JetBlue bids on Spirit in attempt to derail Frontier deal

JetBlue’s cash offer is approximately 33% higher than the value of Frontier’s stock and cash offer for Spirit. Such a transaction would prevent a combination of Frontier and Spirit from overtaking JetBlue to become the fifth largest airline in the country behind the four airlines – American (AAL), United (LAU), Delta (LAD) and South West (LUV) — which carry among them more than 80% of national air traffic.

“The combination of the two airlines would position JetBlue as the most compelling domestic low-cost challenger to the dominant Big Four US carriers by accelerating JetBlue’s growth,” JetBlue said in its statement.

Spirit said it “will work with its financial and legal advisors to evaluate JetBlue’s proposal and pursue the course of action it determines to be in the best interests of Spirit and its shareholders.”

For its part, Frontier defended its offer as the superior offer for passengers and shareholders.

“A combined Spirit and Frontier will save consumers $1 billion a year and offer even more ultra-low fares to more places nationwide, creating the most competitive ultra-low fare airline of America,” Frontier said, adding that the combination would provide “shareholders with substantial growth potential for the combined company through the synergies of the merger.”

Both Spirit and Frontier operate as what is known in the industry as Ultra Low Cost Carriers, with very low base fares and surcharges for just about anything a passenger needs, including even handbags.

They are much more dependent on leisure travelers looking for bargains and carry fewer business travelers than their larger rivals. While business travel has rebounded from the pandemic much more slowly than leisure travel, Spirit and Frontier have rebounded faster than their biggest rivals.

While passengers may like the low fares offered by Spirit and Frontier, they’ve generally given the airlines low customer satisfaction ratings.

Spirit had by far the highest number of passenger complaints in 2021, with 11.5 complaints per 100,000 passengers, according to statistics kept by the US Department of Transportation. JetBlue had the second highest number of complaints on this basis at 6.4, but that was down 43% from a year earlier. Frontier had the third highest number in the industry at 5.8. IN 2020, Frontier had by far the worst complaint rate when it recorded 49.3 complaints per 100,000 customers.

Frontier and Spirit also had the industry’s worst customer satisfaction ratings for 2021, according to the U.S. Customer Satisfaction Index, while JetBlue tied for third best on that index.

“Customers shouldn’t have to choose between a low fare and a great experience, and JetBlue has shown that it’s possible to have both,” said Robin Hayes, CEO of JetBlue.

The US airline industry has been reshaped by mergers over the past 25 years. Today’s four largest airlines were formed from a series of mergers between 10 airlines. If JetBlue or Frontier end up with Spirit, it would be the first airline merger in the United States since Alaska Air bought Virgin America in 2016.
However, the Biden administration has taken a much harder line on the the antitrust implications of corporate mergers and the need to protect competition in the interest of consumers. He even sued to end an alliance between JetBlue and American that allows airlines to book passengers on each other’s flights, even though it’s not a full merger.

Frontier played on this issue, saying that since only 18% of routes flown by Frontier or Spirit are operated by the two carriers, its deal would be much better for airline competition. He argued that a JetBlue-Spirit combination would reduce competition and lead to higher fares.

“It is surprising that JetBlue is considering such a merger at this time given that the Department of Justice is currently suing to block their ongoing alliance with American Airlines,” Frontier said.

JetBlue shares, Spirit (SAVE) and Frontier (FRNT) were all slightly lower in after-hours trading following the announcement.


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