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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 create a giant budget carrier.

Spirit and Frontier, two low-cost airlines, agreed in February to merge in a deal the airlines said would save consumers about $1 billion a year. JetBlue offered $33 per share in cash, Spirit said Tuesday, much more than Frontier’s cash and stock offering.

Frontier shares have since fallen and Spirit announced their deal, slashing the value of the offer, which has an implied value of around $25 per share at current prices. Spirit said its board plans to review JetBlue’s offer and “respond in a timely manner.” JetBlue chief executive Robin Hayes said the deal would be a game-changer, allowing the airline to offer more affordable and quality flights.

“Customers shouldn’t have to choose between a low fare and a great experience, and JetBlue has shown it’s possible to have both,” he said in a statement.

After the offer was announced on Tuesday, Frontier countered that JetBlue’s eventual purchase of Spirit 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 Justice Department filed a lawsuit to block JetBlue from forming a national alliance with American Airlines, arguing the deal would drive up prices and reduce competition. The airlines rejected the premise of the lawsuit, which is ongoing, saying the partnership would increase competition against Delta Air Lines and United Airlines and at New York airports.

And last month, several progressive lawmakers, including Senators Elizabeth Warren, Democrat of Massachusetts, and Bernie Sanders, Independent of Vermont, expressed doubts about the proposed merger between Spirit and Frontier, warning that it could raise the price of tickets and harming customer service.

But Spirit and Frontier argued that a merger would make aviation more competitive by creating a stronger competitor for the four biggest airlines, which control around two-thirds of the domestic market. Either combination would create the country’s fifth-largest airline by market share. JetBlue is the sixth largest airline in the United States.

The 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. Both airlines are concentrated in the eastern United States. Spirit keeps costs and fares low by charging extra for everything from carry-on bags to seat selection. JetBlue offers more premium options and offers free in-flight 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 competes to capitalize on the travel explosion.

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

“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.


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