JetBlue offers US$3.6b for Spirit in US low-cost carrier battle

[WASHINGTON] JetBlue Airways said on Tuesday (Apr 5) it made an unsolicited US$3.6 billion bid for Spirit Airlines, potentially snarling merger plans between the ultra-low-cost carrier and Frontier Group Holdings.

JetBlue chief executive officer Robin Hayes said the deal would make the New York-based airline a stronger competitor to the so-called 4 legacy US airlines that control nearly 80 per cent of the US passenger market.

"The number one complaint we get is why don't you fly to more places," Hayes said in a Reuters interview late on Tuesday. "What we want to do is create a bigger JetBlue" that can serve more consumers.

JetBlue, the sixth largest US passenger carrier, would operate Spirit under the JetBlue brand and he does not think any divestitures are needed.

The move comes as airlines face higher fuel and labour costs, and work to attract more leisure travellers, who have returned at a faster rate than business travellers since pandemic restrictions were relaxed.

JetBlue offered US$33 a share all cash, about 33 per cent higher than Frontier's offer of 1.9126 shares of stock and US$2.13 in cash, which would value Spirit at US$24.93 per share as at Tuesday's closing price.

Shares of Spirit closed up 22 per cent at US$26.92, their highest level since mid-February. Sprit's 52-week high is US$39.19. Just before Covid-19 lockdowns became widespread, Spirit shares traded around US$45.

Spirit declined to comment beyond a written statement that it would review the offer.

Hayes said he expects a vigorous antitrust review from the US Justice Department that could last into 2023.

"We've had unprecedented amounts of consolidation, which the DOJ (Department of Justice) has approved and now it's about how do we make sure the rest of us can continue to discipline the legacy carriers and create that competition," Hayes said. "We believe ultimately this is the best deal out there that is going to really drive more competition."

Andre Barlow of Doyle, Barlow and Mazard said the Biden administration "is concerned about consolidation that could lead to higher prices". "This one impacts consumers, so I think it gets a tough look."

The Justice Department declined to comment.

The department filed an antitrust lawsuit last September against American Airlines and JetBlue over their partnership, alleging it would lead to higher fares in busy north-eastern US airports. Hayes said JetBlue is "very committed" to its alliance with American regardless of whether it was successful in acquiring Spirit.

Hayes said he expects the litigation over the American Airlines alliance will be completed before the Spirit deal review is completed.

He is speaking with analysts and reporters on an 8 am ET call on Wednesday to tout the proposal that he says would boost operations in key markets such as Florida and access to constrained hub airports like Atlanta, Detroit, Miami and Chicago.

Meanwhile, Frontier said it was "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." American did not immediately comment.

JetBlue said the deal if completed is expected to deliver US$600 million-US$700 million in net annual synergies and that the combined airline is projected to have annual revenue of about US$11.9 billion based on 2019 revenue.

Frontier said its Spirit offer "is in the best interest of consumers and shareholders and would deliver US$1 billion in annual savings for consumers" and argued "significant East Coast overlap between JetBlue and Spirit would reduce competition and limit options for consumers". In February, Frontier and Spirit proposed a merger that would create the fifth-largest US airline.

Spirit's customer service has often faced criticism and the airline cancelled 35 per cent of its flights on Monday amid weather issues.

"We don't think customers should have to choose between a low fare and a good experience - they should have both," said Hayes, noting JetBlue's presence in markets typically prompts larger airlines to lower airfares in what he called the "JetBlue Effect".

But larger carriers do not always lower fares to match prices from ultra-low cost carriers like Spirit or Frontier.

The Spirit-Frontier deal faced criticism from some lawmakers and public interest groups warned in March that a merger between the carriers "would destroy competition in the only competitive market segment of the highly consolidated airline industry". REUTERS