JetBlue Airways (JBLU 5.12%) surprised investors with a hostile bid for a rival early in April, then surprised them again later in the month with a tepid growth forecast. It all added up to a miserable month for the stock, with shares losing 26.4% of their value, according to data provided by S&P Global Market Intelligence.
It's been a rough couple of years for the airline industry. Carriers' revenue fell to near-zero during the period when pandemic restrictions and social distancing efforts were at their most intense, and travelers were fairly slow to return. Investors came into 2022 hoping that a strong summer travel season would help airlines rebuild bruised balance sheets, and few U.S. airlines were more optimistic than JetBlue.
Alas, the macro environment has complicated those rosy forecasts. Rising demand and tight supply caused fuel prices to surge even before Russia's war in Ukraine caused them to skyrocket. And shortages of available pilots make it difficult to add flights.
JetBlue's bold attempt to address the pilot problem came early in the month. It announced a $3.6 billion buyout bid for Spirit Airlines in an attempt to pull Spirit away from planned merger partner Frontier Group Holdings. While it is not uncommon for shares of an acquirer to fall when it makes such a bid, the sell-off in JetBlue shares was dramatic and seemed to indicate the market was worried JetBlue was acting out of desperation.
Its first-quarter earnings report, released on April 26, confirmed those fears. JetBlue slashed its revenue forecast for the year. It now expects its top line will land in the range of flat to up 5%, compared to previous guidance for low-double-digit percentage growth.
"[A]ccess to pilots really becomes the governing factor for growth in the industry over the next few years," CEO Robin Hayes said on the Q1 earnings call.
The bad news didn't end with the turn of the calendar page. On May 2, Spirit announced its board had determined the Frontier offer was superior to JetBlue's bid because a merger with Frontier carries less risk of being derailed on antitrust grounds. JetBlue could attempt to sweeten its bid or go directly to Spirit's shareholders in an attempt to force the board's hand, but neither option is without risk, and both tactics are unlikely to succeed.
The issue for JetBlue is that it appears to have few good options (if any) to drive near-term growth. Organic growth has been stymied for now by staffing issues, Spirit sees a brighter future with Frontier, and there are no other obvious targets for JetBlue to buy.
JetBlue still enjoys strong consumer loyalty thanks to its focus on providing high-quality service, and the airline should be able to weather the current turbulence and carve out a profitable niche. But that will take time, and investors in April showed little desire to go along for the ride.