Should JetBlue Declare Bankruptcy?

With the departure of JetBlue’s CEO I noted just how badly this airline does compared to competitors. Enilria (airline, backwards) thinks it’s time for them to declare bankruptcy,

JetBlue could use Chapter 11 to get their costs back down, move the headquarters without getting stuck with a bunch of leases, accelerate the retirement of the E190s, renegotiate aircraft leases, dump costly capital projects, turn long term debt into equity, avoid default payments to American and Spirit, and possibly even get some labor contract improvements even if it’s not the pilots where the money really is.

I don’t think it’s quite as simple as Enilria suggests. When your assets exceed your liabilities you don’t just get to turn debt into equity. You have a creditors committee, you have a period of exclusivity to recommend a turnaround plan for the company, but management can very much lose control. American Airlines wasn’t supposed to be acquired by US Airways while still inside bankruptcy when American’s executives filed!

Over the last 6 months JetBlue shares have lost 38% of their value. They’re down by two-thirds over the last 5 years.

The airline had the worst on-time performance in the United States last year. They’re underperforming Frontier and Spirit.

They have an expensive acquisition of Spirit Airlines pending the outcome of a Department of Justice anti-trust suit, and they’d be better off not having the cost and distraction of integrating an airline when they can’t run their own operation. JetBlue wins if they lose. Enilria is right that they’d win even cleaner without breakup costs, and also without the risk of owing American breakup costs for failure to appeal the anti-trust ruling against the Northeast Alliance.

JetBlue would be better off with lower headcount and a headquarters outside of New York, with the ability to reject and renegotiate leases, too. Given the starting point of their labor costs, they probably don’t get substantial bankruptcy benefit renegotiating labor deals.

And bankruptcy is expensive and a distraction! I’d argue that JetBlue needs a new strategy, but that bankruptcy probably isn’t a tool that helps them get there. The problem isn’t legacy costs per se, the problem is lack of a strategy to make money.

Enilria thinks JetBlue should:

  • give American back its LaGuardia slots since they’re losing money on those
  • but work on a new American Airlines alliance that doesn’t include revenue-sharing and picking which carrier serves what markets (something closer to the American-Alaska deal)
  • move headquarters someplace cheaper than New York, and operate as a cheaper product airline
  • rebuild service to Boston and shift focus away from international growth and any thought of California
  • grow in Chicago in tandem with American.

This doesn’t seem coherent to me – a low cost carrier trying to win business in Chicago and Boston, sticking losses back on American Airlines while rebooting their partnership?

JetBlue needs to be larger and an American Airlines partnership would help with that. They need more co-brand credit card revenue. Their new elite program should help with that, and is geared towards an airline with a larger footprint. The card needs a reboot, and they need to be relevant to markets with big spend.

Or they need to operate as a boutique New York airline with strong hubs in Fort Lauderdale and Boston, offering a superior product to leisure customers and unmanaged business travelers that earns a revenue premium (along the lines of what they were when they used to make money).

Their best hope though may be a change in administration, making it easier to sell themselves, or a relaxation of foreign ownership restrictions on U.S. airlines – making it easier to sell themselves.

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. I like your thoughts on a smaller, boutique airline. BOS, NYC, FLL and LAX, AUS, SFO. and SEA, with international to LON, AMS, and FRA. Get the tech and financial hubs all linked together.

  2. Grow in Chicago? JetBlue has virtually no presence / utility / name recognition in Chicago.

  3. Gary is literally the worst writer to listen to if the article is not directly related to points or miles. Read into nothing that he writes otherwise other than entertainment value.

  4. If they are going to grow as a LCC or ULCC they need to pick a city where those customers predominate. Saint Louis, Memphis, Kansas City, and Cleveland immediately come to mind as massive airports that fit that bill.

  5. The change of administration thats needed is a change of B6 Administration. That said I think the new COO is a dead (wo)man walking, which is the only way you can make sense of promoting the COO of the airline with the worst operational performance.
    It seems no good outcomes can come of the Spirit deal. So rather than bring in fresh blood now only to have them tarnished by the inevitable car crash, you wait until we really hit rock bottom then start fresh. Maybe that will involve Chapter 11, but either way the Spirit thing has to play out first.

  6. Enilria doesn’t know what the hell they are talking about. A small boutique airline will send JetBlue straight to Chapter 7 or be acquired by another airline. JetBlue owes 0, nada to American Airlines for the NEA breakup fee because the DOJ broke up the NEA, not American nor JetBlue. The LGA slots are going back to American. Maybe he/she missed the adjustments publicly mentioned by JetBlue. The suggestions are not sensible nor practical.

