Breakingviews: JetBlue’s turbulence gives Carl Icahn an easy ride

Rabble-rousing investor Carl Icahn has picked his moment well. Late Monday, he disclosed a 10% stake in carrier JetBlue Airways, which is reeling from a blocked $4 billion tie-up with Spirit Airlines. The airline has too many ails for an activist’s fix. But as Icahn’s previous campaigns show, investors might be willing to give him a chance anyway.

The biggest issue looming over JetBlue is its failed bid to purchase Spirit. The company spent much of 2022 fighting rival bidder Frontier, acquiescing to a chunky $470 million payout if the merger didn’t close. The deal slammed to a halt after the courts upheld a regulatory decision to stop it. Though the company is still fighting a legal appeal against the ruling, the likely payout is weighing on it.

Further, JetBlue’s core business is suffering. Analysts at TD Cowen expect recent losses to continue through 2025. The company thinks at least 13 planes will be out of commission by 2024’s end, thanks to issues with Pratt & Whitney-made engines plaguing the industry. And pricing pressures may be back: In JetBlue’s core New York market, average domestic fares fell by 6% year-over-year at JFK airport in the third quarter, according to U.S. Department of Transportation statistics. With revenue down and capacity stagnant, costs per seat per mile, excluding volatile fuel prices, rose 8% year-over-year last quarter. Rivals, conversely, have seen costs moderate on the back of growing capacity.

The saga bears a resemblance to gene-sequencing outfit Illumina, where Icahn got involved in March 2023. The company’s 2021 deal for Grail faced regulatory blowback, hefty fines and an eventual forced divestiture, leaving the mess of unwinding the combination. That’s on top of then-stagnant growth thanks to a maturing market, weakening profit margins, and rising competitors.

JetBlue is trying to manage what is in its control, deferring capital spending, switching around seating to juice revenue, and cutting costs. But an activist can prey even on issues that are out of a company’s control. Look at Illumina: Icahn brutally pressured the board over the failed Grail deal, assailing cost-cutting targets and questioning management’s integrity. Shares are down 30% since he took a seat on the board. Still, JetBlue shareholders seem to be focused on the present. The airlines’ shares popped 12% on news of his investment. When headwinds abound, any new catalyst seems to be well-received.