JetBlue and Spirit investors react differently to merger rejection.

On Tuesday, a Massachusetts district court judge thwarted the $3.8 billion bid. jet blue airlines (NASDAQ:JBLU) to acquire a competitor. Spirit Airlines (NYSE:Save). In fact, investors in these two airlines had very different reactions to the news.

The court found JetBlue’s proposed acquisition to be illegal under the Clayton Act, arguing that it violated antitrust laws. Judge William Young wrote that while the merger of JetBlue and Spirit would likely place greater competitive pressure on the larger airlines, consumers who rely on Spirit’s low-price model would likely be harmed.

“In summary, if JetBlue is allowed to swallow Spirit, at least as proposed, it will eliminate one of the few major competitors in the airline industry that offers unique innovation and pricing discipline,” the judge’s order states. there is. “It will immediately double the size of JetBlue’s stakeholders in the industry, further strengthening its oligopoly. Worse, the merger will likely give JetBlue more incentive to abandon its roots as a dominant low-cost carrier. It is understandable that JetBlue would seek inorganic growth through an aircraft acquisition that would eliminate one of its major competitors, but as this court attempts to predict the future in dark times, the proposed acquisition violates a core tenet of antitrust law: protection . “The U.S. market and its participants have suffered anticompetitive harm.”

United States v. JetBlue Airways Corporation (2024)

Following the decision, Spirit’s stock price plunged 47% on the day, from about $15 to $7.92 per share in Wednesday morning trading.

But JetBlue investors were pleased with the decision, sending the airline’s stock price up nearly 5% to $5.12 per share.

lost mind

JetBlue is the 6th largest airline in the United States and Spirit is the 7th largest airline. The merger of the two low-cost carriers would create the fifth-largest airline with a market share of about 10%. JetBlue argued it would put more competitive pressure on the four largest U.S. airlines.

Above all, the benefit of the JetBlue merger was that it would accelerate growth by acquiring Spirit’s fleet at a time when it needed more aircraft to meet demand. Spirit’s advantage was financial. This is because the company has not been profitable since the pandemic and has had to scale back routes. It posted a net loss of $158 million in the third quarter and decided not to report earnings.

So Spirit investors clearly saw the merger as a financial lifeline for the company, but now that it’s stalled, the company’s prospects are bleak at best. The two companies said in a joint statement that they will review this decision and determine next steps. An appeal is possible, but some analysts believe it is unlikely because it would take time and would likely not result in a win.

A more likely scenario for Spirit would be to find another merger partner. Spirit was negotiating with Frontier (NASDAQ:ULCC) before JetBlue got involved, so it’s possible they’ll resume talks. Coincidentally, as part of the negotiations with Spirit, JetBlue had to get something out of it because it offered to pay Spirit $400 million if the deal didn’t go through.

But if that fails, the prospects for Spirit aren’t very good. Addressing increased competition for leisure travelers, rising costs and the need for more aircraft to handle growing leisure demand, as it was hit hardest by the recall of faulty Pratt & Whitney engines over the summer. there is.

In a research note reviewed by Flight Global, TD Cowen analyst Helene Becker said a potential scenario for Spirit is a Chapter 11 bankruptcy. The company is expected to report its fourth quarter earnings on February 6th, so stay tuned for that announcement for more visibility. But this is a stock to avoid, at least for now.

What’s next for JetBlue?

JetBlue investors were pleased with the judge’s decision, but the reasons were not fully clear. However, one reason may be that the spirit will not solve the problem. Instead, it could cause more problems for JetBlue, as many investors viewed it as overpaying for a struggling airline that has been losing money for years.

The idea was for it to accelerate growth in a difficult market, but ultimately the judge’s decision could be a blessing in disguise for JetBlue.

The airline is scheduled to report fourth-quarter results on January 25. Interested investors should pay close attention to what JetBlue does next, especially since the company will have a new CEO, Joanna Geraghty, effective February 12th. Chief Operating Officer replaces Robin Hayes.

Like Spirit, this isn’t a stock to pursue right now, but perhaps the earnings release will shed more light one way or another.