  7. @Migdalia Figueroa – if AA can win the appeal then they’d be owed a breakup fee. The LGA slots eventually go back to American. Being acquired by another airline would be good for JetBlue shareholders.


  9. I think this guy has a personal problem with Jetblue.
    I discovered it three years ago when I got a boat in Fort Lauderdale and I have done more than 20 trips LAX to Fort Lauderdale and Miami and it offers a much better service than AA, Delta and Alaska. Yes, I’ve used those also since I have miles. The seats are better, the goodies, and the number of miles you need to fly is much smaller than AA and Delta.
    Just to be clear, it’s a much better airline than those three.

  10. JetBlue had all the opportunity in the 2010s to grow in the Midwest and they stuck to congestion slot and gate controlled airports subject to weather delays in the northeast.

    They removed all the value proposition from the original vision of the airline to become a smaller and less reliable version of the legacies.

    And they wonder why it isn’t going so great?

  11. The Buffalo to LAX flights seem to always be full. Maybe make Buffalo a hub? Lower overhead, less crowded. If Detroit can be a hub, why can’t Buffalo?

  12. They should declare Chapter 7 and liquidate. Get rid of this festering boil that Nauseating York foisted upon the world. It will be a welcome second step in erasing NYC from the universe.

  13. It’s almost as if running almost all your planes through JFK and aggressively scheduling your flights was some kind of mistake.

  14. You know it’s a worthless article when it’s about JetBlue and Tim Dunn can’t be bothered to chime in.

    I’ll paraphrase what he would say…

    “JetBlue sucks and Delta is the most amazing company ever created”

  15. Jetblue needs to focus on its 3 best hubs, Boston Logan, New York JFK, and Fort Lauderdale.

    Forgot about all these other (clearly unprofitable) ventures. Continental learnt this the hard way.

    And since B6 already offers a product more premium than Delta, it shouldn’t be too hard to brand themselves as a premium airline if they fix up their ops.

  16. Turn debt into equity? I wish I knew how to magically do that.

    Bankruptcy could be a good option to bail from the poorly thought through Spirit acquisition, but trying to become a “boutique airline”, or cutting unprofitable routes, is a good way to go into a death spiral.

  17. I agree with @a220; JetBlue should have moved its HQ to Ft. Lauderdale years ago; focus on BOS, JFK and FLL and expand its transatlantic network and partners. Believe or not, future variants of the A321-XLR will be able to serve high margin routes like Austin-London (4,900 miles) with Mint to spare.

    B6 is acquiring a fleet of new 200 Airbus planes, pilots, slots and gates for only $20M per aircraft. It’s quite a deal. Synergies are $1B per year. But it desperately needs a new leadership team and vision going forward.

  18. Go woke, go broke. Terrible management in the last decade. I had to sit through some of the HR inflicted struggle sessions.

  19. @Gary – Since it’s a pretty monumental task to change airline ownership rules, who would buy JetBlue? There are already too few domestic airlines of any size. Removing another doesn’t seem likely to help matters. Let’s look at some options anyway:

    There’s American but given that AA pretty much dumped JFK and has a large hub in MIA it seems dubious that this would work. The international hub in PHL would also complicate things.

    Alaska is small enough that the damage to the flying public would be fairly small but different aircraft types would hurt the prospect and is Alaska big enough to pull something like this off?

    United already has a (sort of) New York megahub so IMO that would pretty much kill off any realistic prospect.

    Southwest, with the all 737 fleet and completely different mindset would seem a pretty rotten megacarrier in JFK although the Boston, Ft. Lauderdale, and Orlando hubs might actually work if they wouldn’t control too much of the market.

    If any airline owns JFK these days it’s Delta. That alone would pretty much preclude any purchase of Jetblue. As an additional kicker, Delta has been increasing Boston service to compete with JetBlue. That would vanish in a buyout, leaving BOS pretty much a one airline town.

    Anyway, those are my thoughts. Tell me where I’m wrong, and why.

  20. @Gary Leff, where does it say so? Hint: nowhere in the NEA agreement between AA and B6. The root cause was the DOJ breaking it up. Again, DOJ breaking it up. Not a breakup initiated by either American or JetBlue. That’s why JetBlue was all too happy to not go along with the appeal process. If they don’t have to pay up for something, they won’t. The DOJ saved them the $500M breakup fee.

