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How JetBlue’s takeover of Spirit could change air travel

Passengers wait in line at the Spirit Airlines check-in counter at Orlando International Airport.

Paul Hennessy | LightRocket | Getty Images

Spirit Airlines relented this week and agreed to sell itself to JetBlue Airways for $3.8 billion, hours after breaking off a merger agreement with Frontier Airlines that failed to win enough shareholder support.

The new deal would mean big changes for travelers if it passes regulatory hurdles.

JetBlue has earned a reputation for passenger comforts like relatively generous legroom, seatback screens, live television, free Wi-Fi, and complimentary snacks like Cheez-Its and Stellar vegan butter pretzel braids. It also offers business class, with lie-flat seats.

Spirit, by contrast, has become a punchline for its bare-bones service. The cabins in its bright yellow planes are more cramped, and passengers have to pay extra for “optional services” like carry-on luggage and getting to pick a seat.

“It’s historic. This is the first time anyone wanted Spirit Airlines,” quipped “The Late Show” host Stephen Colbert about the deal on Thursday.

Still, Spirit has expanded rapidly and profitably by offering cheap tickets to vacation hotspots that can sometimes run less than a trip to the movies or a few burgers. The airline’s “Big Front Seat,” however, does offer 36 inches of legroom for a surcharge of up to $250.

As the two distinct airlines push ahead with their plans to combine, here’s what passengers can expect:

What are JetBlue’s plans for Spirit?

JetBlue wants to get bigger, and Spirit has the planes and pilots to help it do that. The New York-based carrier plans to retrofit Spirit’s planes in JetBlue’s style, ripping out the packed-in seats for a roomier layout with more amenities.

Combined, the airlines would become the country’s fifth-largest carrier, behind American, Delta, United and Southwest. Both have a big presence in Florida and each has expanded into Central and South America as well as the Caribbean in recent years. JetBlue last year started flying to London.

The two carriers will continue to operate as separate airlines until after the deal closes, which is subject to regulatory approval. Afterward, passengers might be confused if they’re flying in Spirit planes that haven’t been retrofitted yet.

JetBlue has some experience with such situations through its alliance with American in the Northeast, which allows the carriers to sell seats on each others’ planes. Last year, JetBlue revamped its website to better highlight the differences in onboard features like business class seats or free Wi-Fi.

Despite comedians’ digs, Spirit has improved its reliability in recent years — and is faring better than JetBlue by some measures.

JetBlue came in last among 10 airlines in on-time arrivals this year through May, while Spirit ranked seventh, according to the Transportation Department’s latest available data.

So far this year, a third of JetBlue’s flights were delayed and 4% have been canceled, according to flight tracker FlightAware. By comparison, slightly more than a quarter of Spirit’s flights have arrived late and 2.7% have been canceled.

JetBlue’s CEO Robin Hayes says improving reliability is a priority. The carrier has scaled back growth plans, saying it did not want to overextend its crews and other resources.

“A bigger JetBlue that is late is not a better JetBlue,” said Henry Harteveldt, a former airline executive and founder of Atmosphere Research Group, a travel-industry consulting firm.

Is this the end of cheap fares?

The Biden administration has vowed to take a tough stance on both consolidation and inflation, so the disappearance of an ultra low-cost airline could be a tough sell.

“Spirit might not be an elegant experience, but they are cheap,” said William Kovacic, a professor at the George Washington School of Law and a former chair of the Federal Trade Commission. “If they disappear as an independent enterprise … is that going to remove a source of downward pressure on price?”

But JetBlue’s Hayes says the airline needs to grow quickly and better compete with big airlines that control more than three-quarters of the U.S. market. Hayes argues a bigger JetBlue would mean more relatively lower fares to more destinations.

Like some of the airline giants, JetBlue has already added certain low fares that mimic carriers like Spirit. Those tickets also don’t come with seat assignments or other perks that were once standard with a coach fare.

But JetBlue’s business model of offering more comforts costs more than Spirit’s, meaning it likely won’t offer as many of the rock bottom fares that Spirit does.

Frontier Airlines, meanwhile, is already saying it’s happy to take on a bigger share of the ultra-low-cost market after its Spirit deal fell apart. Shortly after the airlines announced the end of their agreement, Frontier projected it would grow 30% next year and started a fare sale with 1 million seats going for $19 apiece.

The airline will become the largest discount carrier in the U.S. if Spirit is ultimately acquired. Others include Allegiant and Sun Country.

“That just gives us a huge amount of breathing room for growth,” said Frontier CEO Barry Biffle. “That’s why this is such a windfall for our employees and our shareholders.”

When is this happening?

Not immediately. JetBlue and Spirit expect the deal won’t get regulatory approval until late 2023 or early 2024, then close in the first half of 2024.

Integrating airlines is a lengthy and costly process. For example, United and Continental flight attendants didn’t even fly together until eight years after those airlines merged in 2010.

Retrofitting planes can take years too, and JetBlue wouldn’t be able to start that process with Spirit’s fleet until at least 2025. But the airline notes it recently outfitted more than 100 of its Airbus planes with new interiors.

“We’ve got a lot of recent experience in how to do it,” said Hayes.

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McDonald’s, Netflix, Amazon, Nvidia, Visa

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American Airlines to stop flying to Dubuque, Islip, Ithaca, Toledo

American Airlines Embraer ERJ-145 regional jet aircraft as seen on final approach landing at New York JFK international airport in NY, on February 13, 2020.

