JetBlue Airbus A321LR is displayed at the 54th International Paris Air Show at Le Bourget Airport near Paris, France, June 20, 2023.
Benoit Tessier | Reuters
Company: JetBlue Airways (JBLU)
Business: JetBlue is a New York-based airline company serving over 100 destinations across the United States, the Caribbean and Latin America, Canada and Europe. JetBlue was incorporated in August 1998 and commenced service on Feb. 11, 2000.
Stock Market Value: $2.36B ($6.96 per share)
JBLU’s performance over the past year
Activist: Carl Icahn
Percentage Ownership: 9.91%
Average Cost: $5.57
Activist Commentary: Carl Icahn is the grandfather of shareholder activism and a true pioneer of the strategy. He is very passionate about shareholder rights and good corporate governance and will go to extreme lengths to fight incompetent boards and over compensated managers. While Carl Icahn is not slowing down at all, in October 2020, he reached an agreement with his son Brett Icahn to rejoin the firm as the eventual successor. Brett has said that he plans to employ his father’s favored approach of pushing companies to make changes designed to boost their stock prices, though he hasn’t ruled out friendly bets. This is not a departure from the strategy Carl has succeeded with for many years. He can be friendly (i.e., Apple, Netflix) or he can be confrontational (i.e., Forest Labs, Biogen). Often it depends on the response of management. Brett is an impressive activist investor in his own right, not because he is Carl’s son, but because he has demonstrated a long track record of extremely successful activist investing. Much has been written about the Sargon portfolio he co-headed at Icahn, which at one time totaled around $7 billion and included extremely profitable investments in companies such as Netflix and Apple. The Sargon portfolio significantly outperformed the market with an annualized return of 27%. However, prior to that Brett started in 2002 with Icahn as an analyst and was later responsible for campaigns like Hain Celestial (280.3% return versus 46.7% for the S&P 500), Take-Two Interactive (81.5% versus 64.5%) and Mentor Graphics (106.4% versus 79.4%).
What’s happening
Behind the scenes
Carl Icahn is the quintessential, iconic corporate governance investor. When he takes a nearly 10% position in a company and does not state that he wants board seats, he generally wants them. When, as here, he states in his 13D filing that he has spoken to the company about getting board seats, he will not stop until he obtains them. On Jan. 8, JetBlue’s CEO stepped down. On Jan. 16, a federal court blocked the JetBlue/Spirit merger. On Jan. 19, Carl Icahn started acquiring his position. This is an inflection point in the history of JetBlue, and there is no better time to have an activist on the board – at least if you are a shareholder. This is less the case if you are the brand-new CEO.
Investors seemed relieved that JetBlue wouldn’t be paying $3.8 billion for Spirit, which has a market capitalization of $702 million. On Jan. 16, JetBlue’s stock rose 4.9% on the development, and we believe that Icahn acquiring after the news signals that he was not a fan of the merger. The company is now appealing the decision, and we would expect Icahn and other shareholders to convey their opinion to put the merger behind them and move on with an organic plan to create value for shareholders.
This plan will be happening with a new CEO, Joanna Geraghty. On Feb. 12, her first day in her new post, she had a Carl Icahn 13D on her desk. This 13D filing is certainly not a reflection on her; it is a reflection on the trading price of a company that Icahn sees as undervalued. However, former CEO Robin Hayes resigned abruptly. Geraghty was not appointed after a thorough CEO search, so it is still somewhat of an unknown as to whether she is the right person to lead JetBlue. While the Spirit deal was part of Hayes’ growth strategy, Geraghty has been at JetBlue for nearly two decades, most recently as president and chief operating officer, so she would at least be aware of the company’s issues.
With everything moving so quickly, Icahn likely has not even been able to decide as to whether Geraghty is the right CEO for the company. That is probably one of the reasons he sought board seats. He wants a seat at the table to evaluate these important decisions as JetBlue embarks on a turnaround to close its valuation gap. As he has done so many times in the past, from a board level he can work with management in executing its plan, but he can also hold them accountable if they fail.
JetBlue has an excellent brand and has historically had innovative ideas to improve the customer experience, but it has been struggling with cost controls and reliability. Among U.S. airlines, it is ninth in on-time arrivals through the first 10 months of 2023, per the Transportation Department. Yes, it is difficult for JetBlue to compete as a small player in an industry dominated by four large airlines (American, Delta, United and Southwest) that control about 80% of the domestic market. But JetBlue’s last annual profit was in 2019, before the pandemic, while its peers have returned to profitability. The company said it is on track to cut as much as $200 million in costs by the end of the year and is reportedly working on $300 million in new revenue initiatives. This is a good start, but there is likely a lot more that can be done and having an experienced shareholder representative on the board during this time will be very beneficial to investors.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.