The airline industry in the United States has fundamentally changed in recent years, and that largely centers around the big airlines earning a significant percentage of their profits from their loyalty programs. Successful loyalty programs require scale, and it makes it harder for the little carriers to compete.
Along those lines, one of the airline industry’s most respected analysts has made an interesting argument that I think is worth covering (thanks to JonNYC for flagging this)…
In this post:
Jamie Baker sees potential M&A upside for JetBlue
JetBlue is a uniquely positioned airline in the US market. The carrier isn’t profitable, but it actually has super valuable assets (including its presence at JFK), and it’s also not an ultra low cost carrier. We’ve now seen JetBlue and United launch a partnership, and that’s ramping up slowly, with the goal being for United to get slots at JFK in 2027 at the earliest.
If regulatory hurdles weren’t an issue, I have to imagine that United would acquire JetBlue in a heartbeat (even if United CEO Scott Kirby often dismisses the prospect). That brings us to some commentary from JPMorgan analyst Jamie Baker.
He argues that there’s potential upside for JetBlue from M&A discussions, believing that the current partnership with United is just the tip of the iceberg. Well, of course, that’s something we sort of all knew. But here’s where it gets more interesting…
Baker argues that investors should keep an eye on the ongoing rail M&A developments, where two players with more than 20% market share (Norfolk Southern and Union Pacific), are looking to combine, and would control up to 45% of market share.
Baker and his team think that it’s much more likely that JetBlue will be acquired than file for Chapter 11 bankruptcy. He points out that JetBlue and United combined would only have as much domestic market share as American and Delta (around 16%). Meanwhile a JetBlue and Alaska tie-up would result in a mere 7% domestic market share, and a JetBlue and Southwest tie-up would lead to 22% market share.
So as Baker wrote, “to summarize, we think there could be another round of airline consolidation under the current administration (or the next one, perhaps) depending on the outcome in the rail space.”
It’s going to be interesting to see how this plays out
I agree with Baker 100% here. I’ve written extensively about my thoughts on JetBlue’s prospects, and whether the airline can have an independent future, or if consolidation is the only option. In terms of domestic market share (which is what should matter most from a regulatory standpoint), it seems like consolidation with either Alaska or United should be acceptable, given that United is smaller than American and Delta domestically.
Another key question is overall presence in New York. United of course has a fortress hub at Newark, but has no presence at New York Kennedy, and a very small presence at New York LaGuardia. If you consider those all to be a single market, obviously United also having a significant presence at Kennedy and LaGuardia would be a major issue. But if you view them as independent markets, it would be a different story. Personally, I think having United at Kennedy and with a bigger presence at LaGuardia would only improve the competitive dynamics.
But what matters most is how the government views things. The Trump administration has been sort of tough on consolidation, in some ways, but mostly when it comes to consolidation with foreign firms.
I know everyone likes to say “consolidation is bad for consumers,” but the reality is that at the major airlines, the banks are subsidizing ticket costs, while at the smaller airlines, shareholders are subsidizing ticket costs. The former can continue (as long as there’s no major change to the banking environment), while the latter can’t continue forever. Just look at Spirit.
I know Alaska has its hands full with the Hawaiian merger, but it sure would be interesting to see the airline becoming more of a national player, given its success with loyalty. Alaska also has the advantage of being in the oneworld alliance, so you’d think there would be a lot of upside with the JetBlue hubs on the East Coast.
Bottom line
Earlier this year, there was a ton of talk of a possible acquisition of JetBlue. Then JetBlue and United announced a partnership, which will ramp up over time. While nothing has actually changed in recent months, a respected analyst makes the case that for JetBlue, consolidation is more likely than Chapter 11 bankruptcy, and he thinks we should watch consolidation in the rail industry.
The argument is that JetBlue and United combined would only have as much domestic market share as American or Delta. Meanwhile Alaska can’t be ruled out either…
What do you make of the prospects of more industry consolidation with JetBlue?
