JetBlue makes an offer for Spirit Airlines

JetBlue Airways offered to buy Spirit Airlines for $3.6 billion, throwing a wrench in Spirit’s plan to merge with Frontier Airlines and ...

JetBlue Airways offered to buy Spirit Airlines for $3.6 billion, throwing a wrench in Spirit’s plan to merge with Frontier Airlines and create a giant budget carrier.

Spirit and Frontier, two low-cost airlines, agreed in February to merge in a deal that the companies say would save consumers about $1 billion a year. JetBlue offered $33 per share in cash, Spirit said on Tuesday. Shares of Frontier have fallen since it and Spirit announced their deal, slashing the value of its offer, which has an implied value of around $25 per share at current prices.

JetBlue chief executive Robin Hayes said in an interview that the acquisition would allow the carrier to offer more affordable, quality flights, helping it better compete with airlines that dominate the US market.

“It’s really about enabling a bigger JetBlue to compete with four big traditional airlines, bringing the JetBlue experience to more customers, bringing more JetBlue flights to high-fare hub airports and… ‘provide real competition,’ he said.

Spirit said its board planned to consider the offer, which it called “unsolicited”, and would “respond in due course”. After JetBlue’s offer was announced on Tuesday, Frontier said in a statement that the acquisition would limit options and hurt consumers.

Shares of Spirit jumped 22% on Tuesday and those of Frontier 4%. JetBlue’s share price fell 7%.

Either deal would be sure to face antitrust scrutiny from the Biden administration, which has taken a tough stance on mergers and partnerships. Last year, the Department of Justice for follow-up to prevent JetBlue from forming a national partnership, called the Northeast Alliance, with American Airlines, arguing that the deal would raise prices and reduce competition. The airlines rejected the premise of the still-active lawsuit, saying the partnership would increase competition against Delta Air Lines and United Airlines and at New York airports.

Mr. Hayes said he did not expect the agreement with Spirit to affect the trial.

“We see them as very complementary,” he said, saying the acquisition of Spirit would build on the success of the alliance. “The NEA litigation is unfolding this year, while we expect the regulatory process for this transaction to take significantly longer.”

The proposed merger between Spirit and Frontier has also come under scrutiny. Last month, several progressive lawmakers, including Senators Elizabeth Warren, Democrat of Massachusetts, and Bernie Sanders, Independent of Vermont, expressed apprehensionswarning that the merger could increase ticket prices and hurt customer service.

Spirit and Frontier argued that a merger would create a stronger competitor for the four largest airlines, which control around two-thirds of the domestic market. JetBlue, which is the sixth-largest airline in the United States, made a similar argument in defense of its plan to acquire Spirit. Either combination would create the country’s fifth-largest airline by market share.

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

A combination of Spirit and JetBlue may be less clear. The two are concentrated in the eastern United States and overlapped on about 11% of routes last year, according to Cirium, an aeronautical data company. Spirit keeps costs and fares low by charging extra for things like carry-on baggage and seat selection. JetBlue offers more premium options and offers free perks such as branded snacks and wireless internet.

“The question now seems to be: what is this airline going to be?” said Kyle Potter, editor of Thrifty Traveler, a flight deals website. “I don’t know if I have a good answer to that. It’s confusing.

But the deal also has some merit, analysts said. JetBlue would strengthen its presence in Florida, which has been a popular destination throughout the pandemic. The combination would also give JetBlue greater scale as it benefits from the rebound in travel and competes with American, Delta, United and Southwest Airlines.

The rise of the ultra-low-cost business model has already prompted carriers like JetBlue to introduce cheaper and capped fares, so integrating Spirit may be less difficult than it seems, said Samuel Engel, senior vice president and airline industry analyst at ICF. , a consulting firm.

“They’ve already created Spirit Airlines pricing on their own metal, so it seems very plausible to me that JetBlue will be able to continue to maintain two brands with different value propositions,” he said.

JetBlue said the transaction is expected to generate between $600 million and $700 million in annual savings once the two airlines are fully combined. The carrier would also pay Spirit “reverse severance pay” if the deal is continued but canceled for antitrust reasons.

JetBlue said it expected the acquisition to help it expand into “focus cities” such as Los Angeles, Fort Lauderdale and Orlando in Florida, and San Juan, Puerto Rico, as well as the airports that are major hubs for the country’s largest airlines, including those in Dallas, Houston, Chicago and Atlanta. This would build on what JetBlue has described as the success of its alliance with American, which has fueled the carrier’s growth in New York and Boston.

The combined company would offer about 1,700 daily flights, serving more than 77 million customers annually, JetBlue said. Once the airline completes the planned retirement of a few dozen smaller planes, it and Spirit will operate all-Airbus fleets. As part of the deal, Spirit’s aircraft would be rebranded and upgraded to the JetBlue brand.

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Newsrust - US Top News: JetBlue makes an offer for Spirit Airlines
JetBlue makes an offer for Spirit Airlines
Newsrust - US Top News
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