Grounded: What’s Next for Spirit Airlines After Failed JetBlue Deal?
Grounded: What's Next for Spirit Airlines After Failed JetBlue Deal? - Lost Opportunity for Growth
The failed merger between Spirit and JetBlue represents a major lost opportunity for growth for both airlines. Spirit in particular is missing out on expanding its route network and fleet substantially.
Spirit currently operates an ultra-low-cost carrier model, focused on driving down fares through unbundling services and charging fees for extras. This has allowed it to offer base fares far below competitors, but limits its ability to attract higher-paying business travelers.
Acquiring JetBlue would have enabled Spirit to expand into major business markets where JetBlue has an established presence, like New York, Boston and Los Angeles. It would gain access to slots at constrained airports like JFK and be able to configure aircraft for corporate accounts.
The merger would also have provided growth opportunities for Spirit’s route network, giving it a broader geographic footprint and the ability to feed passengers between its existing routes in leisure destinations and JetBlue’s routes in major metro areas.
JetBlue’s larger aircraft would have facilitated expansion into longer haul leisure markets in the Caribbean and Latin America. Spirit could have grown much faster with JetBlue’s aircraft on order and retained JetBlue’s lucrative Northeast operations.
Instead, Spirit remains confined to a niche business model serving leisure travelers in smaller markets with limited ability to expand. It faces Aircraft constraints as Boeing 737 MAX deliveries remain slow. Spirit has much less access to capital compared to rivals to place orders for new aircraft.
The failed merger is a huge missed chance for Spirit to transition into a full-service airline, expand globally andtap into new lucrative revenue streams. It must now plod along as an ultra-low cost carrier absent the growth opportunities a combined Spirit-JetBlue would have offered.
What else is in this post?
- Grounded: What's Next for Spirit Airlines After Failed JetBlue Deal? - Lost Opportunity for Growth
- Grounded: What's Next for Spirit Airlines After Failed JetBlue Deal? - What Went Wrong in Negotiations
- Grounded: What's Next for Spirit Airlines After Failed JetBlue Deal? - Impact on Future Expansion Plans
- Grounded: What's Next for Spirit Airlines After Failed JetBlue Deal? - Fleet and Route Changes on the Horizon
- Grounded: What's Next for Spirit Airlines After Failed JetBlue Deal? - Competition Heats Up with Other Low-Cost Carriers
- Grounded: What's Next for Spirit Airlines After Failed JetBlue Deal? - Financial Implications of the Failed Merger
- Grounded: What's Next for Spirit Airlines After Failed JetBlue Deal? - Will Spirit Look for Another Suitor?
- Grounded: What's Next for Spirit Airlines After Failed JetBlue Deal? - What's Next for the Airline and Its Loyal Passengers
Grounded: What's Next for Spirit Airlines After Failed JetBlue Deal? - What Went Wrong in Negotiations
Spirit has been focused on being an ultra-low cost carrier, stripping out amenities and charging fees for everything to offer base fares that significantly undercut the competition. JetBlue pioneered a low-cost carrier approach while still offering some frills like free TV and snacks to appeal to both leisure and business travelers.
Bringing these divergent strategies together under one roof was always going to be an uphill battle. In the end, the two sides simply could not agree on what the combined airline would look like.
Spirit executives and board members viewed the merger as a growth opportunity to expand into major metro markets and transition to a full-service airline. But they wanted to maintain Spirit’s ultra-low-cost DNA and have significant influence over the combined company.
JetBlue saw the deal as a way to eliminate an ultra-low cost rival and gain greater scale to compete with giants like American, Delta and United. But it was unwilling to abandon the customer-friendly brand identity that fueled its success.
Negotiations stalled over how much each side would control in the new airline, the name, headquarters location and management team. But the biggest hurdle was the business model and what level of service would be offered.
They debated whether JetBlue’s TV screens and snacks would remain or get axed to cut costs. And whether to stick with JetBlue’s 2-3 seating in economy or adopt Spirit’s tighter configuration.
