JetBlue Airways has offered to buy Spirit Airlines for $3.6 billion, throwing a key to Spirit’s plan to merge with Frontier Airlines and create a budget behemoth.
Spirit and Frontier, the two budget airlines, agreed in February to merge in a deal that the two companies said would save consumers about $1 billion annually. Spirit said on Tuesday that JetBlue had offered $33 per share in cash. Frontier shares have fallen since it and Spirit announced their deal, reducing the value of its offer, which is implied at about $25 a share at current prices.
JetBlue CEO Robin Hayes said in an interview that the acquisition would allow it to offer more affordable, high-quality flights, helping it better compete against airlines that dominate the US market.
“This is really about allowing the larger JetBlue to compete against the four big legacy airlines, offering the JetBlue experience to more customers, bringing more JetBlue flights to higher-priced hub airports and offering real competition,” he said.
Spirit said its board intended to review the offer, which it described as “unsolicited” and “will respond in due course.” After news of the JetBlue offer spread on Tuesday, Frontier said in a statement that the acquisition would limit choices and hurt consumers.
Spirit shares jumped 22 percent on Tuesday, and Frontiers added 4 percent. JetBlue’s stock price fell 7 percent.
Either agreement is sure to face antitrust scrutiny by 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 raise prices and reduce competition. The airlines rejected the premise of the lawsuit, which is still in effect, arguing that the partnership would increase competition against Delta Air Lines, United Airlines and at New York airports.
Mr. Hayes said he did not expect the Spirit deal to affect the lawsuit.
“We see them as very complementary,” he said, arguing that soul acquisition would build on the alliance’s success. “The NEA litigation is taking place this year, while we expect the regulatory process for this transaction to take significantly longer.”
The proposed merger of Spirit and Frontier has also faced scrutiny. Last month, several progressive lawmakers, including Senator Elizabeth Warren, D-Mass., and Bernie Sanders, R-Vermont, voiced concerns, warning that the merger could raise ticket prices and hurt customer service.
Spirit and Frontier argued that the merger would create a stronger competitor for the four major airlines, which control about two-thirds of the domestic market. JetBlue, the sixth largest airline in the United States, made a similar argument in defense of its proposal to acquire Spirit. Both combinations would create the country’s fifth largest airline by market share.
Industry analysts say the merger between Spirit and Frontier makes sense, given similar business models and different regional strengths. Both companies were formed by Indigo Partners, a private equity firm that invests in what are known as “ultra-low-cost airlines” – airlines that focus heavily on the bottom line.
A mixture of Spirit and JetBlue may be less suitable. Both are centered in the eastern United States and overlap on about 11 percent of routes last year, according to Cirium, an aviation data company. Spirit keeps costs and prices low by charging extra for things like carry-on bags and seat selection. JetBlue offers more premium options and offers free perks like branded snacks and wireless internet.
“The question now seems to be: What will this airline be?” said Kyle Potter, executive editor of Thrifty Traveler, a flight deals website. “I don’t know I have a good answer to that. It’s confusing.”
But analysts said the deal has some advantages, too. JetBlue will cement its foothold in Florida, which has been a popular destination throughout the pandemic. The combination will also give JetBlue more scope as it benefits from a rebound in travel and competes with American Airlines, Delta, United and Southwest.
The emergence of an ultra-low-cost business model has already pressured airlines like JetBlue to offer cheaper, more limited fares, so integrating Spirit may be less difficult than it might seem, said Samuel Engel, senior vice president and aviation industry analyst at ICF. , a consulting firm.
“They’ve already built Spirit Airlines fares on their own metals, so it seems very reasonable to me that JetBlue would be able to continue to maintain two brands with different value propositions,” he said.
JetBlue said the deal is expected to generate between $600 million and $700 million in annual savings once the two companies are fully merged. The carrier will also pay Spirit a “reverse breakup fee” if the deal goes through but is canceled due to antitrust concerns.
JetBlue said it expects the acquisition to help growth in “focus cities” such as Los Angeles, Fort Lauderdale and Orlando in Florida, and San Juan, Puerto Rico, as well as at airports that are major hubs for the nation’s largest airlines, including those in Dallas and Houston. Chicago and Atlanta. That would build on what JetBlue described as the success of its alliance with American, which fueled the carrier’s growth in New York and Boston.
JetBlue said the combined company would offer an estimated 1,700 daily flights serving more than 77 million customers a year. Once the airline completes the planned retirement of dozens of smaller aircraft, it and Spirit will operate all Airbus fleets. Under the agreement, Spirit’s aircraft will be renamed, modified and modernized under the JetBlue brand.