JetBlue makes offer for Spirit in attempt to derail deal with Frontier

JetBlue’s cash offer is approximately 33% more 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 nation’s fifth-largest airline behind the four carriers: American (ALA), United (UAL), Delta (FROM THE) and south west (LUV) — which between them transport more than 80% of the national air traffic.

“The combination of the two airlines would position JetBlue as the most compelling domestic low-fare competitor 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 is in the best interest of Spirit and its shareholders.”

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

“A combination of Spirit and Frontier will generate $1 billion in annual savings for consumers and offer even more ultra-low fares to more locations across the country, creating America’s most competitive ultra-low fare airline,” Frontier said, adding that the The combination would provide “shareholders with substantial growth potential for the combined company as a result of merger synergies.”

Both Spirit and Frontier operate as what are known in the industry as ultra-low-cost carriers, with very low base fares and additional charges for just about anything else a passenger needs, including even carry-on luggage.

They rely much more heavily on bargain-seeking leisure travelers and carry fewer business travelers than their larger rivals. With business travel recovering from the pandemic much more slowly than leisure travel, Spirit and Frontier have recovered faster than their larger rivals.

While passengers may like the low fares offered by Spirit and Frontier, they have 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 from the US Department of Transportation. JetBlue had the second-most complaints on that basis with 6.4, but that was 43% less than the previous year. Frontier had the third most in the industry at 5.8. IN 2020, Frontier had by far the worst complaint rate at 49.3 complaints per 100,000 customers.

Frontier and Spirit also had the worst customer satisfaction ratings in the industry for 2021, according to the American Customer Satisfaction Index, while JetBlue was tied for the third-best rating 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 JetBlue CEO Robin Hayes.

The US airline industry has been reshaped by mergers in the last 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 US airline merger since Alaska Air bought Virgin America in 2016.
However, the Biden administration has taken a much harder line on the antitrust implications of corporate mergers and the need to protect competition to benefit consumers. It has even sued to stop 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 into that theme, saying that since only 18% of the routes flown by Frontier or Spirit are flown by both airlines, their deal would be much better for competing airlines. He argued that a JetBlue-Spirit combination would reduce competition and result in higher fares.

“It is surprising that JetBlue would consider such a merger at this time given that the Justice Department is currently suing to block its pending alliance with American Airlines,” Frontier said.

JetBlue shares, Spirit (SAVE) and Border (FORWARD) they were all slightly lower in after-hours trading after the announcement.

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