JetBlue
Airways ended its alliance with American Airlines Wednesday, choosing not to appeal against a court ruling ordering the pair to unwind their partnership.
The low-cost airline reiterated that it strongly disagrees with the ruling but said it has made the “difficult decision” to begin terminating its alliance with
American
(Ticker: AAL) in the New York and Boston areas. The stock jumped close to 4% Wednesday but was down in the Thursday premarket. American said it intends to move forward with an appeal.
While the decision leaves its partner American in the lurch, opting against an appeal seems like a smart strategic move aimed at enhancing the chances of JetBlue’s (JBLU) $3.8 billion merger with
Spirit Airlines
(SAVE) being approved.
The proposed merger would create the fifth-largest U.S. airline, but the Justice Department sued to block it earlier this year, arguing it would eliminate competition and harm travelers.
The alliance forms a key part of the Justice Department’s complaint against the proposed tie-up between JetBlue and Spirit. “This proposed acquisition would essentially merge the operations of the three airlines [American, JetBlue, and Spirit] in the northeastern U.S., eliminate yet another airline competitor in the space of just a few years, and magnify the anticompetitive effects of the Northeast Alliance,” the DOJ said in its complaint filed in March.
JetBlue said its decision not to appeal renders the DOJ’s concerns “entirely moot.”
“We view JetBlue’s decision to not appeal as constructive for the JetBlue-Spirit merger odds,” Raymond James analyst Savanthi Syth said, noting it removes the DOJ’s argument that American would have undue influence over what would be the fifth largest airline.
Investors seem to agree. The stock, which largely traded sideways between March and early June partly due to concerns over the merger, rose close to 4% Wednesday. The shares have now climbed 31% since a federal judge ordered the Northeast alliance to be unwound in May.
The U.S. Global JETS exchange-traded fund (JETS) has risen 17% over the same period.
JetBlue’s decision is a gamble of sorts, but one that appears to make sense. However, it all depends on the merger being approved, otherwise the airline will be left to rue missing out on two growth opportunities.
Write to Callum Keown at [email protected]
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