Spirit Airlines said Wednesday it terminated merger talks with Frontier Airlines, coming moments before the carrier was expected to announce results of a shareholder vote on the plan. Spirit said it is still in talks with JetBlue Airways, which has mounted a campaign to acquire the low-cost carrier.
Frontier quickly pivoted from Spirit on Wednesday, promoting a fare sale as it announced the end of merger discussions and saying it looked forward to holding a dominant position at the low-fare end of the market. At Spirit, president and chief executive Ted Christie said he was “disappointed” with the outcome, although industry analysts expected the airline’s leaders would turn to forging a deal with JetBlue.
The merger proposal — and JetBlue’s subsequent campaign — emerged as the airline industry is trying to recover from blows inflicted by the coronavirus pandemic. Travelers have proved more eager to get back onboard than the industry expected, catching airlines short-staffed and leaving passengers facing a wave of delays and cancellations.
Spirit’s board previously rejected overtures from JetBlue, citing concerns about whether a merger could win approval from federal regulators at a time when the Biden administration has pledged to more closely scrutinize consolidation in key U.S. industries.
Spirit shareholders stood to receive $4.13, plus 1.9 Frontier shares, for each Spirit share they held — a deal worth about $2.7 billion. JetBlue has offered $33.50 in cash — a $3.7 billion deal that is a lucrative proposition at today’s prices.
In a statement Wednesday evening, JetBlue said it was happy to see the rival carriers go their separate ways.
“We are pleased that the merger agreement with Frontier has been terminated and we are engaged in ongoing discussions with Spirit toward a consensual agreement as soon as possible,” the statement said. “We remain fully committed to completing this transaction so we can create a compelling national challenger to the dominant airlines with more opportunities for all.”
The signs of shareholder doubt were evident weeks before voting began Wednesday morning.
In a July 10 letter, Frontier chief executive Barry Biffle acknowledged there were not enough votes in favor of the merger and requested the carrier delay the vote again until Wednesday. The delay was meant to provide additional time to convince Spirit shareholders they would gain more in the long run if they supported a Frontier-Spirit merger.
“Our proposed combination is not only pro-competitive — making it possible to bring ultralow fares to more routes in competition with larger, high-cost, high-fare airlines — our offer delivers significantly greater value to Spirit stockholders,” Biffle wrote. “The opportunistic cash offer from JetBlue, creates a hard cap on value.”
The public campaign by JetBlue shook up what initially was expected to be a relatively straightforward transaction after Frontier and Spirit announced plans to merge in February. The battle led to a bidding war for the Florida-based ultra-low-cost carrier known for cheap fares but not always great service.
Last month, Frontier increased the “breakup” fee it would pay to Spirit in the event the merger failed to pass regulatory scrutiny, matching the $350 million offered by JetBlue — only to have JetBlue increase its amount to $400 million.
Even so, Christie had reiterated the carrier’s desire to move forward with the Frontier merger, saying Spirit was concerned a JetBlue deal couldn’t win regulatory approval. A Frontier-Spirit merger also would have faced scrutiny, but Spirit’s board had indicated it believed such a deal would have a better chance of being approved.
Kerry Tan, an associate professor of economics at Loyola University Maryland, said while the regulatory hurdles are significant, it is likely Spirit’s shareholders will seek to close a deal with JetBlue.
“The offer from JetBlue is so financially lucrative that it would be hard for Spirit shareholders to say no,” he said.
The efforts to keep JetBlue at bay became acrimonious at times, but Henry Harteveldt, an airline analyst at Atmosphere Research, also predicted Spirit and JetBlue would engage in a “corporate version of kiss and makeup.”
“Spirit’s management has only one choice, and that is to become more conciliatory towards JetBlue,” Harteveldt said.
Frontier had previously said its offer was final. Tan said the carrier might be happy with JetBlue absorbing Spirit, effectively eliminating a key low-cost competitor. Frontier itself raised that prospect Wednesday.
“No one is as cheap as Frontier,” Biffle said in a statement. “Looking ahead, we’ll continue to expand capacity and add new routes as America’s ultra-low-cost airline, and we look forward to creating new jobs and welcoming future employees.”
Analysts say JetBlue’s aggressive pursuit of Spirit represents an opportunity for JetBlue to accelerate its growth and potentially shield it from becoming a takeover target itself. At a time when airlines are struggling to hire and train employees — particularly pilots — a merger would give JetBlue access to experienced aviators and allow it to expand its network to key markets, including Chicago, Dallas-Fort Worth and Houston, where it does not have a strong presence.
JetBlue was the fifth-busiest carrier before the pandemic, with 43 million passengers in 2019, while Spirit ranked eighth, according to Transportation Department data. Frontier was the ninth-largest airline. Frontier and Spirit combined would have eclipsed JetBlue to become the fifth-largest carrier.
Consumer advocates and some Democratic lawmakers have expressed concerns about both potential mergers, noting that with four large carriers dominating the market, further consolidation leaves consumers with fewer options.
Frontier and Spirit executives had said a merger would create a more formidable rival to market leaders American Airlines, Delta Air Lines, United Airlines and Southwest Airlines — a sentiment that also was echoed by JetBlue.
But Tan said from the perspective of the biggest carriers, any merger among smaller players is of little concern: “I don’t think they’re scared either way.”