JetBlue Airways is on the brink of a significant leadership change as Joanna Geraghty prepares to take over as the company’s incoming CEO. Geraghty will be stepping into her new role during a tumultuous period for the low-cost airline, which is currently awaiting a court ruling on its merger with Spirit Airlines.
However, the challenges awaiting Geraghty extend beyond the outcome of the merger. During a recent downgrade of JetBlue’s stock, BofA Securities analysts highlighted several issues that the new CEO will need to address. These include not only the potential risks associated with the proposed merger but also the difficult domestic airline industry landscape and ongoing engine problems. As a result, BofA Securities downgraded the stock to Underperform from Neutral and adjusted their price target to $3 from $6.
One of the main concerns raised by analysts is the persistent problem with engines from Pratt & Whitney, which has impacted multiple airlines, including JetBlue. These engine issues are expected to continue to impede growth and increase costs in 2024 while hindering JetBlue’s post-pandemic earnings recovery. Pratt & Whitney’s parent company, RTX, recently announced that approximately 600 to 700 engines will need to undergo “shop visits” over the next three years.
The combination of this leadership change and the stock downgrade had a significant impact on investor sentiment. In early trading, JetBlue’s stock experienced a sharp decline of 6.3%, reaching $5.40 per share.
JetBlue confirmed that the current CEO, Robin Hayes, will step down in February after serving in the position for nine years. According to Hayes, his decision to resign is due to the toll that the extraordinary challenges and pressures of the job have taken on his health and well-being. “It’s time I put more focus on my health and well-being,” he said. Hayes will remain with JetBlue as a strategic advisor in the coming months.
The outcome of JetBlue’s merger with Spirit, which has faced opposition from the Justice Department, is expected to be determined later this month. During this transitional period, Hayes’ advisory role will provide valuable support to the company.
JetBlue’s Stock Outlook Impacted by Potential Merger with Spirit Airlines
Analysts, including those at BofA, believe that JetBlue’s stock could see a positive trend if the court rules against the proposed merger with Spirit Airlines. Deutsche Bank analysts have previously noted that acquirers often underperform during the approval and integration process for airline mergers. Recent market developments have supported this view, with news of increased chances of the merger being approved resulting in a rise in Spirit stock and a decline in JetBlue stock.
Despite the uncertainty surrounding the merger, JetBlue has reiterated its fourth-quarter guidance and expects its results to be at the “better end” of the previously provided range. This positive outlook may have contributed to the initial increase in JetBlue’s stock during after-hours trading.
Savanthi Syth, an analyst at Raymond James, commented on the surprise timing of the CEO announcement, especially considering the potential merger with Spirit and the challenging earnings environment faced by domestic low-cost carriers. Syth maintains a Market Perform rating on JetBlue’s stock.
TD Cowen analysts, however, anticipate that JetBlue will continue with its existing strategic direction and maintain a Market Perform rating on the shares. They speculate that the current CEO, Robin Hayes, may stay on as an advisor to the company, especially if they receive court approval to proceed with the Spirit Airlines acquisition.
In early trading, Spirit Airlines experienced a 1.5% drop in its stock price, while Southwest Airlines and Alaska Air both recorded modest gains of 0.7% and 0.8%, respectively.
