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Competition Opportunity Missed.
The B6/NK Deal Was The Un-Merger.
Summary: The redeployment of Spirit assets in the event of a buyout by JetBlue would have resulted in the opposite of what traditionally mergers deliver.
Too bad they couldn't hire the late Mr. Holder to be the spokesperson.
Anybody remember the 7-Up ad campaign that described the product as “The Un-Cola?”
That’s a good description for the B6/NK deal.
An Un-Merger.
Here’s some heresy: the B6/NK deal was the first since deregulation, where putting two operators together would have actually delivered consumers more national competition, not less.
Assuming An Air Transportation System That No Longer Exists. The judge was clueless and mired in visions of the mergers of the 1980s. Let’s be clear: traditional mergers as done in the past have indeed resulted pretty much exactly as the judge in this case concluded.
But this wasn’t a merger. It was an asset purchase. The guy in the black robe ignored this completely.
One might think that more of the folks in the aviation media covering the story would have a solid grounding in understanding the difference between JetBlue and Spirit, at least regarding their materially divergent market models.
If this deal were approved, it would have given JetBlue a couple hundred airliners and crews, representing a material increase in national airline competition. It would have allowed JetBlue to deliver more service to the consumer in non-discretionary markets.
In that regard, this was the first “un-merger” at least in regard to how it would affect consumers.
Not A Merger. The Redeployment of Airliners. The proposed deal would have delivered to JetBlue close to 200 additional airliners, which over a period of maybe 9-12 months would have hit the skies competing with the Big Four.
Here’s a couple of considerations that in light of the judicial decision are now moot:
· JetBlue now operates roughly 283 airliners. It has 130 A320 and A220 units on order, with delivery dates scattered years into the future.
· Spirit has about 197 airliners in operation, and another 135 A320-platform jets on the Airbus orderbook, again with deliveries well into the future.
· Airbus is flat out of capacity - reportedly its entire A320 production dance card filled until 2030. So, getting any additional airliners in the meantime would be problematic for JetBlue.
This all adds up to a opportunity where JetBlue could leapfrog this situation, get more aircraft and crews, and expand via purchase of NK. In the process, deliver more competition to the Big Four.
Leisure Market Capacity Reductions? Not Necessarily. Yes, some of the NK discretionary impulse capacity to Florida and ‘Vegas would be pulled down. But as has been clearly and accurately pointed out by the CEO at B6, this would quickly be an opportunity for one of the other ULCC-impulse airlines.
But the judge has ruled. The DOJ is thrilled. The consumer jihadists are cheering. And the consumer is left out.
Alaska/Hawaiian. Another Un-Merger. Now the usual suspects are urging the consumer champions at the DOT and DOJ to stop Alaska from buying Hawaiian.
Strong Competition Regardless. According to data from Cirium, Alaska and Hawaiian directly compete at six West Coast airports to Hawaii. In only one – PDX - is there no other competition. Three have Southwest in the market. Los Angeles has three competitors.
In point of fact, Alaska represents less than 6% of the total seats in the Hawaii-Continental USA marketplace.
The stock purchase of HA by Alaska represents very limited opportunities for capacity reduction. But it does result in Hawaiian becoming more cost-competitive by combining acres of overhead and administrative cost with Alaska.
That should be lauded by anyone interested in building Hawaii tourism. Hello, Governor/Doctor Green, are you on board?
Prognosis: Not positive. To the public, it’s being described as a merger. Not an Un-Merger.
Final Disclaimer: The Financial Gymnastics. All of the above notwithstanding, there are several highly-credible analysts in the financial world who took issue with the structuring of both of these deals.
That is a separate matter – a valid one – but it is outside of the fact that the consumer would benefit in both cases with the operational results of these arrangements.
The dollars-and-cents of the deal is another matter, not contemplated here.
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