JetBlue CEO Robin Hayes said the deal will be fruitful for investors and passengers.
“We are excited to deliver this compelling combination that turbocharges our strategic growth, enabling JetBlue to bring our unique blend of low fares and exceptional service to more customers, on more routes,” he said in a statement.
Higher fares
But industry experts have said the deal could lead to higher fares across the industry. A Frontier-Spirit deal, by contrast, would have brought together two airlines that have very low base fares. Neither airline has first class or business class seats.
“Spirit and Frontier play a big role in the fare you pay, even if you never fly either one,” said Scott Keyes, founder of Scott’s Cheap Flights, a web site that helps passengers find cheaper fares. “When Delta announced the basic economy fare in 2012, they described it to investors as a ‘Spirit-matching fare,’ because their lunch was getting eaten by the budget carriers of the world. I’m not a fan of either merger, but I like the JetBlue option even less.”
For that reason, it’s possible that the JetBlue deal for Spirit will face strong antitrust scrutiny from the US Department of Justice, particularly if the Justice Department views the acquisition as harmful to consumers.
More competition?
But those doubts about a deal with JetBlue were nowhere to be found in Spirit’s comments Thursday.
“We are thrilled to unite with JetBlue through our improved agreement to create the most compelling national low-fare challenger to the dominant U.S. carriers,” said CEO Ted Christie.
In an interview on CNBC Thursday, Christie was pressed about the criticism he had about JetBlue’s offer in the past, and his doubts about regulators approving the deal.
“We’ve learned a lot over the last few months,” he said. “They’ve got an aggressive strategy to get this deal done. We’re going to be right by their side making sure it happens, because it’s good for our group. Some of the narrative is this is going to create a big national competitor to the Big Four.”
JetBlue’s Hayes said the best argument for regulators is that this deal will provide another major national carrier and create more competition, not less.
“We’re focused on getting this deal done,” he said on CNBC. “We’re focused on bringing more airplanes in, offering more low fares and great product to customers in more geographies than JetBlue or Spirit could do alone.”
While passengers might like the low fares offered on Spirit and Frontier, they typically did not like the service. Spirit had by far the highest number of passenger complaints in 2021, with 11.45 complaints per 100,000 passengers, according to the US Department of Transportation. JetBlue had the second most complaints on that basis with 6.38, while Frontier came in third with 5.78. Frontier had by far the worst rate of complaints in 2020, when it recorded 49.31 complaints per 100,000 customers.
The deal
The deal announced Thursday would pay Spirit shareholders $33.50 per share in cash, including a prepayment of $2.50 per share in cash payable upon Spirit stockholders’ approval of the transaction — even before the deal closes.
JetBlue will pay Spirit shareholders an additional 10 cents a month for any delay in closing after December of this year, which could raise the price to $34.15 a share. And if regulators block the deal, JetBlue will pay Spirit $70 million, and its shareholders would get an additional $400 million.
Spirit will have to pay Frontier $25 million to cover costs Frontier incurred during merger discussions. If JetBlue is able to close its deal for Spirit within the next 12 months, Spirit will owe Frontier an additional $69 million.
Wednesday evening when its deal with Spirit was terminated, Frontier expressed regret but vowed it will be able grow even without a merger.
“With JetBlue seeking to convert Spirit Airlines into a high-cost airline, Frontier will be unmatched as the ultra-low cost leader,” it said.
