Spirit Airlines and Frontier merger talks end as JetBlue offer awaits
Frontier quickly quit Spirit on Wednesday, promoting a fare sale as it announced the end of merger talks and said it looked forward to commanding a dominant position in the low-cost segment of the market. At Spirit, chairman and chief executive Ted Christie said he was “disappointed” with the result, even though industry analysts had expected the airline’s executives to look to conclude a deal. agreement with JetBlue.
The merger proposal – and JetBlue’s subsequent campaign – emerged as the airline industry tries to recover from the blows inflicted by the coronavirus pandemic. Travelers have proven more eager to get back on board than the industry had expected, catching up with understaffed airlines and leaving passengers facing a wave of delays and cancellations.
Spirit’s board has previously rejected overtures from JetBlue, citing concerns about whether a merger could gain approval from federal regulators at a time when the Biden administration has pledged to take a closer look at consolidation in major U.S. industries.
Spirit shareholders were to receive $4.13, plus 1.9 Frontier shares, for each Spirit share they held, a transaction worth approximately $2.7 billion. JetBlue offered $33.50 in cash – a $3.7 billion deal that is a lucrative proposition at today’s prices.
In a statement late Wednesday, JetBlue said it was happy to see the rival carriers go their separate ways.
“We are pleased that the merger agreement with Frontier has been terminated and are engaged in ongoing discussions with Spirit towards a consensual agreement as soon as possible,” the statement said. “We remain fully committed to completing this transaction so that we can create a compelling domestic challenger for dominant airlines with more opportunities for all.”
Signs of shareholder doubt were evident weeks before voting began on Wednesday morning.
In a July 10 letter, Frontier chief executive Barry Biffle acknowledged there were not enough votes in favor of the merger and asked the carrier to delay the vote again until Wednesday. The delay was intended to give more time to convince Spirit shareholders that they would gain more in the long run if they backed a Frontier-Spirit merger.
“Our proposed combination is not only pro-competitive – enabling ultra-low fares on more routes to compete with larger, high-cost, high-fare airlines – our offering delivers significantly more value. to Spirit shareholders,” Biffle wrote. “JetBlue’s opportunistic cash offer creates a hard cap on value.”
JetBlue’s public campaign upended what was initially expected to be a relatively straightforward transaction after Frontier and Spirit announced plans to merge in February. The battle has led to a bidding war for the Florida-based ultra-low-cost carrier known for its cheap fares but not always great service.
Last month Frontier increased the “break” fee it would pay Spirit in the event the merger did not pass regulatory review, matching the $350 million offered by JetBlue – only for JetBlue to increase its amount to $400 million.
Even so, Christie had reiterated the carrier’s desire to move forward with the Frontier merger, saying Spirit feared a deal with JetBlue could not gain regulatory approval. A Frontier-Spirit merger would also have come under scrutiny, but Spirit’s board had indicated it believed such a deal would have a better chance of being approved.
Kerry Tan, an associate professor of economics at Loyola University in Maryland, said while regulatory hurdles are significant, Spirit shareholders are likely to seek a deal with JetBlue.
“JetBlue’s offer is so financially lucrative that it would be difficult for Spirit shareholders to say no,” he said.
Efforts to keep JetBlue at bay have at times turned acrimonious, but Henry Harteveldt, airline analyst at Atmosphere Research, also predicted that Spirit and JetBlue would engage in a “corporate version of kissing and makeup.”
“Spirit management has only one choice, and that is to become more accommodating to JetBlue,” Harteveldt said.
Frontier previously said its offer was final. Tan said the carrier might be happy for JetBlue to absorb Spirit, eliminating a key low-cost competitor. Frontier himself raised that prospect on Wednesday.
“Nobody is as cheap as Frontier,” Biffle said in a statement. “Looking forward, we will continue to increase capacity and add new routes as America’s ultra-low-cost airline, and we look forward to creating new jobs and welcoming future employees.”
Analysts say JetBlue’s aggressive pursuit of Spirit represents an opportunity for JetBlue to accelerate its growth and potentially prevent it from becoming a takeover target itself. At a time when airlines are struggling to hire and train employees — especially pilots — a merger would give JetBlue access to experienced aviators and allow it to expand its network to key markets, including Chicago. , Dallas-Fort Worth and Houston, where it does not. have a strong presence.
JetBlue was the fifth-busiest carrier before the pandemic, with 43 million passengers in 2019, while Spirit ranked eighth, according to Transportation Department data. Frontier was the ninth largest airline. Frontier and Spirit combined would have eclipsed JetBlue to become the fifth largest carrier.
Consumer advocates and some Democratic lawmakers have expressed concerns about the two potential mergers, noting that with four major carriers dominating the market, further consolidation leaves consumers with fewer options.
Frontier and Spirit executives had said a merger would create a tougher rival for market leaders American Airlines, Delta Air Lines, United Airlines and Southwest Airlines – a sentiment that was also echoed by JetBlue.
But Tan said that from the larger carriers’ perspective, any merger between smaller players is of little concern: “I don’t think they’re scared anyway.”