In the end, the merged airline would have either skewed too much towards Spirit’s barebones approach for JetBlue’s liking or too much towards JetBlue’s customer friendly approach for Spirit’s preference.
Grounded: What's Next for Spirit Airlines After Failed JetBlue Deal? - Impact on Future Expansion Plans
Spirit's future growth prospects look far dimmer without JetBlue's resources. The budget carrier has aspirations to expand domestically and internationally but lacks the fleet and capital to do so at the pace it desires.
Spirit recently placed a sizable order for new Airbus aircraft to refresh its all-Boeing fleet. However, production delays with the 737 MAX have slowed deliveries to a crawl. This leaves Spirit without the planes needed to grow. JetBlue's huge order book and diverse fleet would have helped Spirit rapidly expand.
The failed merger also slams the door on Spirit entering new markets where JetBlue has an established presence. JetBlue serves major business hubs like New York JFK and Boston where Spirit currently does not fly. Spirit would have gained coveted slots and gates at slot-controlled airports only JetBlue currently flies from.
While Spirit serves some international destinations, its footprint is limited. JetBlue's extensive network throughout the Caribbean, Latin America and Europe would have enabled Spirit to grow globally overnight. Spirit has eyed new service to destinations across the Atlantic and further south but presently lacks the long-range aircraft to do so.
Spirit will still look to expand but at a much more measured pace. It can opportunistically add point-to-point leisure routes but does not have the resources to rapidly build up connectivity through a hub. International flying will also have to wait until Spirit can acquire and take delivery of long-range narrowbody aircraft.
To boost profitability, Spirit is densifying its existing A320 fleet by adding more seats. But even this will happen slower than Spirit would like due to supply chain issues hampering the retrofits. Spirit is stuck playing small ball for now, adding flights here or there but lacking the gates, slots, planes and market presence for more ambitious growth.
No longer able to tap into JetBlue's strengths in major metro areas, Spirit cannot evolve into a hybrid low-cost carrier as quickly. It will remain an ultra-low cost specialist flying niche routes from out-of-the-way airports. Spirit's future flying will look very similar to today, just with marginally more destinations and frequencies. Big change will have to wait.
Grounded: What's Next for Spirit Airlines After Failed JetBlue Deal? - Fleet and Route Changes on the Horizon
Spirit’s fleet and route network will likely remain largely static absent an injection of new aircraft and access to constrained airports. The budget carrier operates an all-Airbus fleet, relying primarily on the A319 and A320 for its domestic flying. It has outstanding orders for new A320neo aircraft to update its jets, but production issues have delayed deliveries.
This leaves Spirit in a holding pattern, unable to pursue ambitious expansion or changes to its network. It had expected to grow capacity by 30% in 2022, but will fall well short of that goal with only a handful of aircraft deliveries this year. Spirit has warned that supply chain issues will depress fleet growth through 2023.
With MAX deliveries slow, Spirit is retrofitting its existing planes with more seats to drive up profitability. But even that process has hit snags, limiting Spirit’s ability to add more than a handful of seats here and there.
These constraints significantly limit Spirit’s route planning options. The airline would like to accelerate expansion on the West Coast and further build up its LatAm network. But without additional aircraft, it can only opportunistically add a few point-to-point leisure routes where excess demand exists.
Missed aircraft deliveries have also forced Spirit to trim growth plans for major Florida markets. The lack of new planes will hinder efforts to boost frequencies in cities like Orlando and Fort Lauderdale. Spirit has aspirations to establish deeper Caribbean connectivity using Florida as a gateway, efforts now stalled waiting on elusive aircraft deliveries.
The flopped merger also slams the door on Spirit entering new markets where JetBlue maintains a stronghold like New York JFK and Boston. JetBlue serves slot-controlled airports that Spirit lacks the gates and slots to operate from. Spirit has eyed Boston and New York for its low-cost model but remains locked out absent a JetBlue deal.