Nicolas Economou | Nurphoto | Getty Images

American Airlines plans to drop service to four U.S. cities in September, including Dubuque, Iowa, which will lose scheduled commercial air service altogether.

The Fort Worth-based carrier blamed the service cuts on a shortage of regional pilots. American, United Airlines and Delta Air Lines have each scaled back service between some smaller cities and their hubs, citing a lack of aviators.

The four cities — Toledo, Ohio; Islip, N.Y.; Ithaca, N.Y., and Dubuque — will each lose service from American on Sept. 7, after Labor Day.

“We’ll proactively reach out to customers scheduled to travel after this date to offer alternate arrangements,” American said in a statement.

The airports were served by American Airlines’ regional airline subsidiaries. Last week, those carriers jacked up pilot wages in an effort to stem the shortfall, which comes after several airlines shed aviators during the pandemic only to be caught flat-footed when travel demand snapped back.

Holly Kemler, spokeswoman for Eugene F. Kranz Toledo Express Airport, said the airport staff “are incredibly disappointed” by American’s decision.

“Please note, this decision was made solely by the airline, primarily due to a shortage of regional pilots,” she said. “Unfortunately, we understand this is a current continued trend in the aviation industry.”

Kemler said the airport is still served by sun-seeker-focused airline Allegiant.

American Airlines said the cities will still be served by flights at other airports that are between 45 miles and 120 miles away.

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Four takeaways as child tax credit kicks off this month

A woman wears a face mask while shopping for a baby shower gift during the Covid-19 pandemic, at Madison’s Niche boutique in Huntington, New York on April 21, 2021.

Alejandra Villa Loarca | Newsday | Getty Images

Child tax credit payments are an “underappreciated stimulus” that could lift sales across the retail, restaurant and travel industries — especially as shoppers emerge from the pandemic and get ready for back-to-school season, according to a research note published Tuesday by Cowen analysts.

The monthly payments, which begin Thursday, could benefit a wide range of companies, from grocers including Walmart to fast food chains such as Jack in the Box, according to the note.

Families have gotten child tax credits for years, but the American Rescue Plan made several key changes. It increased the amount per child from $2,000 to $3,000 for those between the ages of 6 and 17, and to $3,600 for each child under age 6. It qualified low-income families who have little or no taxable income. And it changed the way it is paid out, so that families receive half the money through direct deposits that run from July to December. Families will receive the other half after filing taxes.

That will translate to $250 or $300 per child each month. Families who make up to $150,000 for a couple or $112,500 for a family with a single parent, called a head of household; or $75,000 as an individual taxpayer will get the full amount. The payments will be phased out above that amount — but even those who get less money will receive advance payments.

Parents and caretakers of nearly 90% of children in the U.S. will receive the payments, according to the Internal Revenue Service.

Here are four major takeaways from the analysts:

More dollars mean more spending

The child tax credit will amount to an estimated $150 billion in stimulus over the next year, according to Cowen. Analysts at the equity research firm say the extra dollars may surprise both Americans and the economy at large, calling it “an underappreciated catalyst for discretionary consumer spend.”

As families get the money, Cowen predicts, they will spend it on food for the home, dining out and shopping online. The analysts named retailers and restaurants that are best-positioned to attract those dollars. On the grocery side, they pointed to Walmart, Target and Grocery Outlet. Among fast-food chains, they named Jack in the Box, Wingstop, Papa John’s and Darden, based on a survey of consumers that looked at their incomes and what places they frequent. And among e-commerce companies, they named Amazon.

Coinciding with ‘pent up demand’

Many families have already ramped up spending on new shoes and clothes as they emerge from their homes after getting Covid-19 vaccinations. Analysts from Cowen said that child tax credit dollars will likely feed into that spending spree.

Already, some retail industry watchers have predicted an usually hot back-to-school season as families crave a new start and a sense of more normalcy — and potentially channel that toward fresh notebooks and first-day-of-school outfits.

Cowen analysts expect that retailers that cater to back-to-school or team sports are positioned well to attract child tax credit dollars, including Walmart, Kohl’s, Foot Locker, Dick’s Sporting Goods and Nike. They also said retailers that focus on value, such as off-price retailers Burlington, Ross and T.J. Maxx, could get a boost since they cater to low-income families that are receiving child tax credit payments. They also said American Eagle Outfitters is in a good spot to attract the payments, as it caters to styles that teens crave, such as looser-fitting denim and casualwear.

Spilling over into adult categories

Parents, grandparents and other caretakers may spend some of the child tax credit dollars on themselves in the form of beer, cigarettes and plane tickets, according to Cowen.

Analysts estimated that the tobacco industry could pick up about $1.2 billion and alcoholic beverages could pick up roughly $2.7 billion of the estimated $150 billion impact of the child tax credit. That could mean good news for tobacco company Turning Point Brands and beer industry players, Constellation Brands and Boston Beer.

Cowen estimated air travel will get an approximately $1.15 billion bump from child tax credits, as the July payments arrive just in time for vacation season. That will be most noticeable for airlines that cater to leisure travel and lower prices, such as Allegiant, Frontier and Spirit, the analysts predicted.

A renewal looks likely

The monthly payments will end in December — but Cowen analysts are betting that they will be renewed. In the note, they said they expect the one-year program will be extended through 2025 through a reconciliation bill.

In the note, the analysts cited the size and scope of the government program, which is intended to fight childhood poverty. They called it a “huge policy change” that acts as “universal basic income for low-middle income parents.”

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