JetBlue’s offer is worth more than Frontier’s, but the combination of Spirit and JetBlue is less of a clear fit, industry analysts say.
JetBlue Airways has offered to buy Spirit Airlines for $3.6 billion, throwing a wrench into Spirit’s plan to merge with Frontier Airlines and create a behemoth budget carrier.
Spirit and Frontier, both low-cost airlines, agreed in February to merge in a deal that the companies said would save consumers about $1 billion a year. JetBlue offered $33 a share in cash, Spirit said on Tuesday. Frontier’s shares have fallen since it and Spirit announced their deal, reducing the value of its offer, which has an implied value of about $25 a share at current prices.
JetBlue’s chief executive, Robin Hayes, said in an interview that the acquisition would allow the carrier to offer more quality, affordable flights, helping it to better compete against the airlines that dominate the U.S. market.
“This is about really allowing a bigger JetBlue to compete against four large legacy airlines, bringing the JetBlue experience to more customers, bringing more JetBlue flights into high-fare legacy hub airports and offering real competition,” he said.
Spirit said its board planned to review the bid, which it described as “unsolicited,” and would “respond in due course.” After news of JetBlue’s offer broke on Tuesday, Frontier said in a statement that the acquisition would limit options and harm consumers.
Spirit’s shares jumped 22 percent on Tuesday, and Frontier’s rose 4 percent. JetBlue’s stock price fell 7 percent.
Either deal would be sure to face antitrust scrutiny from the Biden administration, which has taken a tough stance on mergers and partnerships. Last year, the Justice Department sued to prevent JetBlue from forming a domestic partnership, called the Northeast Alliance, with American Airlines, arguing that the agreement would drive up prices and reduce competition. The airlines rejected the premise of the still active lawsuit, contending that the partnership would increase competition against Delta Air Lines and United Airlines and in New York airports.
Mr. Hayes said he didn’t expect the Spirit deal to affect the lawsuit.
“We see them as very complementary,” he said, arguing that the acquisition of Spirit would build on the success of the alliance. “The NEA litigation is happening this year, whereas we expect the regulatory process for this transaction to take much longer.”
The proposed merger between Spirit and Frontier has also faced scrutiny. Last month, several progressive lawmakers, including Senators Elizabeth Warren, Democrat of Massachusetts, and Bernie Sanders, independent of Vermont, expressed misgivings, warning that the merger could raise ticket prices and harm customer service.
Spirit and Frontier have argued that a merger would create a stronger competitor to the four biggest airlines, which control about two-thirds of the domestic market. JetBlue, which is the sixth-largest airline in the United States, made a similar argument in defense of its proposed acquisition of Spirit. Either combination would create the nation’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 shaped by Indigo Partners, a private equity firm that invests in what are known as “ultra-low-cost carriers” — airlines that are sharply focused on the bottom line.
A combination of Spirit and JetBlue may be less of a clear fit. Both are concentrated in the Eastern United States and overlapped on about 11 percent of routes last year, according to Cirium, an aviation data firm. Spirit keeps costs and fares low by charging extra for things like carry-on bags and seat selection. JetBlue offers more premium options and provides free perks such as name-brand snacks and wireless internet.
“The question now seems to be: What is this airline going to be?” said Kyle Potter, the executive editor of Thrifty Traveler, a flight deals website. “I don’t know that I have a good answer to that. It’s puzzling.”
But the deal has some merit, too, analysts said. JetBlue would strengthen its foothold in Florida, which has been a popular destination throughout the pandemic. The combination would also give JetBlue greater scale as it takes advantage of the rebound in travel and competes with American, Delta, United and Southwest Airlines.
The rise of the ultra-low-cost business model has already pressured carriers like JetBlue to introduce cheaper, limited fares, so integrating Spirit may be less difficult than it would seem, said Samuel Engel, a senior vice president and airline industry analyst at ICF, an advisory firm.
“They already created Spirit Airlines pricing on their own metal, so it seems very plausible to me that JetBlue would be able to continue to maintain two brands with different value propositions,” he said.
JetBlue said the transaction was expected to deliver between $600 million and $700 million in annual savings once the two airlines were fully combined. The carrier would also pay Spirit a “reverse breakup fee” if the deal was pursued but called off over antitrust concerns.
JetBlue said it expected the acquisition to help it grow in “focus cities” such as Los Angeles, Fort Lauderdale and Orlando in Florida, and San Juan, Puerto Rico, as well as in airports that are major hubs for the nation’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 growth for the carrier in New York and Boston.
The combined company would offer an estimated 1,700 daily flights, serving more than 77 million customers a year, JetBlue said. Once the airline finishes a planned retirement of a few dozen smaller planes, both it and Spirit would operate all-Airbus fleets. Under the deal, Spirit’s planes would be rebranded and retrofitted under the JetBlue brand.