareholders when you can’t profitably run the business. Add in that AAL has taken delivery of hundreds of new aircraft at the same time they bought back stock and it isn’t hard to see how they have negative stockholder equity.
While AAL is making the right moves, it has a massive hole to dig out of.
Low cost airlines have largely done a better job than legacies of creating shareholder value but JBLU has become less and less profitable over the past 5 years. They really are at the end of their rope strategically and may have no other choice than to play big with acquiring SAVE but that doesn’t mean they will succceed or that others won’t benefit from JBLU’s very certain failures in execution on the way to plugging SAVE’s pieces into JBLU and whatever network they are trying to build.
btw, DL just announced a number of new routes today including ATL-TLV (which competes directly with AA MIA-TLV) and ATL-CPT (known from the route case) and LAX-PPT (which targets UA’s presence in French Polynesia) on top of AF’s new EWR-CDG route. It appears that UA’s aggressive international route expansion is being met with a little resistance from Atlanta. DL plays it financially conservative but they aren’t pushovers – and JBLU of all companies knows that.
@Rusty – what slots do you think Frontier/Spirit holds? Not many US airports are slot restricted.
@Gary —> Returning, for a moment, to those “thrilling days of yesteryear,” this is why it made sense (once upon a time) for B6 to acquire VX, rather than AS: equipment commonality w/Airbus 320s and 321s; good West Coast routes to make B6 a national carrier; similar business models. In contrast AS is a strictly Boeing carrier and has made strides ridding themselves of their Airbus fleet (albeit not completely…yet); the merger didn’t extend their route network, though it did mean some additional flights on the West Coast, and increased access to Silicon Valley with a San Francisco hub.
While it is true that NK has a more profitable business model than B6, I think the real question is will the current Spirit customers pay more to fly JetBlue, or will those customers switch to Frontier (or another LLC willing to pick up the pieces)?
Jetblue lacks midwest flyover destinations. It’s a huge hole in their operations so this will help fill that need to give them a more rounded network. In addition, all airlines are going to have a hard time getting planes and pilots so this is a huge win for them. They really could gain a lot from all this but…it’s a big gamble with a lot of money on the line so they better manage it right.
Your argument makes a lot of sense but think of it in reverse, other than the name.
Spirit gets more pilots and planes and gets to remake lower margin JetBlue in its image.
@rj123456 – except B6 management remain in place and they’ve said they’re going to spend to ‘bring NK planes up to B6 standard’ so we’ll see
I’m still trying to get over United pac-manning Continental. All these mergers and acquisitions serve the top not the consumer. Where’s the capitolism when the competition is no longer?
This merger if allowed to go through will really be a gift to the big 4 as well as frontier (if they can expand fast enough) JB isn’t buying a customer base or even great gate options (other than maybe in Florida). What is JB going to do compete against the big 4 in their biggest markets? I doubt it. This was spirits business and it worked well because it was a low cost alternative to the big 4. I think JB looks at this as the only real way to survive as a stand alone company. It was either buy or be bought. We will see how it goes
@SMR – Just a statement of fact, B6 load factors at JFK were below their system average in CY2021, 76.05% B6 system to 74.73% at JFK. Even worse Jan-Apr 2022 (latest available). 74.4% B6 system to 69.0% at JFK. (source Airline Data Inc.)
@joanie adams – it’s Continental that took over United actually
What a garbage of an article. Like it makes zero sense from beginning to end. But that’s what makes America great. Any idiot can write about anything an have an audience supporting it.
@Rafael – usually the way to offer disagreement is to say what specifically you think is incorrect not just “i don’t like it because reasosn”
“JetBlue doesn’t fly to Hawaii. They’re not strong on the West Coast.”
JetBlue was stronger on the west coast before the pandemic. They shuttered a ton of routes out west, and in SoCal they killed Long Beach(their best airport) in a fit of childish rage, nixed the planned expansion in Ontario that was part of the LGB slow paced pivot they were making to add international flights and instead went whole hog into LAX(gross, LAX sucks). No more flights from SoCal to Portland, Sacramento, or Seattle(these flights were always full), and crosscountry they killed SoCal to DC and cut back flights out of San Diego to NYC/Boston. They killed the decidedly niche flights to Bozeman and Steamboat Springs. etc etc
I’m hoping that this acquisition means that they’ll use the routes to restore their west coast presence to the minimum state it was before the pandemic, but I’m not hopeful. JetBlue’s pivot the past few years makes them a northeast regional carrier with a handful of crosscountry flights
As far as Hawaii, JetBlue can’t compete with Southwest on a daily basis or Alaska with their card companion fare, so I see them sticking with their Hawaiian Airlines partnership(which still allows us to earn/redeem points)
Respectfully I think you need to write this article when and if JetBlue gets the approval of acquiring Spirit and they are operating under one certificate. After that point when they are one airline then you can comment based on actual numbers not assumptions. Pre pandemic Jetbue was one of the airlines with the best balance sheets based on Debt ratio so your argument is ridiculous, still today they have a very healthy balance sheet compared to their peers. Theirs more to this article your not sharing and I’d love to know what that is. If you have nothing to write maybe just maybe don’t write anything or go review GREYHOUND.
LOL the arrogance
Rafael,
JBLU used to be one of the most profitable airlines – like Alaska – but JBLU’s financial performance has been falling for at least five years.
