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

Washington

JETBLUE Airways said on Tuesday (Apr 5) that 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 says the deal 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$600-700 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. REUTERS

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