  21. Methinks they should merge with Spirit but operate as an upgraded version of Spirit. This might eliminate antitrust objections and is quite possibly a more coherent revenue strategy.

  22. other than rejecting leases, there is nothing in chapter 11 reorganization that solves JBLU’s strategic problems.
    Spending years on an NK merger and the billions to integrate their aircraft and redeploy routes is a certain waste of money and distraction but there isn’t much that can be done at this point.
    A big part of Chapter 11 is cutting labor costs and no airline can do that right now and survive because there is a shortage of labor and people will work where they can make the most money. A C11 would decimate JBLU’s employee ranks and ensure that they hire no new employees.

    that guy thinks he knows alot about the airline industry but Gary shows these ideas won’t work.

    the complete irony is that it is low cost carriers that are on the ropes and at risk of failing while the legacy/global carriers are doing well.
    Since Delta is JetBlue’s largest and most direct competitor, the implications of continued missteps by B6 are significant.

  23. They have gotten tax breaks and consessions from JFK to stay in NY. Also NYC is their primary market??

  24. While Enilria is inarticulate, and not speaking as an attorney would, he is correct that it is possible to “turn long term debt into equity”. What he really means is that bankruptcy would allow B6 to negotiate with its lenders who hold ~$4.7b in debt. Debt could be forgiven (unlikely in its entirety), restructured (reduced and/or lengthened payment terms) or it could be converted into shares (equity) in the new B6 entity. It is likely only bank loans (i.e. unsecured loans, not debt secured by planes) that B6 could reduce significantly in bankruptcy. It is also only likely bank loans that a lender would be willing to exchange for equity. Debt secured by planes is secured and will be repaid in full or nearly in full. I don’t necessarily agree with Enilria that B6 should file BK – it seems like a lot of work and distraction for little gain (unless it hopes it can get out of the merger with Spirit and avoid a penalty payment to AA).

    I generally agree with Tim’s post (gasp) but would add that in addition to “A big part of Chapter 11 is cutting labor costs” an equally big part can be restructuring / elimination of unsecured debt. B6 doesn’t have much of that. On the other hand, AA with its >$40b in debt may find the only way to survive is to eventually restructure through BK to she some of the unsecured debt that I believe was originally taken on by Parker et. al. to facilitate stock buy-backs.

  25. DL is a “no bueno” given the size of DL at both JFK and now BOS. B6 best bet is to focus on JFK, BOS and FLL. Work with AA in an “AAA-ALK” manner and work with AS. as well. The Spirit deal is turning into a financial disaster..hopefully they will get out of it via the DOJ. Moving HQ to Florida might help however I’m not 100% sure if their is a cost benefit to it.

    Those are a few starters.

    Oh yes, ON-TIME arrivals and departures would help as well.

  26. that should read “to eventually restructure through BK to sheD some of the unsecured debt”

  27. I too agree with Oct (it was bound to happen)
    JBLU actually has a pretty good balance sheet. The problems aren’t balance sheet but rather income statement related -they just don’t make enough money

    I wasn’t saying DL would buy anything from B6 but rather than DL benefits when it has weak competitors… that has been true w/ Eastern, American and now JetBlue.

  28. The JFK terminal in NYC is the worst run terminal in the world. Abysmal customer service and always late. I refuse to ever fly Jet Blue again. It use to be such a good airline.

  29. It’s really sad that so many people who comment on airline blogs seem to root for airlines to file for Chapter 11 bankruptcy or be liquidated because they had a bad flight once, hate the airline because it competes with their favorite carrier, or loathe the CEO.

  30. All I know as a person who has been on many flights the last 40 years,is a total decline of service & attitude of Jet Blue,had a huge mixup from JFK-WPB,had to wait 4.5 hours.Unconsionable.It was Jet Blues faulty scheduling.
    No attention was given to customers.
    Many people leave NY to West Palm & back…Who will service them?

  31. JetBlue is in New York City, but not in expensive Manhattan. Their HQ is in much cheaper Queens.

  32. “Forget any thought of California.” Not sure how this makes sense in connection with BOS and NYC – California, as a destination, is critical to both of those markets.

    “Boutique airline focused on NYC, Boston, California, Seattle, Austin, etc hubs, etc…” – Sounds like the old Virgin America, which everyone loved, but wasn’t making a ton of money apparently.

