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JetBlue Announces $3.6 Billion Offer for Spirit, Topping Previously Announced Frontier Deal
Following reports by the New York Times earlier Tuesday, JetBlue announced this afternoon that it had submitted a $3.6 billion all-cash offer for Miramar, Fla.-based Spirit Airlines, putting the New York-headquartered carrier in direct competition with Frontier Airlines — the ultra-low-cost carrier with which Spirit had agreed to merge earlier this year.
Spirit’s shares jumped over 20% in trading though fell well short of the implied value of $33 per share, as investors weighed the likelihood of success for the new offer. The deal Frontier and Spirit agreed to in February valued Spirit at $25.83 per share at the time — a total equity value of $2.9 billion.
However, that deal included a small cash payment plus nearly two shares of Frontier stock, but as Frontier’s stock price has faltered slightly since the time of the offer, the total value entering Tuesday was only around $24, almost 30% less than JetBlue’s new proposal.
Frontier may seek to counter the offer in the days and weeks ahead, particularly if it feels it can find more value in Spirit than its Long Island City, N.Y.-based competitor.
Any deal would likely be put under the antitrust lens before it could be given the final sign-off. JetBlue has already been under scrutiny from government regulators, with the Department of Justice having sued the carrier and Fort Worth, Texas-based American Airlines for the companies’ cooperation through what they call the Northeast Alliance. The DOJ argued that the agreement, which has already led to codesharing across the airlines’ networks, hurts cooperation at hubs like Boston Logan International Airport and at other New York airports.
Whether a Frontier-Spirit combination would be subjected to less intense probing is unclear or how the DOJ would react to a potential JetBlue-Spirit combination. When the two airlines announced their combination of February, they stressed that a combined ultra-low-cost carrier would be a stronger competitor against American, Delta Air Lines, United Airlines and Southwest Airlines than the two of them separately, messaging JetBlue has pushed today in both its own releases and executive interviews.
“When we grow and introduce our unique value proposition onto new routes, legacy carriers lower their fares and customers win with more choice,” JetBlue CEO Robin Hayes said in a prepared statement. “The combination of JetBlue and Spirit – coupled with the incredible benefits of our Northeast Alliance with American Airlines – would be a game changer in our ability to deliver superior value on a national scale to customers, crewmembers, communities and shareholders.”
Two Different Visions
Frontier and Spirit’s merger announcement was a blockbuster in the relatively stagnant world of U.S. aviation industry giants, but the logic behind the deal took few in the industry by surprise. Both airlines are commonly placed in the “ultra-low-cost carrier” bucket — a set of carriers set apart by their relentless unbundling of the air travel experience. Notably, not just checked bags, but seat assignments, carry-ons, snacks and even water could cost extra.
Thus, Frontier and Spirit would both be coming to the table as a combined company with a similar philosophy on how to turn a profit, already catering to a similar type of passenger on all the routes they operated.
In regards to those routes, the airlines seemingly complemented each other well. Spirit is the East Coast’s ultra-low-cost powerhouse, a prospective outcome that fits given its headquarters sits in Florida. Its network expands across the U.S. and has a substantial presence in Latin America, but its past focus is clear in its operations. Denver-based Frontier is similar in that it does cover almost the entire country with its route network. But out of its Denver International Airport hub, it maintains a stronger presence in the western U.S.
JetBlue, however, on face value fails to fit either of those two criteria. As it has expanded in recent years, it has invested heavily in capturing the premium business traveler that has historically been a customer of large legacy carriers rather than those like Spirit and Frontier. Its premium Mint product — introduced for its transcontinental routes in 2013 — has been a particularly visible piece of that shift. Furthermore, the shift has continued as a cornerstone of the airline’s expansion into premium markets like New York City to London — and, as the airline announced Tuesday, Boston to London.
In addition, JetBlue prides itself on its New York presence. While the airline expanded substantially across the U.S. over the past decade, its East Coast presence is a significant share of its network. The airline maintained in its announcement on Tuesday that this made it a better bidder for Spirit, stressing that the airline’s substantial presence in both its and Spirits’ headquarters states would allow it to best compete with the four largest U.S. carriers.
“The combined airline would offer more than 170 daily flights at [Fort Lauderdale-Hollywood International Airport], building JetBlue’s relevance as a stronger low-fare competitor in South Florida. At Orlando International Airport, JetBlue would grow to more than 130 daily flights,” the airline said in a statement.
“Our Northeast Alliance with American Airlines has supercharged our growth in New York and Boston, unlocking opportunities for us to grow where we could not have before,” Hayes said in the release. “We view a combination with Spirit as perfectly complementing the NEA. These strategic moves aim to increase our relevance and bring the JetBlue competitive effect to more places while deepening our roots in the communities we call home.”
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