JetBlue will ‘face a significant price’ if Spirit merger falls through: Analyst

Peter McNally, global sector lead for industrials materials and energy at Third Bridge, joins Yahoo Finance Live to discuss the outlook for JetBlue's acquisition of Spirit Airlines, regulatory hurdles, and what it means for competing airlines.

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- An abrupt course reverse from Spirit last week put an end to the proposed merger with Frontier. Now the airline is striking up a deal with JetBlue, one that our next guest says might have some trouble getting off the ground. Let's bring in Third Bridge global sector lead for industrials, materials, and energy, Peter McNally.

Peter, thanks for being here. So there are a lot of questions about whether JetBlue and Spirit are going to get approval to get together. What do you think? Where are you putting that probability at this point?

PETER MCNALLY: Well, I think everyone involved in the deal acknowledges that some concessions are going to-- need to be made in order to make this deal happen. JetBlue has been pretty busy already with their Northeast Alliance and American and working through some of those antitrust issues. But it's a different ballgame with an outright merger with Spirit. So the hard work is really just getting started. After months of pursuing Spirit and convincing the board that this was a viable offer, now the real work begins.

So the one area in particular that we're focused on, for example, is Fort Lauderdale. Combined, Spirit and JetBlue would have over 50% of the flights based on current schedules. That's unlikely to be allowed to continue. But there's a lot going on in the industry.

It does mark a significant departure in JetBlue's strategy. I mean, if we roll back prior to the pandemic, JetBlue is starting to move upmarket. They are offering the midbusiness service. They were looking to fly international to London.

And now they are really going after a very low-cost airline, one that has been disruptive-- and there's been a three-tier market, the way our experts have seen it, where you've got the major carriers at the high end. And then you've got the JetBlues and the Southwests in the middle. But then you have the likes of Spirit and Frontier who've been disruptive, frankly, in this leisure market, which is where all the recovery has occurred.

- Peter, if this deal does go through, it looks like American Airlines could be in a world of hurt, no?

PETER MCNALLY: Yeah, American's in some tough positions in a lot of different ways, but this in particular. Florida is a big market for them. It's where almost the entire industry focused its efforts as we started to recover from the pandemic. Leisure travel was a big deal. I mean, population growth has been there to begin with. But even more people have been descending on Florida, big market for American.

At the same time, American is trying this tie-up with JetBlue in order to attract some more customers to fend off Delta in the Northeast a bit. But really here at this low-end leisure part of the market, Spirit is a big threat to American. Or a merged Spirit and JetBlue would be more of a threat.

- So if the merger does not get approved, does Frontier dust itself off and try again?

PETER MCNALLY: Well, it could, for sure. And that's the other big question that's out there, is what do they do next? But look, JetBlue is going to pay a severe price if this doesn't go through. I mean, they've insisted and they kept increasing their breakup fee on this. And they'll even start paying early next year in advance that this will happen.

But, look, it's a dynamic industry. And it's not staying the same, that's for sure And this is just the latest step that we're seeing here.

- Will the Spirit brand vanish?

PETER MCNALLY: Don't know that yet. For sure, I mean, look, they have made a career here on offering to getting more people on planes at the cheapest price available by offering additional services. It's definitely a different model than what JetBlue offers its customers.

- Just a different color for the planes-- please, Peter, talk to somebody about that.

- Yeah, but yeah, the flying taxis, for sure. But, look, what it does help, though, operationally, JetBlue, putting aside the brand and whether or not they allow that to continue, is that Spirit flies A320s or that class of aircraft, the Airbus aircraft. So this is important. And it is a big driver of deals in the industry.

Basically, what JetBlue did at its outset in the late '90s, there was take the Southwest model, which was flying the Boeing 737. And you get efficiency from maintenance and pilots and things like that. And they did the same model with the Airbus plane. So putting Frontier and Spirit together was merging more single-aisle Airbus planes.

And that's what JetBlue is going to be doing here. It does accelerate and does help them expand their capacity, for sure, by going after Spirit. Whether or not they keep the same colors remains to be seen.

- Yeah, indeed. Peter McNally, Third Bridge global sector lead for industrials, materials, and energy, thanks so much for joining us here this morning. Peter, I appreciate it.