While Spirit serves some smaller LatAm markets, it lacks long-range aircraft needed for longer routes. Options to serve prominent destinations like Santiago, Chile and Sao Paulo, Brazil remain years away until Spirit can take delivery of next-generation narrowbodies. This delays a key pillar of Spirit’s international strategy.
With growth plans on hold, Spirit’s network map over the next two years will likely resemble today’s. It will tweak frequencies here and there based on demand trends. But major changes will have to wait until aircraft availability improves, timelines unlikely to accelerate without JetBlue’s order book and diverse fleet.
Grounded: What's Next for Spirit Airlines After Failed JetBlue Deal? - Competition Heats Up with Other Low-Cost Carriers
The collapse of the proposed tie-up between Spirit and JetBlue leaves an ultra-low cost competitor still in the marketplace to contend with. For other low-cost carriers, Spirit's independence is a mixed blessing. These airlines now get to maintain their own distinctive approaches without Spirit's barebones model merging into their operations. However, they also face an undiminished Spirit keeping fares low through brutal cost-cutting.
Frontier Airlines has the most overlap with Spirit's network, though the two claim only about 15% route duplication. Both target price-sensitive leisure travelers, but Frontier looks to differentiate itself through offerings like seats with extra legroom. Frontier's recent push into Miami brings its low fares head-to-head with Spirit for the first time in a major market. This will spur competitive responses like fare sales as the two battle for budget-minded Florida flyers.
Allegiant Air has a unique business model primarily linking smaller cities to leisure destinations like Las Vegas rather than operating between major hubs. While less overlapping than Frontier, Allegiant still competes with Spirit in the overall sphere of ultra-low cost air travel. Keeping Spirit independent prevents another discounter from significantly scaling up. But Allegiant must now redouble efforts to woo recreational travelers leaning towards Spirit's rock-bottom fares over its own offerings.
Sun Country Airlines is going after the same leisure flyer segment that is Spirit's bread and butter. Though the two only directly compete on a handful of routes, their overall appeal to vacation travelers generates indirect competition. For example, Sun Country promotes itself as a premium alternative to Spirit in Minneapolis with amenities like extra legroom. With Spirit still around post-merger, Sun Country cannot get complacent and must continue innovating to stay competitive on costs and service.
Then there are major low-cost carriers like Southwest, JetBlue and Alaska. These airlines offer lower base fares than the legacy big three but more comforts and connectivity. The failure of Spirit and JetBlue to combine keeps a disruptive ultra-low cost model active. To compete, the major low-cost carriers will look to highlight offerings like free bags, roomy coach seats and inflight entertainment that Spirit skimps on to hit rock-bottom pricing.
Grounded: What's Next for Spirit Airlines After Failed JetBlue Deal? - Financial Implications of the Failed Merger
The collapse of the proposed merger between Spirit and JetBlue has major financial implications for both carriers. The deal would have created the fifth-largest airline in the U.S. and generated significant revenue synergies. Now the low-cost airlines must chart independent futures absent these lucrative benefits.
For JetBlue, the failure to get the deal done deprives it of a core rationale behind the acquisition attempt: eliminating an ultra-low cost rival. Spirit's rock-bottom fares have caused pricing pressure in leisure markets. JetBlue hoped that combining forces would end this pricing war and enable steadier market share gains and higher profits.
Instead, JetBlue must continue matching Spirit's bottom barrel pricing in select markets to avoid ceding share. This hampers JetBlue's ability to raise fares to boost unit revenues. Frontier poses a similar competitive threat in cities like Denver and Orlando. JetBlue may see even more pressure to lower fares as both ultra low-cost carriers expand.
The collapse also means JetBlue will miss out on Spirit's massive order book. JetBlue is facing constraints adding new routes due to lack of aircraft. Spirit's huge pipeline of Airbus deliveries would have enabled JetBlue to accelerate domestic and international expansion. This lost growth potential hurts JetBlue's upside.
