Specialist
Former senior director, ancillary pricing & revenue analytics at Spirit Airlines Inc
Agenda
- Possible rationale behind proposed JetBlue-Spirit Airlines merger (NASDAQ: JBLU) (NYSE: SAVE), expected synergies and market impact
- Competitive positioning and region-by-region implications, highlighting possible impacts for players such as Frontier (NASDAQ: ULCC) and start-up ULCCs (ultra-low-cost carriers)
- Customer mix opportunities and challenges
- Likelihood of the deal’s approval and potential areas of concern for regulators
Questions
1.
What are your thoughts on JetBlue’s proposed acquisition of Spirit Airlines? What opportunities and risks would you highlight with the two coming together?
2.
How could the merger impact JetBlue’s pricing strategies? How might the company’s strategies change, differentiating it by region and market? Where might we see higher and lower fares?
3.
There was a lot of focus on the proposed Frontier-Spirit deal benefiting consumers. Where will we see that for the JetBlue-Spirit deal? Are there any specific regions, depending on overlap, where you expect the JetBlue-Spirit merger to lower prices? Factors such as the JetBlue effect have been touted.
4.
How do you expect the emergence of a new fifth-largest carrier to impact other carriers’ pricing power? Will carriers be able to pass on more or less price with the new fifth-largest carrier present?
5.
As you mentioned, it seems quite obvious there’s a bit of a mismatch between Spirit and JetBlue’s customers, with Spirit’s being more price-sensitive, not that JetBlue’s customers aren’t price-sensitive. What are the lesser-appreciated impacts of bringing these two together? What issues might be created regarding the new customer base? Would you expect many customers to now turn to Frontier?
6.
You said that JetBlue right-sizing its operation in the Northeastern US or across the east perhaps creates an opportunity for a player such as Frontier. How do you expect the merger to impact Frontier’s competitive position? Where might the company have an opportunity to gain share, and where might it be challenged by the new JetBlue?
7.
Does the merger create more opportunities for other ULCCs [ultra-low-cost carriers], LCCs [low-cost carriers] and their business models? I’m thinking of start-up carriers such as Avelo and Breeze.
8.
Who is most likely to be displaced or see some market share or margin erosion from JetBlue and Spirit coming together, thinking about mainline carriers and even Southwest? Are there any markets or routes you expect the combined entity to be increasingly competitive in and displace a major carrier? I know Northeastern US comes up a lot.
9.
You said the biggest risk is the distraction the merger will create for the combined company, perhaps hampering its ability to grow in the transatlantic market. Could you elaborate on how you expect the distracted piece to look in practice? Where might the company struggle?
10.
JetBlue expects to achieve USD 600m-700m in net annual synergies once the merger is complete, driven largely by an expanded customer offering resulting from greater breadth and depth of the combined network. Do you think this figure is realistic? Where do you expect most synergies to come from?
11.
Could you outline the cost-saving opportunities the merger creates for Spirit and JetBlue? The savings from the fleet combination seem easier to extrapolate. Where will the redundancies be most prominent? What levers does the combined entity have to pull cost out of the firm that they couldn’t have pulled individually?
12.
In an acquisition such as JetBlue-Spirit, there are normally labour redundancies that are pretty easy to pull out, but given the tight labour market, what benefit do you expect on the labour side? What’s the risk of Spirit employees leaving under the new combined entity?
13.
Where else might it be difficult for JetBlue-Spirit to integrate the two businesses and realise their expected synergies? You mentioned potential attrition.
14.
Is there anything else important to discuss about the deal? Is anything commonly underappreciated or misunderstood?
15.
You highlighted new ULCCs such as Avelo and Breeze. Outside of new entrants, is more consolidation likely? If so, what pairings would make sense to you, focusing on the US market?
16.
What could disrupt the JetBlue-Spirit deal or its potential? We talked about the possible synergies, but what concerns do you have, barring any regulatory block? How disruptive would a new competitive threat be to the company, or if ULCCs consolidate?
17.
What is the likelihood of regulators approving the JetBlue-Spirit deal?
18.
If regulators block the deal, what’s next for Spirit and JetBlue? How might this impact them and the rest of the industry?
19.
Is there anything else we should discuss, or any closing comments about the deal?
20.
What questions would you ask Spirit or JetBlue management? What questions should investors be asking them about this deal and its potential?
