Musing on more airline consolidation: JetBlue + Frontier = ?!?


Frontier Airlines and its private-equity backing Indigo Partners wants to go public. The planned IPO was expected in Q2 ’17 (a date already missed when the most recent delay came about) and now looks to be delayed until late Q3 or even Q4. A few weeks ago the delay was mostly attributed to United Airlines’ aggressive stance on Frontier’s planned expansion, particularly in Denver. But rumor mills being what they are, I cannot help but wonder if there is another angle possibly in play, one that would likely be WAY better for many travelers.

United celebrates Frontier’s growth in Denver

Some folks in the industry are now suggesting that JetBlue has been poking around, possibly even making an offer for Frontier. I have no confirmation, of course, and expect that the standard “we do not comment on speculation” reply would be given but it is an interesting theory to consider.



The fleet synergies are easy to see. Both airlines run A320 family jets. The fleets are relatively young and the order books are healthy. That part is simple.

And the idea that JetBlue would like to grow with a significant bump is not all that hard to see given its participation in the frenzy for Virgin America. Arguably that was a better combination than Alaska Airlines winning the bidding war but the price got way too high in the end for that to make sense (I also think that Alaska overpaid).

Alaska Airlines, Virgin America unite; change is coming for everyone

Such a merger would require a massive change in the Frontier operating model and probably relocating many of the planes to JetBlue hubs. But it would also give JetBlue a hub in Denver if it wants that option and the ability to somewhat quickly and easily pick another city or two and set up significant operations without much trouble. JetBlue still refers to its hubs as “Focus City” operations rather than hub airports. That makes some sense when considering how low the volume of connecting traffic is on the carrier. JetBlue will sell connecting itineraries but the vast majority of passengers are flying nonstop services.

That is very similar to Frontier’s model today, with the main difference being the inflight service model. JetBlue offers a high-touch experience with lots of free goodies (legroom, snacks, drinks, wifi, etc.) while Frontier charges for just about everything other than the lavs. Integration costs to convert that would be significant but not impossible to overcome.

Of course, building out such operations is a risky move but JetBlue needs to grow to remain competitive especially now that the combined Alaska/Virgin is a larger operation. And if you believe that a transition to hub-and-spoke is necessary (Hi, legacy carriers!) then the scale of operations must grow to fill all those planes coming and going from the hubs.



Another consideration, one I think was undervalued in the Alaska/Virgin deal, is the ability to “acquire” more pilots through such transactions. The US airline industry faces a dramatic and growing shortage of qualified commercial airline pilots. Larger operations can (theoretically) optimize scheduling and planning of crew, making it marginally easier to handle the shortage. Not a huge factor, but one worth paying attention to.

All of this comes back to the IPO delay. Negotiations around such a transaction would be a very smart reason to delay the public offering. Once that happens the process for a buyout is significantly more complicated. But I have no idea if that’s what happened here.

I don’t particularly expect that the deal will happen and I have no idea if they really even tried. But it is an interesting union to think about.

Never miss another post: Sign up for email alerts and get only the content you want direct to your inbox.


Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, and LinkedIn.

28 Comments

  1. Would far more likely see a match-up between Alaska and jetBlue – I think they’ll eventually end up back at the negotiating table.

  2. The rumor that was going around for the last several months what B6+UA but we know that’s not going to happen.

    1. I consider that a theory without merit. The latest iteration of that one was a bunch of UA employees convinced that the recent “secret” SEC filing was about a JetBlue merger, despite that very filing explicitly stating that it was about 737MAX delivery dates and prices.

      This one is slightly different. Maybe also wholly bullshit, but not nearly as ridiculous as UA trying to buy JetBlue. Investors would laugh a lot at that idea.

      1. and that is the point. VX made sense not because of planes, culture was interesting, but the key was a west coast hub. Frontier doesn’t really bring JetBlue anything they don’t have but planes and pilots. To pay a multiple of value for those is silly – JB can lease planes and can raise pilot salaries to get more if needed and still save money without any management headaches of integration. DEN isn’t big enough or profitable enough to really be a Western hub with a long term growth plan. This idea is interesting but unlikely

        1. Noah–

          RE: Denver not being a profitable hub.