    What JetBlue needs to do is simply compete better in its current markets, while defending its niche routes… A good first step would be to build lounges at JFK and BOS

  33. @DesertGhost – not sure if your comment was directed at me, but I was merely pointing out that bankruptcy would not help Jet Blue a whole lot, given its low level of unsecured debt; but AA has a much larger pile of unsecured debt, that could be dealt with in bankruptcy. I’m in no way routing for liquidation (you keep on saying that about others in other posts) but I’m merely pointing out that bankruptcy may (note the use of *may*) be the best way to shed some debt and restructure into an airline that can actually afford to take on UA and DL. Of course, that may require new management as well.

  34. B6 need to improve income. Step 1 is to fix ops. I used to fly them a lot more and quite like the onboard experience but these days I fly DL as I cannot rely on B6 to be on-time. I learned the hard way. There are many more like me.

  35. First thing all businesses should do to be successful, MOVE THE HELL OUT OF CALIFORNIA AND NEW YORK!! Go to Florida and Texas, SW, AA and even Spirit are doing good. The blue states are not conducive to business, and they are getting worse.

  36. I’m in the “get your ops together” camp and the rest will fall in line. I hope they have head hunters trying to poach proven talent from more reliable carriers. B6 started by relying on (what was then) innovative technology but everyone else has caught up, or exceeded, them in that field.

    As far as the Midwest is concerned….that ship has sailed. CLE is a great town (when it’s warm) but has a demographic more attuned to the ULCC market. F9 has planted it’s flag and I can’t see room for two competitors. STL doesn’t have the economic critical mass and the large WN footprint is more appropriate for the market. Same with MCI. ORD is going to be an operational mess in the near term as the (over budget) terminal rebuild crawls forward so that’s the last thing B6 needs. Building hubs are expensive and they don’t have the resources for science experiments. The multi-million dollar question is IF the NK merge happens can they maintain the mid continent network NK has built with the combined company new cost structure.

  37. they would be better off trying to buy Alaska and Spirit
    That would turn them into a true southwest sized competitor get their A321LR’s on short routes into Europe dont join an alliance with American
    Join a new 4th alliance with Emirates/Ethiad/Indigo

  38. Why can’t JetBlue just change to a high quality airline and boost up economy add business and switch up the mint and buy some high quality planes like 777s and A350s for some long haul flights

    But I have had great experiences out of BDL (bradley in’t airport) to FLL,MIA, and MCO

  39. I think this article’s idea/strategy for JetBlue is to eventually become absorbed by American Airlines (without saying it so) when in fact JetBlue is trying to do the opposite. Most of the ideas presented here were to reestablished the partnership with AA, and even aligning with them on more routes. It may be “a” strategy, but not the one JetBlue is currently pursuing for growth.

  40. @Mike Fredman:

    “First thing all businesses should do to be successful, MOVE THE HELL OUT OF CALIFORNIA AND NEW YORK!! Go to Florida and Texas, SW, AA and even Spirit are doing good”..


    United is a Chicago-based company and is highly profitable. AA is a Texas-based company and is in the financial doldrums half the time. What does that say about your comment? LOL!

    @Tim DUNN- yes.

  41. NO airline is 100% perfect in every possible way. HOWEVER, DISSING jetBlue appears to be a personal opinion. I have traveled on AA, Delta & jetBlue and BY FAR, jetBlue has surpassed those other airlines in EVERY possible way. Their pricing, their reservations process, their staff & crew and in cabin service. I wish they wouldn’t acquire Spirit, yuck, but I’m not in their administrative structure of what’s best for JB. I will say I won’t fly any other airline.

  42. Do the company needs the over seas routes? I’ve been flying Jet Blue for 10 years and my only set back was weather. I love Jet Blue.

  43. 1. The comments are quite hilarious! Most of the geniuses giving advice should worry more about using proper English…you bankruptcy lovers.

    2. JetBlue doesn’t owe American anything.

    3. For the record, if you were so well versed on JetBlue, you would know it’s not Jet Blue.

  44. The biggest problem I see with jetBlue is their closed-minded management, particularly with those leaders who are called “founders” (those who couldn’t find a job at a legacy airline at the turn of the century and had no choice but to take a gamble on a start-up airline). ~Ye must not question any founders lest one is content to risk their employment.~
    This is actually laughable when you consider this airline is less than 25 years old. Once these entitled “founders” are purged fron the airline and replaced with dynamic change agents, it should bounce back fairly quickly.

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