Will JetBlue Airways (NASDAQ:JBLU) Buy Virgin America Airlines (NASDAQ:VA)?

JetBlue AirwaysJetBlue Might Acquire Virgin America Inc

JetBlue Airways Corporation (NASDAQ:JBLU) could more than double its traffic and gain dominant access to the American West Coast in a single move.

It may not seem like it, but JetBlue has gained almost eight percent over the past year on Wall Street. Yet, JetBlue stock has failed to take off in 2016, despite superior potential compared to sector peers.

In the past year, JBLU stock has lost more than eight percent. Yet the airline is in full growth mode. It has opened new routes and is even slated to become one of the first U.S.-based airlines to resume regular service to Cuba.

Now, JetBlue is a frontrunner to acquire Virgin America Inc (NASDAQ:VA). This could be one of JetBlue’s biggest moves to date. In a single move, JBLU would gain coveted access to the U.S. West Coast, becoming a dominant player in that market. This would allow it to run new routes and gain a 60-Airbus airliner fleet with an average age of 6.3 years, which is quite new by any airline standard. (Source: “The Future is Neo-w: Virgin America to Acquire 10 New Airbus A321neos,” Yahoo! Finance, December 15, 2015.)

JetBlue and Virgin America also serve similar destinations. JetBlue and Hawaiian Airlines have a substantial code-share agreement and Virgin America would allow JetBlue to gain a wider and direct presence in the Hawaii market.

However, JetBlue’s biggest goal in securing Virgin America would be its market presence in the West Coast, beyond the Los Angeles area. For instance, VA airlines would give JetBlue coveted access to San Francisco International, an important airport for Asia connections.

VA stock surged about 10% at market open, soaring to $37.40, while JetBlue gained 3.11%. Rumors that Virgin America would be up for sale have sent VA stock soaring more than 13% over the past weeks as investors reacted to related rumors from Bloomberg. (Source: “Virgin America Weighs Sale After Receiving Interest,” Bloomberg, March 23, 2016.)

Virgin America is a subsidiary of Virgin Group, belonging to British entrepreneur Richard Branson. It made its Wall Street debut in public in November 2014 at a price of $23.00 per share with a $1.23-billion market capitalization at the time. At current prices, VA stock has a market cap of $1.4 billion. JetBlue’s market cap is about $6.68 billion.

For the past three years in a row, Jet Blue has recorded a constant rise in revenue and earnings per share (EPS); the former has risen from $5.4 billion in 2013 to $6.4 billion in 2015, while EPS have increased from $0.52 to $1.98 during the same period. (Source: “Stock Grabbing Investor’s Attention: JetBlue Airways Corporation (JBLU),” CWRU Observer, March 15, 2016.)

JBLU stock is currently trading at $20.18. However, the stock shot past $27.00 last September and it has all the power it needs to return to that level this year. Analysts have $27.35 as the mean target; the more bullish analysts have set a target of $32.00. (Source: Ibid.)

JetBlue is also expanding to Europe. On February 22, it launched a partnership with TAP Portugal to offer daily flights between Lisbon and the United States. The first flights will be from Boston to Lisbon, starting June 11 and a few weeks later, it will launch flights between Lisbon and New York. (Source: “TAP Portugal to Link With JetBlue on Trans-Atlantic Flights,” The Wall Street Journal, February 22, 2016.)

While Alaska Air is a frontrunner to acquire Virgin America, it makes more sense for JetBlue to win the prize from an operational standpoint. One of the major synergies is in the fleet. That is no small concern in the world of low-cost operations. Both VA and JBLU run all-Airbus fleets. This makes it an ideal match: the pilots of both airlines will not need training. Maintenance and other technical aspects would also be easily integrated.