JetBlue announces deal to buy Spirit Airlines. Prices can go up

JetBlue was pursuing a hostile bid to buy Spirit even as Spirit sought shareholder approval for a lower-price deal with Frontier. Spirit has consistently expressed concern about whether regulators would agree to a deal with JetBlue. But shareholders were reluctant to accept Frontier’s cash offer and the less valuable shares when they had JetBlue’s all-cash offer on the table.

JetBlue CEO Robin Hayes said the deal would be fruitful for investors and passengers.

“We are excited to offer this compelling blend that is turbocharging our strategic growth, enabling JetBlue to deliver a unique combination of low pricing and exceptional service to more customers, on more routes,” he said in a statement.

higher wages

But industry experts said the deal could lead to higher prices across the industry. By contrast, the Frontier-Spirit deal would have combined two airlines that had very low base fares. None of the airlines has seats in First Class or Business Class.

The presence of a soul or a boundary on a route is usually dictated by larger airlines, such as American (AAL)And the united (UAL) And the Delta (DA), to offer more seats at a similar basic economy fare. JetBlue might argue that it charges less than the larger airlines, but its fares are higher than those of Spirit and Frontier. JetBlue plans to reshape Spirit jets if it acquires the airline to add first-class seats.

“Spirit and Frontier play a big role in the fare you pay, even if you’ve never traveled either,” said Scott Keys, founder of Scott’s Cheap Flights, a website that helps passengers find cheaper fares. “When Delta announced the base economy price in 2012, they described it to investors as ‘spirit matching fare,’ because their lunch was eaten by the world’s budget carriers. I’m not a fan of either of the two combinations, but I like the JetBlue option even less.” .

For this reason, Spirit’s JetBlue deal will likely face strong antitrust scrutiny from the US Department of Justice, particularly if the Department of Justice considers the acquisition to be harmful to consumers.

Spirit and Frontier are pulling ingredients into the deal, paving the way for JetBlue to buy Spirit
The proposed JetBlue Spirit deal is smaller than many airline mergers in recent decades, which have turned the 10 largest US airlines into four airline giants that control 80% of US air traffic. But the Biden administration has taken a more aggressive stance on antitrust law issues and vowed to encourage more competition within the airline industry.
Biden’s Justice Department sued to block an alliance between American and JetBlue that would allow each airline to book passengers on the other’s flights. Spirit referred to this legal action when it argued that the JetBlue deal would not get the necessary approval.

More competitions?

But those doubts about a deal with JetBlue were found nowhere in Spirit’s comments Thursday.

“We are thrilled to unite with JetBlue through our enhanced agreement to create the strongest national low-fare competitor to the dominant US airlines,” said CEO Ted Christie.

In an interview on CNBC Thursday, Christie was pressed about criticism he’s made about JetBlue’s bid in the past, and his skepticism about regulators agreeing to the deal.

“We’ve learned a lot over the past few months,” he said. “They have a solid strategy to get this deal done. We’ll be right on their side to make sure it happens, because it’s good for our group. Some of the narrative is that this would create a major national rival to the Big Four.”

JetBlue’s Hayes said the best argument for regulators is that this deal will save another major national carrier and create more competition, not less.

“We are focused on getting this deal done,” he said on CNBC. “We’re focused on bringing in more aircraft, offering more low prices and great products to customers in more geographies than JetBlue or Spirit could do on their own.”

While passengers may like the lower prices offered on Spirit and Frontier, they usually don’t like the service. According to the US Department of Transportation, Spirit had the highest number of passenger complaints in 2021, with 11.45 complaints per 100,000 passengers. JetBlue came in second in terms of the number of complaints on this basis with 6.38, while Frontier came in third with 5.78. Frontier had the worst complaints rate in 2020, when it registered 49.31 complaints per 100,000 customers.

Deal

The deal announced Thursday will pay Spirit shareholders $33.50 per share in cash, including an advance payment of $2.50 per share in cash payable based on Spirit shareholders’ approval of the transaction — even before the deal closes.

JetBlue will pay Spirit shareholders an extra 10 cents a month for any delay in closing after December of this year, which could raise the price to $34.15 a share. And if regulators stop the deal, JetBlue will pay Spirit $70 million, and its shareholders will receive an additional $400 million.

Spirit will have to pay Frontier $25 million to cover border costs incurred during the merger discussions. If JetBlue can close its deal with Spirit within the next 12 months, Spirit will owe Frontier an additional $69 million.

On Wednesday evening when its agreement with Spirit was terminated, Frontier lamented but vowed it would be able to grow even without a merger.

“As JetBlue strives to transform Spirit Airlines into a high-cost airline, Frontier will be unrivaled as a very low-cost leader,” she said.

If JetBlue closes the deal this year at $33.50, it will be a 38% premium to Spirit’s closing price on Wednesday and about $1 billion more than what Frontier’s bid was worth. shares spirit (save) It rose 4% in pre-market trading on the news, while Jet Blue (JBLU) Shares gained 1%. Frontier stocks changed a bit.

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