June 28, 2022

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JetBlue Makes Offer for Spirit Airlines

2 min read

JetBlue Airways has made an offer to acquire Spirit Airlines for roughly $3.6 billion, three people with knowledge of the matter said, throwing a wrench into Spirit’s plan to merge with Frontier Airlines.

Spirit and Frontier, two budget carriers that largely operate domestically, had agreed to merge in early February in a deal the companies said would bring about $1 billion in annual savings for consumers. JetBlue has offered $33 a share in cash, one of the people said. That price is a roughly 40 percent premium to Frontier’s cash and share offer for Spirit, which has an implied value of about $23 a share at current prices.

Shares of Frontier have fallen by more than 10 percent since shortly before the two airlines announced the deal, reducing the value of its original offer. The board of Spirit has not made a decision yet on which deal to pursue, one of the people said, but plans to review JetBlue’s bid thoroughly.

Spirit and Frontier have said that by merging, they would make the aviation industry more competitive. The combined entity would become the nation’s fifth-largest airline by market share, making it a stronger competitor to the four biggest airlines, which control about two-thirds of the domestic market, they said. JetBlue is the sixth-largest airline in the United States.

A merger of Spirit and Frontier makes sense given their overlapping business models and different regional strengths, industry analysts say. Both 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 — and has been involved with both carriers.

But a combination of Spirit and JetBlue is less of a clear fit. Both airlines are heavily concentrated in the Eastern United States. Spirit keeps costs and fares low by charging extra for everything from carry-on bags to seat selection. JetBlue, by contrast, offers more premium options and provides free in-flight perks such as name-brand snacks and wireless access.

Either deal could face scrutiny from the Biden administration, which has taken a tougher stance on mergers. Last month, several progressive lawmakers expressed misgivings about the proposed merger between Spirit and Frontier. Senators Elizabeth Warren of Massachusetts and Bernie Sanders of Vermont were among those who warned that the deal, if it went through, could raise ticket prices and lower customer service.

JetBlue has been subject to its own antitrust scrutiny. Last year, the Justice Department sued to prevent JetBlue from forming a domestic alliance with American Airlines, arguing that the agreement would drive up prices and reduce competition. The airlines rejected the lawsuit’s premise, contending that their partnership would in fact help increase competition against Delta Air Lines and United Airlines and in New York airports.

Lauren Hirsch, Anupreeta Das and Niraj Chokshi

2022-04-05 19:37:44

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