New details about JetBlue and Spirit Airlines continue to emerge as the airlines face off against the Justice Department in antitrust court.
The latest revelation: JetBlue has been interested in buying and merging with another airline for years and once saw Alaska Airlines as its ultimate target.
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JetBlue had considered merger options with several other smaller airlines in the 2010s, JetBlue CEO Robin Hayes testified Monday in the U.S. District Court for the District of Massachusetts, in an effort to boost growth to compete with the four largest domestic airlines dominating the 80 countries. % of the US market: American Airlines, Delta Air Lines, United Airlines and Southwest Airlines.
In 2015, JetBlue sought a merger with Virgin America shortly after the younger airline’s initial public offering, but was famously outmaneuvered by a fiercely competitive Alaska Airlines after a bidding war – Alaska offered $57 per share, 47% above the closing price at the day of the bid. The deal was completed with Alaska paying $2.6 billion.
JetBlue nonetheless remained interested in acquiring another airline, Hayes testified.
In 2017, JetBlue began exploring options again, focusing on two potential airlines, including Spirit, according to a document shown in court — the other airline’s name was redacted.
During both Virgin America’s bids and the 2017 opportunity assessment, the primary motivation was to grow quickly and build a larger national presence, Hayes said. A presentation to JetBlue’s board in 2017, shown in court Monday, noted that “each option presents a unique strategic opportunity for JetBlue and builds a stronger platform to compete with the Big 4.”
The plan was submitted because the price was expected to be too high, Hayes testified. He said he expected any bid for Spirit would require a high premium, like what Alaska had paid for Virgin, which JetBlue did not consider affordable.
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JetBlue revisited its interest in Spirit in late 2019 and launched a new program – codenamed ‘Project Exchange’ – to consider a merger between the two. It saw the similarities in the airlines’ fleets and similar order books as a major opportunity, citing the strategic rationale for the project as the option to “unleash a sustainable challenger brand on the legacy airlines.”
JetBlue’s board voted in favor of pursuing a takeover this time, and at its February 2020 meeting, it authorized Hayes to approach Spirit CEO Ted Christie. Before he could intervene, however, the coronavirus pandemic began to affect the airlines, and the project was put on hold until 2022, when Frontier and Spirit announced their intention to merge.
At one point during the review of a merger with Spirit, a slide in a presentation to the board noted that “Spirit is the next natural step in our long-term goal of pursuing Alaska.” The undated slide was shown in court Monday.
JetBlue has never approached Alaska, Hayes testified, and has no plans to do so. Hayes said he doesn’t expect any further merger activity, assuming the Spirit deal goes through, because additional acquisitions are unlikely to be approved by regulators.
Spirit was similarly interested in merger opportunities before the pandemic, Christie testified last week, seeing it as the best way to become big enough to compete with the major airlines.
During defense questioning, Hayes discussed the concept of divestitures, noting that the airline had proactively offered several remedies intended to address anticipated regulatory concerns, including forfeiting Spirit’s slots, landing rights and gates in Boston, New York and Fort Lauderdale.
Judge William G. Young, who is hearing the case, seemed interested in several divestiture issues and asked Hayes whether these slots and gates would be useful if offered to other ultra-low-cost airlines given current supply chain issues of aircraft. Hayes characterized the assets as a “generational opportunity.”
Also on Monday, the defense raised several comments the Justice Department made about JetBlue during last year’s Northeast Alliance trial. Among them, the government described JetBlue as “unique among LCCs” and said that “its high quality of service allowed it to compete effectively with legacy airlines in ways that other LCCs/ULCCs could not.”
The DOJ additionally noted during last year’s trial that JetBlue “has served as the foil to legacy airlines in the Northeastern U.S. for more than two decades” and said that “in total, the competition between JetBlue and the legacy airlines costs travelers billions saved dollars.”
TPG will be reporting from the trial on the ground at the US District Court in Boston, so be sure to check back for the latest news.
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