JetBlue Airways made an unsolicited cash bid in a proposed $3.6 billion deal to buy bargain air carrier Spirit Airlines, Spirit announced Tuesday.
The combination “would position JetBlue as the most compelling national low-fare challenger to the four large dominant U.S. carriers by accelerating JetBlue’s growth,” JetBlue said in a statement, saying it would prompt Delta Air Lines, American Airlines, United Airlines and Southwest Airlines to lower fares more than they would when ultra-low-cost airlines enter new markets.
In a conference call with analysts on Wednesday, Robin Hayes, JetBlue’s chief executive, said a merger with Spirit would create a stronger airline better positioned to challenge those four largest carriers, which account for more than 80 percent of the market.
The proposed deal also would include a “reverse break-up fee” — a payment that Spirit would receive if the merger does not move forward for antitrust reasons.
The announcement comes amid a time of change for the airline industry, which saw interest in travel plummet at the start of the coronavirus pandemic. Air travel has since rebounded to near pre-pandemic levels, although several carriers have been caught unprepared by the rising demand in recent months.
Tuesday’s bid introduces a significant factor into an ongoing merger effort involving Spirit and low-cost carrier Frontier Airlines that would create the nation’s fifth-largest carrier.
JetBlue said the proposed deal would be “superior” to Spirit’s existing agreement with Frontier, representing a premium of 50 percent to Spirit’s recent closing price. Any deal would require the approval of federal regulators.
In a statement responding to JetBlue’s bid, Frontier said the latest offer “would lead to more expensive travel for consumers.” Frontier cited “significant East Coast overlap between JetBlue and Spirit” that it said would reduce competition and options for consumers.
“It is surprising that JetBlue would consider such a merger at this time given that the Department of Justice is currently suing to block their pending alliance with American Airlines,” Frontier said in a statement.
Last year, the Justice Department filed suit challenging an alliance between American and JetBlue Airways that allows the carriers to sell each other’s seats on selected flights in the Northeast.
Under the Spirit and Frontier agreement, Spirit shareholders would receive 1.9126 shares of Frontier stock plus $2.13 in cash for each existing Spirit share they own, according to Spirit. Frontier said that agreement has “substantial upside potential” for both companies’ shareholders.
Spirit said it would respond to JetBlue “in due course.”
JetBlue said its offer would allow the airline to redouble its “long-standing commitment to Florida,” in addition to growing in Los Angeles, Las Vegas, Dallas, Houston, Chicago, Detroit, Atlanta and San Juan, Puerto Rico. The bigger JetBlue would also fly into St. Louis, Memphis, Louisville, Atlantic City and Myrtle Beach, S.C., for the first time, it said.
David Dague, an airline industry expert and principal at the management consulting firm Arthur D. Little, said the size of the JetBlue-Spirit combination would dwarf that of the Frontier-Spirit union. “The combination of the two is a much more competitive entity versus the Big Four,” Dague said, adding that it would also allow JetBlue to offer more-generous terms for Spirit’s shareholders.
JetBlue and Spirit would also become leading players in some of the strongest leisure markets, including travel to the Caribbean and Florida, that are lifting airlines from the depths of the pandemic, Dague said. They would become the largest U.S. carrier going to the Caribbean and the second-largest in Florida, Dague said.
Hari Adhikari, associate professor of finance at Embry-Riddle Aeronautical University, said Spirit’s strong presence in Florida and South America might have made it an attractive acquisition for JetBlue. He also noted that a potential Frontier-Spirit merger, which could put JetBlue at a competitive disadvantage, might also have led to the offer. He said it’s possible all three carriers could merge at some point if regulators approve.
Buying Spirit also would bring a new supply of pilots to JetBlue, addressing a nationwide shortage, Dague said. The merger “makes them competitive in this industry, because trying to secure enough pilots is going to be something every carrier in the U.S. is going to be grappling with,” he said.
Any merger among the nation’s airlines would be the first since Alaska Airlines announced that it would acquire Virgin America in 2016. Before that, American Airlines and US Airways announced their intent to combine operations in 2013, which created the world’s largest air carrier.
Lori Aratani contributed to this report.