Does JetBlue's surprise bid for Spirit make sense for the carrier's network? At first glance, Wall Street didn't think so.
JetBlue Airways threw the airline world for a loop with a surprise bid for ultra-low-cost carrier Spirit Airlines, that may derail Spirit’s planned merger with Frontier Airlines.
JetBlue’s $3.6 billion deal offers investors a $700 million premium over the $2.9 billion Frontier-Spirit merger. The New York Times first reported the JetBlue-Spirit news.
Spirit Airlines confirmed that it received an unsolicited offer from JetBlue. The New York-based carrier proposes to acquire “all of the outstanding shares of Spirit’s common stock in an all-cash transaction for $33.00 per share,” Spirit said in a statement.
JetBlue said its bid is a “superior proposal,” compared with Frontier’s and offers a 52 percent premium for investors. “While JetBlue and Spirit are different in many ways, we also have much in common, including a focus on keeping our costs low so we can profitably expand and offer an attractive alternative to the dominant ‘Big Four’ airlines,” CEO Robin Hayes said in a statement. “We would conduct a full review of Spirit’s product offering, operational and customer technology, and talent pool to optimize the combined airline.”
Whether the deal is approved remains an open question. JetBlue already is under regulatory scrutiny for its partnership with American Airlines, known as the “Northeast alliance.” The U.S. Justice Department last year sued to block that partnership, arguing that it would reduce competition on the East Coast. Both American and JetBlue vowed to fight the suit, with then-American CEO Doug Parker saying bluntly, “We’ll win.”
Frontier-Spirit would comprise 7 percent of the U.S. market, while JetBlue-Spirit would be 8 percent, according to U.S. Department of Transportation data via Cirium. In Fort Lauderdale and Orlando, where both JetBlue and Spirit have bases, they would have a combined share of 48 percent and 26 percent, respectively.
A potential deal with Spirit may present fewer regulatory obstacles than the American partnership, but makes less sense for JetBlue. While Frontier and Spirit both operate similar, but not overlapping, low-cost networks geared toward price-sensitive leisure travelers, JetBlue and Spirit are very different airlines. JetBlue’s model aims to cater to both leisure and business travelers, with a premium cabin on some aircraft, more international flights — including recently launched London flights — and routes to business destinations, including its hub in New York.
Most analysts believe that a Spirit-Frontier tie up would come under the regulatory microscope but could ultimately be approved by the Biden Justice Department, because the airlines operate complementary networks at the lower end of the market. But the Biden Justice Department has signaled, through its suit to block the northeast alliance, that it is leery of further concentration in the airline — and indeed, in any — industry.
Congressional Democrats also have signaled they have little appetite for further consolidation. Senator Elizabeth Warren (D-Mass.) and Representative Mondaire Jones (D-N.Y.) last month introduced legislation in both houses of Congress to beef up the Justice Department’s antitrust oversight and to allow the federal government to unwind mergers deemed anticompetitive. The lawmakers singled out the proposed Spirit-Frontier deal as an example of concentration in one industry going too far.
The U.S. airline industry already is concentrated, especially among full-service, network carriers. American Airlines, Delta Air Lines, United Airlines, and Southwest Airlines together fly about 80 percent of all airline passengers in the country. Alaska Airlines handles about 5 percent of all U.S. passengers. Those five airlines themselves are the results of mergers in the 2000s and 2010s: American-US. Airways; Delta-Nortwest; United-Continental; and Alaska-Virgin America.
The market has been skeptical. JetBlue shares fell more than 7 percent immediately after the Spirit news broke.