JetBlue Can't Win.

late last year JetBlue rocked the aviation world the carrier announced it was buying Spirit Airlines for nearly 4 billion dollars the deal was designed to inject new life into JetBlue and help it regain prominence after years of declining market share but just a few weeks ago those hopes were dashed the U.S Department of Justice announced it would be blocking the deal which seemed like a major loss for the carrier but in reality it's a blessing in disguise if you take a closer look JetBlue's takeover of spirit is eerily similar to pan am's acquisition of National Airlines a deal that ended up sinking the famed carrier and had the spirit deal progressed JetBlue may have suffered a similar fate let me explain thank you before hopping into it I'm sure it comes as no surprise that I love to travel but every time I do I'm taking a risk and it's not because flying is dangerous being a YouTuber demands that I be online all the time even when I'm away from home this forces me to use unsecured 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specifics of the JetBlue Spirit deal for much of 2022 JetBlue was competing with Frontier to buy the carrier initially it seemed Frontier would come out the winner with spare shareholders repeatedly rejecting JetBlue's advances but then JetBlue made an offer that they simply couldn't refuse it came forward with a 3.8 billion dollar proposal which was nearly a billion dollars more than frontier's closest bid spirit acquiesced and struck a deal with JetBlue of course this begs the question why was JetBlue so hell-bent on making this deal happen why were they willing to pay well above market rate well it all boils down to self-preservation you see the airline first planted its roots in the American Northeast and eventually expanded its operations down to Florida but that's about where its expansion stopped the carrier has long struggled to push West unable to sustain consistent operations in cities like Sam San Francisco and La at first this wasn't a big deal when the airline was young the aviation industry was highly fragmented and regionalized but the years following 911 saw massive industry-wide consolidation carriers like United Delta American and Southwest gobbled up smaller carriers helping to expand their reach across the continental U.S and streamlining their operations JetBlue however missed their opportunities to do the same their biggest Miss was their failure to buy Virgin America virgin had a major presence in San Francisco and when it went up for sale in 2016 so too did its slots had JetBlue purchased the airline it could have built up consistent transcontinental flights which are some of the most lucrative routes on Earth but they were beaten out by Alaska who snagged virgin for a cool 2.6 billion dollars all of this consolidation has placed a lot of competitive pressure on JetBlue at the same time it's diminished jet lose opportunities to buy a smaller carrier to help grow its own network if the airline does absolutely nothing it's at risk of losing even more market share and becoming a target of acquisition itself and this is why it went after spirit with such fervor but at what cost you see JetBlue's blind ambition for growth is leaning it down a very dangerous path a path once walked by Pan Am back in the 80s Pan Am was also on a mission to expand its Network while the carrier was a force in its early days it mostly flew internationally the carrier was so big and so mighty that the US government actually feared it Regulators felt that if Pan Am built a domestic Network it would squeeze other airlines out of the market leaving them to serve as a monopoly so they forbade pan am's domestic expansion save for a few routes to Hawaii but everything changed in 1978. in that year the the airline deregulation Act was passed giving Airlines free reign to choose their own routes all of a sudden carriers like Delta and United started to grow internationally these Airlines had already built strong domestic networks which naturally fed American passengers into their international flights as such they began siphoning customers away from Pan Am if Pan Am wanted to maintain its dominance it had to build its own domestic Network and fast this prompted a fateful bidding war for National Airlines who had a strong domestic Network itself Pan Am won that war but the deal was Rife with problems for one it was widely believed that Pan Am overpaid with the deal costing 1.6 billion inflation-adjusted dollars and that's just where the issues began Nationals pilots and Crews lamented their new Pan Am co-workers largely because they were paid much more to his tensions Pan Am agreed to level everyone's pay but this added millions of dollars in overhead and became a massive financial burden but the biggest problem was that National's domestic Network which was the whole reason they were so sought after was not a fit for Pan Am National had a major presence in the Southern United States while pan am's biggest hubs were on the coasts as such Nationals domestic flights didn't feed into pan am's International ones which proved to be a massive logistical problem faced with all of these compounding problems Pan Am began losing its grip on the market and before long the airline was gone concerningly for JetBlue many of the issues with the Pan Am National merger are present in its deal with Spirit let's go down the list first off Pan Am overpaid for National JetBlue also seems to have overpaid for Spirit offering nearly a billion dollars more than the next highest bidder second panium had to raise salaries for National employees adding millions in expenses now we don't know if jet blue would have done the same however we do know that its employees are paid more with wages accounting for 31 of JetBlue's expenses versus 26 for Spirit analysts say that if JetBlue had leveled wages it would have added nearly 200 million dollars in labor cost per year third pan am's root Network didn't mesh with Nationals now to be fair Spirit does have slots in Los Angeles which would fit nicely with JetBlue's expansion goals but the rest of its network doesn't serve JetBlue's needs sure Spirit does have a strong presence in Florida which could help JetBlue Shore up its strength on the Eastern Seaboard but is that really worth the ludicrous 4 billion dollar price tag JetBlue offered that much money to become a national player not a regional one it's clear that these two deals are strikingly similar but there is one last hurdle that JetBlue needed to overcome that Pan Am never had to worry about if the acquisition went through JetBlue went have had to integrate two very different business models JetBlue and spirit couldn't be more diametrically opposed being Pleasant has always been at the core of JetBlue's ethos but it's not a word many would ascribe to Spirit JetBlue has always offered More For Less including free in-flight Wi-Fi free live TV free satellite radio and unlimited snacks and drinks Spirit on the other hand charges for all of those perks what's more JetBlue offers the most legroom of any us carrier in economy while Spirit offers the least merging these two distinct Styles under a single umbrella would have been a massive headache it would have forcepared employees to completely shift mindset after spending years refining an ultra low-cost strategy speaking of those employees we have no idea how they'd mesh together when continental and unite emerged back in 2011 this was a major sticking point personalities and ideologies clashed making that merger difficult to execute and those two airlines are much much more alike than JetBlue and spirit we have no idea if there would be any Synergy between JetBlue and spirit employees and my guess is that there probably wouldn't so perhaps it's a good thing that the doj blocked the deal they may have just saved JetBlue from itself but why exactly did they choose to block it surely it wasn't out of concern for JetBlue right well no they did so because they were concerned for the American Consumer you see Frontier and spirit are the only Ultra low-cost carriers in the U.S save for a legion who is comparatively quite small if JetBlue and spirit merged Not only would it further consolidate the aviation Market but it would also leave Frontier completely unchallenged in the ultra low-cost space it would thus have no incentive to keep its prices as low as they are sure its fares would still likely be cheaper than other airlines but it would be more expensive than today making it harder for price sensitive customers to fly this phenomenon would have happened no matter if JetBlue succeeded or failed so perhaps the doj's move isn't just a good thing for JetBlue maybe just maybe it's a good thing for us all so what do you guys think is JetBlue lucky the deal was blocked or do you think they could have found a way to make it work let me know your thoughts in the comments section below thank you so much to my patrons for helping to make this video possible if you like what I do and want to help the channel grow go ahead and check out this link right here and as always if you learned something new today leave a like And subscribe to keep learning and until I see you again don't forget to look up [Music]

Channel: Coby Explanes

Views: 188,796

Keywords: JetBlue, Spirit, Frontier, Airbus, Aviation

Id: MjqhCC72Jd4

Length: 10min 59sec (659 seconds)

Published: Fri Mar 31 2023