Spirit Airlines Stock Plummets 22% as Merger with JetBlue is Blocked

May 18, 2022 | By: CNBC

In a dramatic turn of events, the proposed merger between Spirit Airlines and JetBlue Airways, which aimed to create the fifth-largest airline in the United States, was abruptly halted by a federal judge’s ruling on Tuesday, May 17, 2022. This decision sent shockwaves through the airline industry and triggered a steep decline in the stock prices of both Spirit and JetBlue.

Key Points:

• Spirit Airlines stock experienced a staggering 22% plunge on Wednesday, May 18, marking its second consecutive day of substantial losses.
• The decline was a direct consequence of U.S. District Court Judge William Young’s ruling, which blocked the proposed $3.8 billion acquisition of Spirit by JetBlue.
• Judge Young’s decision cited concerns about reduced competition and the potential adverse impact on cost-conscious travelers who rely on Spirit’s low fares.
• Spirit’s stock has endured a significant downturn since the merger was blocked, plummeting roughly 60% since Tuesday’s decision.
• JetBlue’s stock also took a hit, declining approximately 9% on Wednesday and registering a 4% loss since the merger was blocked.

Detailed Analysis:

The proposed merger between Spirit Airlines and JetBlue Airways was hailed as a major consolidation move in the U.S. airline industry. The combined entity would have become the fifth-largest airline in the country, boasting a significant presence in both the leisure and business travel markets.

However, Judge Young’s decision to block the merger raised apprehensions among investors and analysts. The judge expressed skepticism that the merger would benefit consumers, arguing that it would likely lead to higher fares and reduced competition.

The decision has had a profound impact on the stock prices of both Spirit and JetBlue. Spirit’s stock, which had been trading at around $15 per share prior to the merger announcement in February 2022, has plummeted to just over $6 per share following the court’s ruling.

Similarly, JetBlue’s stock, which had been hovering around $13 per share before the merger news, has dropped to approximately $12 per share in the wake of the decision.

The decline in stock prices reflects the uncertainty surrounding the future of both airlines. Spirit’s low-cost business model has been its main selling point, but the merger with JetBlue would have required the airline to adopt a more traditional pricing structure.

JetBlue, on the other hand, faces the challenge of maintaining its brand identity and customer loyalty in a post-merger environment. The airline has been known for its customer-centric approach and relatively low fares, but it remains to be seen how these factors will be affected by the merger’s collapse.

Industry Implications:

The blocking of the Spirit-JetBlue merger is a significant setback for the U.S. airline industry’s consolidation efforts. The decision reinforces the challenges faced by airlines seeking to merge in an increasingly competitive market.

The ruling also raises questions about the future of other proposed airline mergers, such as the pending deal between Frontier Airlines and Spirit Airlines. The Frontier-Spirit merger, which was announced in February 2022, is currently under review by the U.S. Department of Justice.

The outcome of the Frontier-Spirit merger will be closely watched by the industry, as it could provide further insights into the regulatory landscape for airline consolidation.

Investor Perspective:

The sharp decline in the stock prices of Spirit and JetBlue has created uncertainty for investors. The future of both airlines remains unclear, and it is difficult to predict how their stocks will perform in the long term.

Some investors may see the recent sell-off as an opportunity to buy Spirit and JetBlue shares at a discount, betting on a potential recovery in the future. However, others may choose to stay cautious until the regulatory landscape becomes clearer.

Conclusion:

The blocking of the Spirit-JetBlue merger has sent shockwaves through the U.S. airline industry. The decision has raised concerns about reduced competition and the potential harm to consumers. The sharp decline in the stock prices of both airlines reflects the uncertainty surrounding their future. Investors are closely watching the situation and trying to assess the long-term implications for both Spirit and JetBlue.