July 29, 2022
JetBlue Airways said on Thursday, July 28, that it had reached a deal to buy Spirit Airlines, a merger that could reshape the airline industry by putting pressure on the nation’s four dominant airlines. The deal, which values Spirit at $3.8 billion, comes a day after Frontier’s bid for Spirit fell apart. It is likely to face antitrust scrutiny, reports The New York Times.
The deal would create the nation’s fifth-largest airline, with a combined share of more than 10% of the market, behind United Airlines, which has a nearly 14% share. Delta Air Lines and Southwest Airlines control more than 17% each, while American Airlines, the largest U.S. carrier, has more than 18%.
“We believe we can uniquely be a solution to the lack of competition in the U.S. airline industry and the continued dominance of the big four,” Robin Hayes, JetBlue’s chief executive, said in a statement. “By enabling JetBlue to grow faster, we can go head-to-head with the legacies in more places to lower fares and improve service for everyone.
Frontier Airlines and Spirit had announced merger plans in February, but they called that deal off on Wednesday, after Spirit struggled to convince its shareholders to back the offer, which fell short of JetBlue’s by about $1 billion.
JetBlue and Spirit said they expected to seek approval for the deal from Spirit’s shareholders this fall and from regulators by early 2024. The airlines said they expected to close the transaction no later than the first half of 2024, with plans to begin operating
But while the airlines have agreed to combine, closing the deal is far from certain. The Biden Administration has taken a tough stance on antitrust enforcement, challenging corporate mergers that may reduce competition. Regulators have already sued JetBlue and American Airlines over a partnership at airports in Boston and New York.
To address regulatory scrutiny, JetBlue has said it would preemptively divest from certain airports where the company and Spirit together have a big presence. One of the biggest concerns in airline mergers is that they can make one company dominant at certain airports or on certain flight routes, giving it the ability to squelch competition and raise fares for some travelers.
If regulators prevent the deal from going through, JetBlue would pay a fee of $70 million to Spirit and $400 million to its shareholders.
Under the merger agreement, JetBlue would acquire Spirit for at least $33.50 per share in cash—significantly more than Spirit’s closing price of $24.30 on Wednesday.
The combined airline will be based in New York and led by JetBlue’s chief executive, Robin Hayes. It will have a fleet of 458 aircraft, employ 34,000 employees and serve an estimated 77 million customers, the airlines said.
JetBlue said it expected $600 to $700 million in annual savings from spreading fixed costs over a larger business once the two airlines are integrated. Based on 2019 revenues, the combined airline is projected to have annual revenues of about $11.9 billion.
JetBlue said the acquisition would help it to expand its presence in certain cities such as Fort Lauderdale, Orlando, San Juan, and Los Angeles. The airline said it expected to grow at the hub airports of the four largest carriers, such as Las Vegas, Dallas, Houston, Chicago, Detroit, Atlanta, and Miami—a strategy devised in part to try and win over antitrust regulators who are eager to see more competition at airports where one or two airlines control a large majority of gates and flights.
But even if the deal closes successfully, airline mergers are notoriously difficult, requiring the melding of unions, sometimes antiquated and incompatible computer systems, mismatched fleets of aircraft, and disparate company cultures.
“The merger will be a case study of the winner’s curse,” Erik Gordon, a business professor at the University of Michigan, said. “JetBlue will face years of nightmares trying to integrate aircraft, systems, and cultures that are from different planets.”
On Thursday, Sara Nelson, the president of the Association of Flight Attendants-CWA,—which represents flight attendants at 19 airlines, including Spirit—said that her union would only support the deal if flight attendants share in its benefits.
“Our job is to improve conditions for workers and to be strategic about how we do that,” she said in a statement.
The airlines said they would operate independently, with loyalty programs and customer accounts unchanged, until the transaction closes.
Research contact: @nytimes