JetBlue Airways (JBLU 1.09%) wants to buy Spirit Airlines (SAVE 1.62%), and analysts are not sure what to think of the offer. On Wednesday, investors reacted by sending shares of JetBlue down as much as 9.6% as of 1 p.m. ET.
It's been a rough few years for the airline industry, hit first by the pandemic and more recently by rising fuel prices. But conditions are slowly looking better, and airlines are beginning to focus on a recovery.
With that in mind, Frontier Group Holdings (ULCC -1.35%) in February announced plans to acquire Spirit for $2.9 billion in cash and stock. Frontier and Spirit have similar business models, and Frontier said the merger would give it the bulk it needs to compete against airline giants and also help ease concerns about pilot shortages.
On Tuesday, JetBlue got in on the act, going public with its own $3.6 billion offer for Spirit. A lot of the same rationale in terms of added bulk and a need for pilots applies, but JetBlue was also likely motivated by the simple fact that in this highly consolidated business, there simply aren't many other M&A targets out there if Frontier takes Spirit.
Alas, the reaction from Wall Street was lukewarm at best. Deutsche Bank's Michael Linenberg was supportive of JetBlue's offer, saying a deal would give the airline "the network breadth that it has long sought" by increasing its exposure to markets like Atlanta, Chicago, Dallas, Houston, and Miami.
But Raymond James analyst Savanthi Syth downgraded JetBlue to market perform on what she called the airline's "indecent proposal," saying that although there might be long-term benefits to the deal, the near-term execution risk concerns her. JetBlue was also downgraded to in line at Evercore ISI, with analyst Duane Pfennigwerth noting the airline's recent operational challenges and concluding that the bid for Spirit is a "plan B" now that its original plan to aggressively boost capacity has faltered.
One of the reasons for the concern is that JetBlue's bid for Spirit is likely to face a lot more antitrust scrutiny than Frontier's offer. Frontier can argue that there is relatively little overlap between its western-focused operation and Spirit's largely East Coast and Caribbean route map, and the airlines' complementary business models would combine well to create a formidable competitor to the nation's top carriers. JetBlue already has a massive presence in the Northeast and Florida, and has a working relationship with American Airlines Group that has already caught the eye of regulators.
For now, the ball is in Spirit's court. On Tuesday evening, the airline said its board was evaluating the JetBlue bid. There are likely to be multiple additional twists and turns before we know the fate of Spirit. But at least initially, there appear to be a lot of questions among JetBlue shareholders about the direction the airline is headed.