Frontier Airlines previously offered to purchase Spirit Airlines, but JetBlue just entered the market
This offer could lead to a bidding war with these two airlines trying to persuade the other company into a sale.
JetBlue Airways has offered to buy Spirit Airlines for about $3.6 billion, which would result in the break-up of a plan for Spirit to merge with rival budget carrier Frontier Airlines.
Today, Spirit announced that they received an unsolicited bid from JetBlue. The company said they will evaluate the offer and decide what’s best for shareholders.
JetBlue usually focuses on offering low-cost flights, and it thinks combining with Spirit will help it attract more customers.
In February, Frontier Airlines proposed a merger with Spirit Airlines to create the country’s fifth-largest airline company. They gave an argument as to how this acquisition would save consumers $1 billion a year.
To acquire JetBlue (JBLU) shares, Frontier Airlines (FRGI) has to pay an estimated $33 per share in cash, which is 37% higher than the company’s current stock value. However, Frontier’s cash and stocks offer would allow Spirit shareholders to keep 48.5% of the combined airline. The company recognized that its value has decreased since it made the bid in February and so they may have ended up with a smaller number than they were expecting.
Shares of Florida-based Spirit shot up 22% after the New York Times first reported the JetBlue bid Tuesday. However, JetBlue shares fell 7%
The Denver-based airline, Frontier, is partnering with Spirit Airlines on a route map that extends from coast to coast. Both low-priced carriers offer rock-bottom fares and make up some of the difference by charging extra for things they can’t offer cheaper because they are expensive to implement (like carry-on bags and soft drinks).
JetBlue is not an ultra-low cost carrier like Frontier or Spirit. While it does offer free TV, there is usually a surcharge for internet and cell phone service.
In a statement Tuesday, Frontier Airlines argued that JetBlue’s potential acquisition of 14 different planes would lead to more price competition, more frequency on the East Coast, and more options for travelers.
The Senator, who is leading the closed-door antitrust investigation into the merger, may not have enough of a majority to stop it. Their deal is small enough that it wouldn’t have to go through a strict & lengthy vetting by regulators. Last year, the Justice Department & several states filed a lawsuit to prevent JetBlue from purchasing a share of American Airlines. That lawsuit is still pending. In the meantime, JetBlue has reduced its stake in American Airlines to 8.6% in order to avoid antitrust litigation and fly to Latin America. JetBlue says that they have no plans to increase their stake in American Airlines anytime soon.
Colin Scarola, who covers airlines for CFRA Research, says the Biden administration is more likely to oppose a JetBlue-Spirit deal than a Frontier-Spirit combination because it could lead to higher prices.
Vic sees the JetBlue offer as being more beneficial to his company, so Spirit might want to take it. The monetary fee is just too large for them to keep rejecting due to a risk assessment.
JetBlue is three times bigger than Frontier and nearly twice the size of Spirit. Despite failures before, JetBlue has succeeded in its most recent bid for Virgin America– losing out only to Alaska Airlines.