JBLU’s debt ratio is still above average but by the time they spend $4 billion in cash on this acquisition, things will look quite different. No other big airline merger was done on an initially hostile basis and required cash. As much as JBLU says its debt levels will be comparable to historic levels, they simply will not, esp. since JBLU is not expected to make money this quarter and probably not this year. Interestingly, the same is true of SAVE.
bhcompy,
JBLU’s transcon routes to secondary cities just didn’t make sense. They didn’t have much of a presence on the west coast because they lost the bidding war for Virgin America to Alaska so all of those secondary cities didn’t make sense.
No one is quite sure what JBLU will do with the routes SAVE flies but SAVE is stronger in the west than JBLU as well as in the middle of the country. Some of the routes could return if JBLU can create a coherent route system that covers at least a good part of the country.
Gary,
as much as you might like to think you know who acquired who, UA was the survivor in the CO merger. Trying to inject “culture winners” into the discussion doesn’t change the fact as to who legally came out on top.
JBLU/SAVE will end up closer to LUV/AirTran than any other merger just because JBLU appears so far to be insisting that they will dictate the outcome. It is interesting that there is more and more evidence that JBLU might be changing its own strategies including adding seats to a its own aircraft to come up w/ a blended strategy of JBLU and SAVE that takes away some of the DOJ’s inevitable criticism of JBLU removing so many seats from SAVE aircraft in part to help push up fares.
joanie,
large companies throughout America have consolidated until there are a handful of major players that control the market. The US domestic airline industry was deregulated almost 45 years ago and there are 4 major, nationwide players. JBLU might become the 5th which is alot more competition than many industries have.
Tim Dunn
If it was United who acquired Continental, why is it that Jeffrey Smisek, the CEO of Continental at the time, became the CEO of the combined entity?
the legal defintion of the formation of United Continental was a stock merger of United and Continental. Legally, it was a MERGER – which is a combination of assets and liabilities with the new stock reflective of the sizes of each carrier that contributed to the merger.
Where the CEO came from doesn’t determine which entity took over who.
This acquisition is going to be the demise of JetBlue as we know it. They are at the bottom of the heap on operational reliability and almost every poll in the industry. How can they consider merging operations when their own is such a mess.
Their management is so myopic and lacking in strategic direction. They know what they want to become but lack in a path to get there.
And whoever commented that DL is a 3rd in BOS behind JetBlue and AA is wrong. At worst they’re 2nd but depending on criteria, they’ve surpassed JetBlue with their latest growth spurt in the market.
Ok so Deltas Debt at $22 Billion isn’t worrisome or American at $76 billion and United at $29.3 Billion but JetBlue’s $4 Billion debt is. If theirs a recession or a slow in demand I think those airlines with that amount of debt should be worried. Again not defending JetBlue even though it looks that way is just your article makes no sense and is garbage. Maybe you should apply to work for JetBlue and help them get out of their $4 billion debt or maybe help American with their debt. This is the perfect example of worthless journalism or whatever you want to call what you do.
God forbid a young couple decides to start living pay check to pay check and invest in a being homeowners instead . This article basically recommends this very same couple continues renting instead with no true longevity goals in mind. Investing in yourself is actually a good thing . Jetblue is investing in itself for long term success like that very same young couple . ALL the majors ( top 4 ) have declared bankruptcy and are still here today. Keep that in mind.
Margins don’t matter, return on assets do.
I can give a hotel room that costs $100k to build to operator (A) which has 10% margins and sells it for $100 a night, or to operator (B) which has a much lower margin of 8% but sells it for $150 a night. Which one should I choose?
If you pick the high margin one (A) you don’t understand the basics of business. (A) will return $10 per night, but (B) will return $12 ($150 * 8%).
The low margin option makes 20% more return on the same $100k of capital!!
Spirit is the low-returns player in aviation notwithstanding its high margins, a measure that’s totally irrelevant. JetBlue historically has had much higher profitability than Spirit, notwithstanding its margins being lower.
Slots? BOS and FLL come to mind. Maybe some in the NY and DEN area as well?
Jake
both metrics and a whole lot more matter.
the real point is that neither JetBlue or Spirit hit the best metrics in the airline industry and, even more importantly, airlines don’t usually hit the best metrics compared to other industries.
and your “JetBlue historically…” is the point. JBLU’s best days are far back in the rearview mirror. Maybe there will be another renaissance so we’ll all keep reading the 10Ks and 10Qs.
Gary is right. It comes down to Return on Equity. If shareholders would be better off with capital being invested in the S&P 500 or QQQ for a higher return, why spend money on something that works against shareholders. A corporation exists to make money for shareholders.
In the past companies invested or owned non core businesses which diversified their holdings. That went away after 2008 as companies did not have expertise in their non core area and companies had to be lean. That makes sense in all other industries but airlines have proven to be bad businesses in the long run. JetBlue maintaining its core of profitable routes and investing spare cash in other businesses might make more sense than expanding just for expansion sake.
Get lost Jet Blue
I am shocked Spirit allowed this to happen
You are going to drag Spirit through the crap hole
Angry passenger ORD
PEOPLE WILL LEAVE SPIRIT TO GO TO FRONTIER
SELFISH GREEDY STOCK HOLDERS!