JetBlue Airways has offered to buy Spirit Airlines for $3.6 billion, which is key in Spirit’s plan to merge with Frontier Airlines and create a massive budget airline.
Spirit and Frontier, both low-cost carriers, agreed in February to merge into a deal the companies said would save consumers about $1 billion a year. JetBlue was offering $33 a share in cash, Spirit said Tuesday. Shares of Frontier have fallen since it and Spirit announced their deal, pushing down the value of the offer, which has an implied value of about $25 a share at current prices.
JetBlue CEO Robin Hayes said in an interview that the acquisition would allow the airline to offer more quality, affordable flights, allowing it to better compete with the airlines that dominate the US market.
“This is about allowing a larger JetBlue to truly compete with four major legacy airlines, bringing the JetBlue experience to more customers, bringing more JetBlue flights to high-fare legacy hub airports, and providing real competition.” he said.
Spirit said the board planned to review the offer, which it described as “unsolicited”, and would respond in due course. After news of JetBlue’s offerings came out on Tuesday, Frontier said in a statement the acquisition would limit options and hurt consumers.
Shares of Spirit are up 22 percent on Tuesday and Frontier’s 4 percent. JetBlue’s share price fell 7 percent.
Both deals would certainly face antitrust scrutiny by the Biden administration, which has taken a tough stance on mergers and partnerships. Last year, the Justice Department filed a lawsuit to prevent JetBlue from forming a domestic partnership called the Northeast Alliance with American Airlines, arguing the agreement would drive prices up and reduce competition. The airlines rejected the premise of the still-ongoing lawsuit, claiming the partnership would increase competition against Delta Air Lines and United Airlines and at New York’s airports.
Mr Hayes said he did not expect the deal with Spirit to affect the lawsuit.
“We see them as highly complementary,” he said, arguing that the acquisition of Spirit would build on the alliance’s success. “The NEA lawsuits are set to take place this year, while we expect the regulatory process for this transaction to take much longer.”
The proposed merger between Spirit and Frontier has also been scrutinized. Last month, several progressive lawmakers, including Senators Elizabeth Warren, Democrat from Massachusetts, and Bernie Sanders, independent of Vermont, expressed doubts, warning that the merger could raise ticket prices and hurt customer service.
Spirit and Frontier have argued that a merger would create a stronger competitor for the four largest airlines, which control about two-thirds of the domestic market. JetBlue, the seventh largest airline in the United States, made a similar argument in defense of its proposed acquisition of Spirit. Both combinations would make the country’s fifth largest airline by market share.
A merger between Spirit and Frontier makes sense given their similar business models and different regional strengths, industry analysts say. Both airlines were formed by Indigo Partners, a private equity firm that invests in what are known as “ultra-low-cost carriers” – airlines with a strong focus on the bottom line.
A combination of Spirit and JetBlue may not be a good fit. Both are concentrated in the eastern United States and overlapped on about 11 percent of routes last year, according to Cirium, an airline data company. Spirit keeps costs and fares low by charging extra for things like carry-on luggage and seat selection. JetBlue offers more premium options and offers free perks such as brand-name snacks and wireless internet.
“The question now seems to be: what will this airline be?” said Kyle Potter, the editor-in-chief of Thrifty Traveler, a flight deals website. “I don’t know if I have a good answer for that. It’s puzzling.”
But the deal also has some merit, analysts said. JetBlue would strengthen its position in Florida, which was a popular destination during the pandemic. The combination would also give JetBlue greater scale, as it capitalizes on the uptick in travel and competes with American, Delta, United and Southwest Airlines.
The rise of the ultra-low-cost business model has already pressured airlines like JetBlue to introduce cheaper, reduced fares, so integrating Spirit may not be as difficult as it looks, said Samuel Engel, senior vice president and analyst. aviation industry at ICF. , a consultancy.
“They’ve already made Spirit Airlines prices for their own metal, so it seems very likely to me that JetBlue would be able to keep two brands with different value propositions,” he said.
JetBlue said the transaction was expected to generate between $600 million and $700 million in annual savings once the two airlines were fully combined. The carrier would also pay Spirit a “reverse termination fee” if the deal was pursued, but called off due to antitrust issues.
JetBlue said it expects the acquisition to help the company grow in “focus cities” such as Los Angeles, Florida’s Fort Lauderdale and Orlando, and San Juan, Puerto Rico, as well as airports that are major hubs for the country’s largest airlines, including those in Dallas, Houston, Chicago and Atlanta. That would build on what JetBlue described as the success of its alliance with American, which has fueled the airline’s growth in New York and Boston.
The combined company would operate an estimated 1,700 daily flights and serve more than 77 million customers annually, JetBlue said. Once the airline completes a planned retirement of several dozen smaller aircraft, both it and Spirit would operate all Airbus fleets. Under the deal, Spirit’s aircraft would be rebranded and converted under the JetBlue brand.