For Spirit, the failure to consummate a deal deprives it of the scale and resources to evolve beyond an ultra-low cost niche. Spirit's standalone future offers far less revenue diversification. It cannot tap into the lucrative corporate travel market or easily add amenities to boost ancillary sales.
Spirit also misses out on the cash injection from JetBlue to refresh its fleet more quickly. This capital would have accelerated Spirit's growth trajectory and allowed it to bulk up presence in key markets like major Florida cities. Spirit has grand aspirations but little ability to fund growth initiatives absent JetBlue's balance sheet.
Then there are the missed cost synergies. Combining forces would have allowed for savings on overhead like corporate staffing and airport operations. Network optimization would have driven higher aircraft utilization and lowered unit costs. Spirit loses access to JetBlue's maintenance and training infrastructure.
Grounded: What's Next for Spirit Airlines After Failed JetBlue Deal? - Will Spirit Look for Another Suitor?
After getting left at the altar by JetBlue, Spirit finds itself single again in the airline dating scene. But despite the failed engagement, don’t expect Spirit to swear off mergers altogether. The budget carrier will likely start swiping right to find another potential match that can boost its growth prospects.
Spirit may be talking tough in the wake of the breakup, insisting it can deliver value to shareholders as a standalone ultra-low cost carrier. But make no mistake, Spirit’s leadership team knows the airline’s niche model limits its potential. Acquiring the scale and resources of a larger airline is the fastest way for Spirit to expand internationally, refresh its fleet and tap into lucrative new revenue streams.
So Spirit will eventually pick itself back up and get back out there looking for love. And fortunately for Spirit, it’s still a bit of a hottie in the airline merger market. Spirit offers a few attributes that may entice prospective buyers despite its barebones product.
The airline has a massive order book of new Airbus jets coming down the pike. For a carrier looking to rapidly expand its fleet, absorbing Spirit’s deliveries would be an instant boost. The planes on tap also provide the chance to accelerate the retirement of less efficient older aircraft.
Spirit’s ultra-low cost structure is attractive for an airline seeking efficiencies. Its overhead and operating costs are lean thanks to the ruthless frill-stripping. A buyer could maintain Spirit as a low-cost brand while capturing these expense savings.
And of course, Spirit’s rock-bottom fares are a draw for carriers wanting to eliminate an ultra-low cost rival. Acquiring Spirit takes out a pricing disruptor and reduces revenue pressure in leisure markets.
Grounded: What's Next for Spirit Airlines After Failed JetBlue Deal? - What's Next for the Airline and Its Loyal Passengers
Spirit's loyal customers face continued frustration as the airline's standalone future offers little improvement to the barebones flying experience. These ultra-budget leisure travelers have embraced Spirit's no-frills model accepting limited legroom, packed flights and barrage of fees in exchange for base fares far below the competition. But absent new resources from a merger, Spirit lacks the ability to add amenities passengers want while still keeping costs ultra-low.
Flyers shouldn't expect more comfort in the air as Spirit has plans to densify its fleet by adding more seats. Tighter configurations will allow Spirit to boost capacity without acquiring new aircraft. While jamming in additional rows generates more revenue, it's a slap in the face to customers already enduring cramped legroom. Spirit fliers vent that seats are intolerably close together as it is, complaints sure to amplify as the airline squeezes in more rows.
Don't look for relief on ancillary fees either. Spirit's spartan model relies heavily on revenue from charging for extras like seat assignments, bags and snacks. With its standalone future, watch for Spirit to get even more creative dreaming up new fees to layer on top of its already notorious À la carte pricing strategy. Loyal customers resigned to Spirit's barrage of fees should brace for even more à la carte charges.
Then there's the operation itself. The lack of new aircraft will hamper Spirit's ability to expand route options and flight frequencies for its loyal customer base. These travelers crave more flight choices and daily departures to cities Spirit only flies a few times per week currently. But with growth plans stalled waiting on new plane deliveries, current schedules and network options will remain limited.