As Part Of The $3.8 Billion Deal, Jetblue Will Acquire Spirit Airlines

JetBlue Airways announced on Thursday that it will purchase Spirit Airlines, creating America’s fifth-largest airline as a result of the deal.

Earlier this week, Spirit pulled the plug on a deal to merge with Frontier Corporation after pulling out of the deal a day earlier.
JetBlue had been pursuing a hostile bid for Spirit at the same time as Spirit sought approval from shareholders for a lower-priced deal with Frontier.

Throughout the years, Spirit Airlines had repeatedly expressed concern about whether a deal with JetBlue would be approved by regulators.

In spite of this, Frontier’s cash-and-stock offer was less attractive to shareholders than JetBlue’s all-cash offer, which had been presented to them earlier in the process.
CEO Robin Hayes of JetBlue said that both investors and passengers will benefit from the deal.

As Part Of The $3.8 Billion Deal, Jetblue Will Acquire Spirit Airlines.

“We are excited to be able to deliver this compelling combination that turbocharges our strategic growth, enabling JetBlue to offer our unique blend of low fares and incredible service to more customers and on more routes than ever before,” he said in a statement.

Experts have warned that the deal could increase fares throughout the industry. By contrast, a Frontier-Spirit deal would have combined two airlines with very low base fares. Business class and first class seats are not available on either airline.

Larger airlines, such as United (UAL), American (AAL), and Delta (DAL), are typically forced to offer more seats when Spirit or Frontier are present on a route.

In spite of JetBlue’s claim that it charges less than its larger network carriers, its fares are higher than Spirit’s and Frontier’s. Upon acquiring Spirit, JetBlue will add first-class seating to its planes.

Even if you’ve never flown Spirit or Frontier, these airlines affect your fare, says Scott Keyes, founder of Scott’s Cheap Flights, which helps passengers find cheaper flights. When Delta announced the basic economy fare in 2012, they described it as a ‘Spirit-matching fare,’ because budget carriers were eating their lunch. I don’t like either merger, but JetBlue is even worse.

Because of this, the JetBlue-Spirit deal could face strong antitrust scrutiny from the US Department of Justice, particularly if the Justice Department views the deal as harmful to consumers.

Compared to many airline mergers in recent decades in which the 10 largest US airlines were merged into four mega-carriers with 80% of US air traffic, the JetBlue-Spirit deal would be a much smaller deal than such mergers in recent decades.

As a matter of fact, the Biden administration has taken a much more aggressive stance on issues pertaining to antitrust law and has promised to encourage more competition within the airline industry as a whole.

In a suit filed by Biden’s Justice Department, the government sought to block an agreement between American Airlines and JetBlue, which would allow each airline to book passengers on the other’s flights.

A JetBlue deal would not be approved if Spirit points to that legal action when arguing that the deal wouldn’t be approved by the FCC.

But Spirit’s comments on Thursday were devoid of any doubts about a deal with JetBlue that could be reached in the near future.

In the spirit of our improved agreement with JetBlue, we are thrilled to be able to create the most compelling national low-fare competitor to the dominant U.S. carriers,” said Ted Christie, CEO of American Airlines Group.

Christie was pressed about his criticisms of JetBlue’s offer in the past, and his doubts that regulators would approve of the deal, during an interview on CNBC on Thursday.

I think we have learned a lot over the course of the last few months,” he said. They have an aggressive strategy in place to get this deal done.

We are going to be right by their side, making sure that this happens since it is in our best interest. Some of the narratives suggest that this will create a serious competitor to the Big Four.”
He wrote that one of the best arguments for regulators will be the fact that the deal will give regulators another major national carrier and create more competition rather than less, according to JetBlue’s Hayes.

As he said on CNBC, “We are focused on getting this deal done as soon as possible.” He continued, “We are focused on bringing more airplanes in, offering more low fares, and providing a great product to customers in more geographies than JetBlue or Spirit could do on their own.”
Despite the low fares offered on Spirit and Frontier, passengers typically didn’t like the service provided to them when they used these airlines.

According to the US Department of Transportation, Spirit Airlines had by far the highest number of complaints per 100,000 passengers in 2021, with 11.45 complaints per 100,000 passengers.

On a per capita basis, JetBlue had the second highest number of complaints with 6.38, followed by Frontier with 5.78. Among the three airlines, Frontier had by far the highest complaint rate at 49.31 complaints per 100,000 customers in 2020.

The deal

According to the announcement made on Thursday, Spirit shareholders will receive $33.50 in cash per share in the deal, including a prepayment of $2.50 per share in cash that is due upon Spirit stockholders’ approval of the deal – even before the deal closes.

In the event that the closing of the deal is delayed after December of this year, JetBlue will pay Spirit shareholders an additional 10 cents a month for any delays, which could raise the price to $34.15 per share by the end of this year.

In the event that regulators block the deal, JetBlue will pay Spirit $70 million, while its shareholders will receive an additional $400 million if the deal is blocked.

During the merger negotiations, Frontier incurred costs of $25 million that Spirit will have to pay to cover the costs Frontier incurred.

There is an additional $69 million that Spirit will be obligated to pay Frontier if JetBlue closes the deal for Spirit with Frontier within the next 12 months.

The deal that Frontier had with Spirit was terminated Wednesday evening, and Frontier expressed regret for the termination but vowed to continue to grow as a result of the termination.

“With JetBlue seeking to convert Spirit Airlines into a low-cost carrier, Frontier will be unmatched as the ultra-low-cost leader in the industry,” the airline said in its statement.

Assuming JetBlue closes the deal at $33.50 when it closes on Wednesday, the deal will be worth about $1 billion more than Frontier’s offer and 38% more than Spirit’s closing price on Wednesday.

JetBlue (JBLU) shares rose 1% in premarket trading on the news, while Spirit (SAVE) shares gained 4% in premarket trading on the news. Shares of Frontier were little changed from their previous levels.