I'm surprised that there is no mention of an AA/JetBlue tie up. That seems to make the most sense. AA is losing in NYC (and everywhere else it seems) . Seem like merging with JetBlue would make AA a contender again in NYC.
First, everyone here needs to understand that investment analysts love to see mergers and acquisitions because they invariably force up the stock price. JBLU stock is lower than it was when it was first issued and continues to decline.
Second, the proposed railroad merger in the US is an end on end merger – combining two airlines from different regions of the country to create a nationwide system. The closest end on end airline merger...
First, everyone here needs to understand that investment analysts love to see mergers and acquisitions because they invariably force up the stock price. JBLU stock is lower than it was when it was first issued and continues to decline.
Second, the proposed railroad merger in the US is an end on end merger – combining two airlines from different regions of the country to create a nationwide system. The closest end on end airline merger was Delta-Northwest which resulted in no divestiture requirements because Delta and Northwest had no overlap other than on their hub to hub routes.
JBLU – UAL, as some have noted, have significant overlap in NYC; UA and CO before have spent decades telling us that EWR is NYC; they can’t pretend it isn’t now because everyone knows it is one of the 3 NYC airport – the fact that it serves a different part of NYC doesn’t make it any less of a NYC airport.
Even though UA has pulled back to about parity with DL in NYC post EWR 2025 meltdown disaster, there is no planet on which DL or UA would be allowed to acquire any airline that significantly increases their NYC size.
And third, JBLU has 40% of the net debt that much larger UAL has. All of those slots are not very economical when they come with that much debt.
And, finally, people fixate with higher cost carriers taking over lower cost carriers but the DOJ has repeatedly said that is the worst thing for competition and has repeatedly blocked it – via the NEA w/ AA/B6 and B6/NK.
There is a higher likelihood that DL will be able to acquire WN – with which it has very little overlap – than UA will be allowed to acquire B6.
I think those in MEM and CVG would disagree about there being no overlap for the DL-NW merger as both these premerger hubs are no more.
I do agree that it is unlikely UA, AA or DL would be allowed to acquire B6.
AS could be a good option as that would provide a east coast hub, however, it could also end up much like VX with the Airbus fleet slowly being removed and the hub service dwindling. Plus, AS has its hands full for awhile yet with the HA merger.
There's no question B6 will be acquired, eventually. The airline is unprofitable. Its operations are a mess. One of the worst performing carriers when it comes to on time performance. It is principally a leisure airline skewed heavily on the Northeast to Florida market and beach markets. It sits on valuable assets that would easily solve American's New York challenges (and give it a leg up in Boston). A merger of AS and B6 would...
There's no question B6 will be acquired, eventually. The airline is unprofitable. Its operations are a mess. One of the worst performing carriers when it comes to on time performance. It is principally a leisure airline skewed heavily on the Northeast to Florida market and beach markets. It sits on valuable assets that would easily solve American's New York challenges (and give it a leg up in Boston). A merger of AS and B6 would stitch together a true transcontinental airline in AS, but for what? To compete in the Northeast and with a fleet mismatch? United can't and should not be allowed to buy B6. It overlaps way too much in the NY market. A Spirit merger feels more likely with Frontier than B6 but either way, B6 as an independent carrier is not likely to remain so.
If Alaska wants a national footprint, buying JetBlue would make strategic sense. Also, JFK would give Alaska a third international gateway (after Seattle and Honolulu) . . . and they have the long-haul ships on order. Low regulatory challenge. But, the timing is not optimal.
Alaska acquiring jetBlue seems like the best outcome from a competitiveness standpoint. The US would then have the Big 3, Southwest with a sizeable portion, and Alaska big enough to compete on the coasts. oneworld improving in the Northeast would be excellent, too.
The faster United buys JetBlow and makes the name and livery disappear forever, the better.
