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    Home»Business»JetBlue makes offer for Spirit Airlines
    Business

    JetBlue makes offer for Spirit Airlines

    adminBy adminApril 5, 2022No Comments
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    JetBlue Airways has offered to buy Spirit Airlines for $3.6 billion, scuttling Spirit’s plan to merge with Frontier Airlines and create a giant low-cost carrier.

    Spirit and Frontier, both low-cost airlines, agreed in February to combine in a deal the companies said would save consumers about $1 billion a year. JetBlue offered $33 a share in cash, Spirit said Tuesday, far more than Frontier’s cash-and-stock offering.

    Frontier’s shares have fallen since she and Spirit announced their deal, reducing the value of the offer, which has an implied value of about $25 per share at current prices. Spirit said its board plans to review JetBlue’s offer and “act in due course.” JetBlue chief executive Robin Hayes said the deal is “a game changer” that will allow the airline to offer higher quality and more affordable flights.

    “Customers shouldn’t have to choose between a low fare and a great experience, and JetBlue has shown that both are possible,” he said in a statement.

    After news of the deal broke Tuesday, Frontier countered that JetBlue’s prospective purchase of Spirit would limit options and harm consumers.

    Spirit’s shares were up 22 percent on Tuesday and Frontier’s were up 4 percent. JetBlue’s share price fell 7 percent.

    Both deals would certainly be subject to antitrust scrutiny by the Biden administration, which has a tough stance on mergers and partnerships. Last year, the Justice Department sued to stop JetBlue from forming a domestic alliance with American Airlines, arguing that the agreement would drive up prices and reduce competition. The airlines dismissed the premise of the ongoing lawsuit, claiming that the partnership would increase competition against Delta Air Lines and United Airlines, as well as at New York airports.

    And last month, several progressive lawmakers, including Senators Elizabeth Warren, a Democrat from Massachusetts, and Bernie Sanders, an independent from Vermont, raised concerns 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 create the country’s fifth-largest airline by market share. JetBlue is the sixth largest airline in the United States.

    The merger between Spirit and Frontier makes sense given their similar business models and different regional strengths, say industry analysts. Both airlines were shaped by Indigo Partners, a private equity firm that invests in so-called “ultra-low-cost carriers” — airlines that are heavily focused on the bottom line.

    A combination of Spirit and JetBlue may be less suitable. Both airlines are focused on the eastern United States. Spirit keeps costs and fares down by adding a premium for everything from carry-on luggage to seat selection. JetBlue offers more premium options and free inflight perks like branded 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 to that. It is confusing.”

    But the deal also has some upsides, analysts said. JetBlue would bolster its presence in Florida, which has been a popular travel destination during the pandemic. The combination would also give JetBlue greater range as it competes to use the travel boost.

    The rise of the ultra-low-cost business model has already pressured major airlines like JetBlue to introduce cheaper, capped fares, so integrating Spirit may not be as difficult as it first appears, said Samuel Engel, senior vice president and Airline Industry Analyst at ICF, a consulting firm.

    “They’ve already priced Spirit Airlines on their own metal, so it seems very plausible to me that JetBlue can continue to have two brands with different value propositions,” he said.

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