JetBlue and Spirit Airlines announced a $3.8 billion merger on Thursday, one day after merger negotiations between Spirit and Frontier Airlines collapsed.
Together, JetBlue and Spirit would control about 9% of the domestic flight market, which would make JetBlue the 5th largest airline in the country. The four largest airlines – American, Delta, United, and Southwest – control about three-fourths of the market.
The Justice Department has expressed concern that competition in the sector has declined after previous mergers, and the Biden administration generally has taken a hard stance on anti-trust policies. JetBlue executives have argued that combining their fleet with Spirit’s would allow it to more effectively compete with the industry’s larger players, and that such competition would help drive down fares. JetBlue has also offered to surrender some of Spirit’s gates and take off/landing slots at various airports, creating opportunities for other airlines.
“Our view is that the best way that you can bring more competition to the sector is to create an exciting, new, low-fare, high-quality national airline that can compete with the big four,” JetBlue Chief Executive Robin Hayes said. “So we will be making those arguments.”
Many prominent members of Spirit’s board had previously disagreed, and publicly argued that the prospective deal with Frontier was more likely to receive regulatory approval, despite the lower offered price — the final offer was reportedly $1 billion less than JetBlue’s bid.
Frontier and Spirit had been discussing a potential merger for years, and had reached a tentative agreement in February of 2022, but an aggressive bid by JetBlue in April disrupted those plans. Spirit executives were unable to secure enough support from shareholders to close the deal, and now find themselves in the somewhat awkward position of advocating for a merger they had vehemently opposed for months.
“Where we are today is we’ve got an exciting merger agreement with JetBlue. It’s going to create a very large, national low-cost carrier,” Spirit Chief Executive Ted Christie said in an interview. “Many things were said, but business is business.”
JetBlue will purchase Spirit shares for $33.50 per share, and the deal is expected to close in the first half of 2024.
The two companies have very different business models, and JetBlue has announced that it will raise employee salaries and reconfigure seating at Spirit to align with its own standard practices — which will inevitably raise fares. Some observers have speculated that Alaska Airlines, which has a more similar structure to JetBlue, would have been a better fit for a merger. However, Alaska Airlines uses Boeing aircraft, while JetBlue and Spirit have predominantly Airbus fleets, and in a time of desperate pilot shortages, an awkward merger is probably cheaper than cross-training and certifying limited personnel on different planes.
The Justice Department is currently suing JetBlue and American Airlines to break up an agreement between the two companies limiting competition between them in key hub airlines in the Northeast, fueling concerns that future deals may not be approved. If regulators block the merger, JetBlue has agreed to pay Spirit a $400 million break up fee.
Source: Dailywire
