JetBlue makes Spirit a bid to derail the deal with

JetBlue makes Spirit a bid to derail the deal with Frontier

JetBlue’s cash offer is approximately 33% higher than the value of Frontier’s stock and cash offer for Spirit. Such a transaction would prevent a combination of Frontier and Spirit from making JetBlue the country’s fifth-largest airline behind the four airlines — American (AAL), United (UAL), Delta (DAL), and Southwest (LUV) — that rank below them more carry over 80% of the nation’s air travel.

“The combination of the two airlines would position JetBlue as the most compelling domestic low-fare challenger of the big four dominant US airlines by accelerating JetBlue’s growth,” JetBlue said in its statement.

Spirit said it will “work with its financial and legal advisers to evaluate JetBlue’s offer and pursue the course of action it determines in the best interests of Spirit and its shareholders.”

For its part, Frontier defended its offer as a superior offer for passengers and shareholders.

“A merger of Spirit and Frontier will bring consumers $1 billion in annual savings and offer even more ultra-low fares to even more locations across the country, creating America’s most competitive ultra-low fare airline” , said Frontier, adding that the combination would provide “shareholders with significant upside potential for the combined company as a result of merger synergies.”

Both Spirit and Frontier operate as what is known in the industry as ultra-low-cost carriers, with very low base fares and additional fees for pretty much everything else a passenger might need, including carry-on luggage.

They are much more dependent on bargain hunters and carry fewer business travelers than their larger competitors. Because business travel has recovered from the pandemic much more slowly than leisure travel, Spirit and Frontier have recovered faster than their larger peers.

While passengers may like Spirit and Frontier’s cheap fares, they have generally given the airlines poor customer satisfaction ratings.

Spirit had by far the highest number of passenger complaints in 2021, with 11.5 complaints per 100,000 passengers, according to U.S. Department of Transportation statistics. JetBlue had the second most complaints on that basis at 6.4, but that was down 43% from a year ago. Frontier had the third most in the industry at 5.8. In 2020, Frontier had by far the worst complaint rate at 49.3 complaints per 100,000 customers.

Frontier and Spirit also had the industry’s worst customer satisfaction ratings for 2021, according to the American Customer Satisfaction Index, while JetBlue received the third-best rating in that index.'I can't imagine the customer experience degrading,' the Democratic lawmaker says of the Frontier-Spirit merger

“Customers shouldn’t have to choose between a great fare and a great experience, and JetBlue has shown that both are possible,” said Robin Hayes, CEO of JetBlue.

The US airline industry has been reshaped by mergers over the past 25 years. Today’s four largest airlines were formed from a series of mergers of 10 airlines. If either JetBlue or Frontier ends up with Spirit, it would be the first airline merger in the United States since Alaska Air bought Virgin America in 2016. However, the Biden administration has taken a much harder line antitrust implications of mergers and the need to protect competition for the benefit of consumers. It has even sued to stop an alliance between JetBlue and American that allows the airlines to book passengers on each other’s flights, though it’s not a full merger.

Frontier played into this issue, saying that since only 18% of the routes flown by Frontier or Spirit are flown by both airlines, its deal would be far better for airline competition. It argued that a JetBlue-Spirit combo would reduce competition and result in higher fares.

“It is surprising that JetBlue is contemplating such a merger at this time given the Justice Department’s current lawsuit to block its pending alliance with American Airlines,” Frontier said.

JetBlue, Spirit (SAVE) and Frontier (FRNT) shares were all slightly lower in after-hours trading following the announcement.