          Supposedly DEN is UA’s most profitable hub.

          Probably part of the reason F9 still keeps it’s hub there, besides the legacy of it being that.

          Probably also why Norwegian decided to start DEN-LGW and will start DEN-CGN in 2018.

          If there wasn’t profit to be made at DEN, you wouldn’t see Norwegian serving the airport.

  3. Interesting post. As a Denver flyer I would love more than 1/2 jetblue flights – would really love a hub. And if they are thinking about expanding big, Denver is a great place to do it because the airport was designed to be easily expanded. If they really wanted, they could buy frontier and build an entirely new concourse in the next three years and have a huge hub. That’s not available at any other major airport that I can think of (would love to be corrected if it is). But I’m not sure a hub at Denver makes sense because of the huge southwest and united operations there. Still, I can dream.

  4. no one should fault UA for responding to their DEN expansion, both in terms of flight additions and verbal comments by Scott Kirby.

    F9 was the one who chose to initiate such a massive expansion at the verge of the IPO, and it would be foolish for anyone to expect the key competitors at DEN would just sit quietly while F9 does a victory lap around the mile high airport.

    That being said, I agree that the biggest value of B6+F9 isn’t Airbuses, but giving them a DEN hub which was the crucial missing piece between the seemingly disjointed west-coast east-coast network that jetBlue has been running. But they need to scrub that ULCC image of F9 fast.

  5. NK is a better fit for F9 and likewise, they should be willing to pay more. Similar business models with very little route overlap and management that already know each other.

    That being said, I don’t discount B6’s strong desire to grow, organically, or by acquisition and there just isn’t many targets out there. HA maybe.

    You’re right that it would be a shock to the Frontier business model which Franke has proven to be a successful one. The biggest winner of this potential merger would therefore be NK; with no direct ULCC competition on the horizon.

    1. I’m not so convinced that the mega-ULCC is the “better fit” in such a merger. From a routes perspective no major difference between B6 or NK picking up F9 and the management interaction doesn’t matter a ton when you just fire all of them anyways.

      HA is an interesting theory but, much like AS, I don’t think it is in play.

      And I’m not entirely convinced Frontier has proven the model to be tremendously successful.

      1. NK and F9 are a natural fit. They have nearly identical business models and a merger would give them better scale and allow them to truly eliminate redundancies and lower costs even further than these ULCCs currently achieve. That is easily a hundred million that drop straight to the bottom line every year. They literally have to repaint the planes and change signage….once the labor/DOJ sign off which I admit is formidable. I am not convinced you can achieve F9 profitability while increasing seat pitch and improving IFE and giving away the B6 amenities in the market that F9 serves; much closer to NK in my opinion.

        RE: HA; of course its in play. Its institutionally owned in a fragmented way. Biggest shareholders are investment firms. The bigger problem is that their price would be higher than VX but would give them fewer strategic assets. Also, HA brand name carries weight in their home market which hurts the acquisition value as well.

        RE: F9 being ‘tremendously successful’: I didn’t say tremendous but its clear both F9 and NK are on to something. $200M in net income at F9, $265M at NK, and $244M at HA.

        I am not convinced that HNL won’t be a pacific hub for B6 like I think BOS will be for the Atlantic if the infrastructure is built; and it won’t take large widebodies to do either of them.

        tortugamon

        1. HNL is, unfortunately, a terrible place for connecting traffic crossing the Pacific Ocean. It is out of the way by hours for most trips.

          And I’d expect an F9/B6 merger would result in many F9 markets closing up. Use the planes in larger cities where the yields better support the higher quality product.

    1. Which is all the more sad given where you live. The stats say that cruising is pretty much alien to everyone but the West Coast and the NE Corridor. The cruise brands suffer as a result.

Comments are closed.

BoardingArea