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 in a deal the companies say would save consumers about $1 billion a year. JetBlue offered $33 a share in cash, Spirit said Tuesday, much more than Frontier’s cash-and-stock offering.
Shares of Frontier have fallen since it and Spirit announced their deal, decreasing the value of the offer, which has an implied value of about $25 a share at current prices. Spirit said the board plans to review JetBlue’s offer and respond in due course. JetBlue’s chief executive, Robin Hayes, said the deal would be “a game changer”, allowing the airline to offer more quality, affordable flights.
“Customers shouldn’t have to choose between a low rate and a great experience, and JetBlue has shown that it is possible to have both,” he said in a statement.
After news of the bid broke on Tuesday, Frontier refuted that JetBlue’s future purchase of Spirit would limit options and harm 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 alliance with American Airlines, arguing the agreement would drive prices up and reduce competition. The airlines rejected the premise of the lawsuit, which is pending, arguing that the partnership would increase competition against Delta Air Lines and United Airlines and at New York airports.
And last month several progressive lawmakers, including Senators Elizabeth Warren, Democrat from Massachusetts, and Bernie Sanders, independent of Vermont, expressed doubts about the proposed merger between Spirit and Frontier, warning that it could increase ticket prices and hurt customer service. .
But Spirit and Frontier have argued that a merger would make aviation more competitive by creating a stronger competitor for the four largest airlines, which control about two-thirds of the domestic market. Both combinations would make the country’s fifth largest airline by market share. JetBlue is the sixth largest airline in the United States.
The Spirit and Frontier merger 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 airlines are concentrated in the eastern United States. Spirit keeps costs and fares low by charging extra for everything from carry-on luggage to seat selection. JetBlue offers more premium options and offers free in-flight 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 competes to take advantage of the burst in travel.
The rise of the ultra-low-cost business model has already pressured major airlines like JetBlue to introduce cheaper, reduced fares, so integrating Spirit may be less difficult than it looks, said Samuel Engel, senior vice president and aviation industry analyst at ICF, a consulting firm.
“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.