Alaska and JetBlue merger would be sick. Strong on both coasts, able to compete with big 3. I'm in
I don't see a future for JetBlue as a standalone with the current set up of the industry. UA would make the most sense assuming the EWR/JFK situation can be worked out. There is some market overlap, for example Manhattan residents.
Agreed - it would be an insane issue to allow the largest city in the country to have one airline with two huge operations. Insane from a monopoly standpoint.
The only real option is to join Oneworld, either AS or AA. The former might be well suited. The latter might be unwilling to let AS grab that prize. But, from a competitive standpoint, AA/AS/B6 would, as the Northeastern Alliance foresaw, be the best competitive...
Agreed - it would be an insane issue to allow the largest city in the country to have one airline with two huge operations. Insane from a monopoly standpoint.
The only real option is to join Oneworld, either AS or AA. The former might be well suited. The latter might be unwilling to let AS grab that prize. But, from a competitive standpoint, AA/AS/B6 would, as the Northeastern Alliance foresaw, be the best competitive option.
That said, 3 major international carrier alliances is not competition. It's a government managed oligopoly.
The real question is how much of EWR UA will have to give up to get this done.
Rail consolidation has resulted in huge increases in prices paid by shippers, poor service, no growth, huge increases in stock price, more spent on share buybacks and 40% margins. Obviously Wall Street vultures love it.
Unless there is STRICT regulation, less competition is NEVER good for consumers.
It’s ridiculous for an approval of a United and JetBlue merger. How can it be argued that EWR and JFK are different airport? They are nearly equal distance from much of New York City?
United doesn’t even serve JFK. How could they argue it’s a different market, but oh we don’t want to serve JFK (one of the largest markets in the US)
Southwest will not acquire JetBlue. They are focused on organic...
It’s ridiculous for an approval of a United and JetBlue merger. How can it be argued that EWR and JFK are different airport? They are nearly equal distance from much of New York City?
United doesn’t even serve JFK. How could they argue it’s a different market, but oh we don’t want to serve JFK (one of the largest markets in the US)
Southwest will not acquire JetBlue. They are focused on organic growth and a return to shareholders.
Alaska would be the most promising though we would need to wait at least 2-3 years. They are still working on Hawaii integration. They have also had tech issues lately. Honestly, of any option, Alaska acquisition is the best option!
With the new Barclays deal, let’s hope JetBlue regains its footing so it can stay independent
Do you live in NYC or one of the surrounding areas?
If not, then you probably aren't aware that there are roughly six million people who live in Nassau County, Brooklyn, and Queens.
Those six million people tend not to cross two bridges to go to an airport.
So yes, EWR may be closer to Manhattan but JFK is much closer for the residents of Brooklyn, Queens and Nassau County.
I think both things are true here. I do live in NYC and generally there is minimal overlap between JFK and EWR in the metropolitan area as it is not generally practical/realistic to go to the other "airport" either by train or car/bus. It is also the case that the government and the industry generally view the NYC-area airports as a "single market" even if it isn't exactly one in reality. As such, it may...
I think both things are true here. I do live in NYC and generally there is minimal overlap between JFK and EWR in the metropolitan area as it is not generally practical/realistic to go to the other "airport" either by train or car/bus. It is also the case that the government and the industry generally view the NYC-area airports as a "single market" even if it isn't exactly one in reality. As such, it may not be possible to have a big operation at both EWR and JFK in the long-term.
Come 2027/2028 the economic landscape of NYC and the surrounding areas may be very different if the mayoral election continues as forecasted.
Jersey stands to gain population as do the suburbs of NYC.
Those population gains and buying habits may result in EWR and JFK/LGA becoming two very distinct markets with little overlap.
Either way...the population numbers I referenced above should be enough to get any combination/permutation of consolidation that is requested.
If it’s Alaska wouldn’t they need a hub or three in the middle of the country? MCI? HOU? Maybe attack a non-AA hub like DEN?
Once the code-share restrictions with AA go away next year, AS will have partner hubs at AA hubs. No need to build their own.