JetBlue CEO Robin Hayes said the deal would be a win-win for investors and passengers. “We are excited to offer this exciting combination that fuels our strategic growth, allowing JetBlue to bring our unique blend of low fares and exceptional service to more customers, on more routes,” he said in a statement.
Higher fares
But industry experts said the deal could lead to higher fares across the industry. A Frontier-Spirit deal, by contrast, would have brought together two airlines that have very low base fares. Neither airline has first class or business class seats. The presence of Spirit or Frontier on a route typically forces larger airlines such as American ( AAL ), United ( UAL ) and Delta ( DAL ) to offer more seats at a similar base economy fare. JetBlue may argue that it charges less than the larger network carriers, but its airfares are higher than Spirit and Frontier. And JetBlue plans to remodel Spirit planes if it buys the airline to add first-class seats. “Spirit and Frontier play a big role in the fare you pay, even if you never fly either,” said Scott Keyes, founder of Scott’s Cheap Flights, a website that helps travelers find cheaper fares. “When Delta announced the basic economy fare in 2012, they described it to investors as a ‘spirit-matching fare’ because the world’s economy carriers were eating their lunch. I’m not a fan of either merger, but I still like less the JetBlue option.” For this reason, JetBlue’s deal for Spirit is likely to face strong antitrust scrutiny from the US Department of Justice, particularly if the Justice Department deems the acquisition harmful to consumers. The proposed JetBlue Spirit deal is smaller than many airline mergers in recent decades, which have turned the 10 largest US airlines into four mega-carriers that control 80% of US air traffic. However, the Biden administration has taken a much more aggressive stance on antitrust issues and has promised to promote greater competition in the airline industry.Biden’s Justice Department sued to block an alliance between American and JetBlue that allows each airline to book passengers on each other’s flights. Spirit pointed to this legal action when it argued that a JetBlue deal would not receive the necessary approval.
More competition?
But those doubts about a deal with JetBlue were nowhere to be found in Spirit’s comments Thursday. “We are thrilled to join JetBlue through our enhanced agreement to create the most compelling national low-fare competitor for the major US carriers,” said CEO Ted Christie. In an interview with CNBC on Thursday, Christie was pressed about the criticism he has had of JetBlue’s bid in the past and his doubts about regulators approving the deal. “We’ve learned a lot in the last few months,” he said. “They have an aggressive strategy to get this deal done. We’re going to be with them to make sure it happens, because it’s good for our team. Some of the narrative is that this will create a great national competitor in the Big Four.” JetBlue’s Hayes said the best argument for regulators is that this deal will provide another major national carrier and create more competition, not less. “We are focused on getting this deal done,” he told CNBC. “We’re focused on bringing more planes, offering more low fares and great products to customers in more geographies than JetBlue or Spirit could do alone.” While passengers might like the low fares offered on Spirit and Frontier, they usually didn’t like the service. Spirit had by far the highest number of passenger complaints in 2021, with 11.45 complaints per 100,000 passengers, according to the US Department of Transportation. JetBlue had the second most complaints on that basis with 6.38, while Frontier came in third with 5.78. Frontier had by far the worst complaint rate in 2020, recording 49.31 complaints per 100,000 customers.
The agreement
The deal announced Thursday will pay Spirit shareholders $33.50 per share in cash, including an upfront payment of $2.50 per share in cash paid after Spirit shareholders approve the transaction — even before the closing of agreement. JetBlue will pay Spirit shareholders an additional 10 cents a month for any delay in closing after December of this year, which could push the price up to $34.15 a share. And if regulators block 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 costs Frontier incurred during merger discussions. If JetBlue is able to close its Spirit deal within the next 12 months, Spirit will owe Frontier an additional $69 million. On Wednesday night, when its deal with Spirit fell through, Frontier expressed regret but promised it would be able to grow even without a merger. “With JetBlue looking to transform Spirit Airlines into a high-cost airline, Frontier will be unmatched as an ultra-low-cost leader,” it said. If JetBlue closes the deal this year at $33.50, it will be a 38% premium to Spirit’s closing price Wednesday and about $1 billion more than Frontier’s offer was worth. Shares of Spirit ( SAVE ) rose 4% in premarket trading on the news, while shares of JetBlue ( JBLU ) gained 1%. Frontier stocks were little changed.
