JetBlue appoints Carl Icahn to its board, and here's how he may contribute to the airline's growth.

Company: JetBlue Airways (JBLU)

JetBlue is a New York-based airline company that serves over 100 destinations across the United States, the Caribbean, Latin America, Canada, and Europe. The company was incorporated in August 1998 and began service on February 11, 2000.

Stock Market Value: $2.36B ($6.96 per share)

Activist: Carl Icahn

Percentage Ownership:  9.91%

Average Cost: $5.57

Carl Icahn is a renowned activist investor who is known for his passion for shareholder rights and good corporate governance. He has been a pioneer of the shareholder activism strategy and has gone to great lengths to fight incompetent boards and overcompensated managers. While he is not slowing down, 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 that Carl has been successful with for many years. He can be friendly or confrontational, depending 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 S

What’s happening

Icahn Enterprises and JetBlue reached an agreement, resulting in Jesse Lynn and Steven Miller joining JetBlue's board of directors.

Behind the scenes

Carl Icahn is a renowned corporate governance investor who typically seeks board seats when he takes a nearly 10% position in a company and does not explicitly state his desire for them. In the case of JetBlue, Icahn has stated in his 13D filing that he has spoken to the company about obtaining board seats, and he will not stop until he achieves this goal. This is a pivotal moment in JetBlue's history, and having an activist on the board could be beneficial for shareholders. However, this may not be the case for the brand-new CEO.

JetBlue's stock rose 4.9% on Jan. 16 after investors seemed relieved that the company wouldn't be paying $3.8 billion for Spirit, which has a market capitalization of $702 million. Icahn acquiring after the news suggests that he was not a fan of the merger, and the company is now appealing the decision. We expect Icahn and other shareholders to voice their opinions to put the merger behind them and move on with an organic plan to create value for shareholders.

Joanna Geraghty, the new CEO of JetBlue, received a 13D filing from Carl Icahn on her first day in office. This filing reflects Icahn's view that the company is undervalued, not a reflection on Geraghty herself. However, the sudden resignation of former CEO Robin Hayes and the lack of a thorough CEO search raises questions about Geraghty's ability to lead the company effectively. While the Spirit deal was part of Hayes' growth strategy, Geraghty, who has been at JetBlue for nearly two decades and most recently as president and chief operating officer, would at least be aware of the company's issues.

Icahn has not yet decided if Geraghty is the right CEO for JetBlue, which is why he sought board seats. He wants to be at the table to evaluate important decisions as JetBlue undergoes a turnaround to close its valuation gap. As he has done in the past, he can work with management to execute their plan but also hold them accountable if they fail from a board level.

JetBlue has a strong brand and has consistently introduced creative solutions to enhance the customer experience. However, the airline has been grappling with cost management and dependability. According to the Transportation Department, JetBlue ranks ninth in on-time arrivals through the first 10 months of 2023 among U.S. airlines. Despite being a small player in an industry dominated by four major airlines (American, Delta, United, and Southwest) that control about 80% of the domestic market, JetBlue's last annual profit was in 2019, before the pandemic, while its peers have returned to profitability. The company aims to reduce costs by up to $200 million by the end of the year and is reportedly working on $300 million in new revenue initiatives. While this is a positive step, there is likely more that can be accomplished, and having an experienced shareholder representative on the board during this time will be highly beneficial to investors.

Ken Squire is both 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.