Low-cost carrier JetBlue Airways (NASDAQ:JBLU) has decided to unwind its Northeast Alliance (NEA) with American Airlines (NASDAQ:AAL) after a court ruling ordered them to terminate the deal, citing its anti-competitive nature. Instead, JBLU will now focus on its pending $3.8 billion acquisition of ultra-low-cost carrier Spirit Airlines (NYSE:SAVE), which is also facing regulatory issues. Following the news, JBLU and AAL stocks slipped nearly 1% in extended trading. Meanwhile, SAVE stock jumped over 2.9% in after-hours trading on July 5.
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The NEA was beneficial to customers in several ways, including increased flying capacity, new flight routes, competitive fares, alternative flight options to the other larger U.S. carriers, and improved loyalty rewards. However, regulators and a few states saw the alliance as thwarting competition. Although JetBlue does not agree with the anti-competitive nature of the NEA, it has decided to adhere to the court’s ruling. On the other hand, American Airlines stated that it respects JetBlue’s decision but has vowed to appeal the court ruling shortly.
Commenting on its decision to end the NEA, JetBlue said, “Despite our deep conviction in the procompetitive benefits of the NEA, after much consideration, JetBlue has made the difficult decision not to appeal the court’s determination that the NEA cannot continue as currently crafted.” The wind-down process has started, and the alliance will fully terminate effective July 29.
JetBlue Faces Another Major Hurdle
JetBlue’s proposed combination with Spirit Airlines has also faced the wrath of regulators since the time of the proposal. The Department of Justice filed a suit in March 2023 to block the deal, stating it would reduce flight options for consumers, reduce competition in the low-cost carrier space, and make flying expensive.
Even so, JetBlue claims the combined entity will help it compete effectively with the other larger, more expensive carriers. Plus, it will give the airlines access to more flights and a larger pool of pilots and attendants, which are currently in short supply. If everything goes well, JetBlue is expected to conclude the deal by the first half of 2024, making it the fifth-largest airline in the U.S.
What is the Prediction for JBLU?
Wall Street is wary of JetBlue stock given its pending combination with Spirit Airlines and the intense scrutiny of the NEA with American Airlines. JBLU has a Moderate Sell consensus rating on TipRanks. This is based on two Hold ratings versus two Sell ratings. Also, the average JetBlue Airways stock prediction of $8.31 implies 10.9% downside potential from current levels. This also signals that analysts believe the stock is currently overvalued.
Meanwhile, thanks to the highly optimistic view of the airline sector for 2023, propelled by solid air travel demand, JBLU stock has gained 43.5% year-to-date, with a 34.8% gain coming in the last three months.
