Frontier Airlines’ month-long effort to acquire Spirit Airlines came to an abrupt end Wednesday when the company called off the proposal, giving new life to a rival bid for Spirit by JetBlue Airways.
The announcement was made shortly before Spirit announced the results of a shareholder vote on Frontier’s takeover offer. Spirit repeatedly postponed the vote as it tried to convince shareholders to support the deal and disregard the appeal of the more valuable JetBlue offer.
The aviation industry has significantly consolidated in recent decades, resulting in four dominant airlines. For Frontier and JetBlue, the acquisition of Spirit represents an opportunity to gain significance to rapidly expand and separate businesses from American Airlines, Delta Air Lines, Southwest Airlines and United Airlines.
Both mergers, however, face legal challenges from the Biden administration’s antitrust regulators.
In a statement, Spirit CEO Ted Christie said, “I’m disappointed that I had to close the merger with Frontier, but the team members’ dedication to the deal over the past few months. I’m proud of my efforts. ” “The Spirit Board will continue to hold ongoing discussions with JetBlue, pursuing the best path for Spirit and its shareholders.”
Frontier cash and equity trading was worth about $ 2.8 billion, based on Wednesday’s closing price. JetBlue’s full cash offer is worth $ 3.6 billion.
Frontier said he was disappointed that Spirit’s shareholders did not rally behind the deal. The company, which has expanded aggressively since going public last year, said it was still poised for growth.
JetBlue said in a statement that it is continuing negotiations with Spirit and is “committed to completing this transaction so that we can create an attractive national challenger to the dominant airline. ‘ said.
Spirit and Frontier jointly announced plans to merge in February, claiming the merger would create a national budget carrier. The two airlines complement each other and share a low-cost business model with different geographical strengths.
A few weeks later, JetBlue made an unsolicited bid for Spirit. However, Spirit executives questioned JetBlue’s intentions, suggesting that the offer may have been intended only to undermine the merger with Frontier. regulators said it would likely get in the way of a JetBlue merger, but experts said both deals would be subject to heavy federal scrutiny.
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Wednesday’s news doesn’t mean JetBlue’s offer will be accepted, but it could bode well for Spirit’s negotiations.
Jamie Baker and James Kirby, airline analysts at JP Morgan, said: “Today’s closing simplifies the path to a possible merger between JetBlue and Spirit, but there is no guarantee of such an outcome. “That said, we have ‘no good news’ as it suggests Spirit continues to hone its bargaining efforts rather than simply roll and accept JetBlue’s final public offering.” That’s the opinion.”
It is unclear whether a majority of Spirit’s shareholders will support the JetBlue acquisition. Even if they did, regulators could demand harsh concessions, such as derailing mergers or requiring companies to give up flights or airport gates where there is significant overlap.
The Justice Department has already sued JetBlue and American Airlines, blocking alliances between these airlines at Boston and New York airports, and a trial is scheduled for early this fall.
The acquisition of Spirit will accelerate JetBlue’s expansion plans and create the fifth largest airline in the country. Together, the airlines will control about 10.2% of the market, but still lag behind the four dominant domestic carriers. United, the fourth largest airline, has a market share of 13.9%.
Frontier reported quarterly results at about the same time that trading with Spirit was closed. The airline reported a profit of $ 13 million for a three-month revenue of $ 909 million that ended in June. This is a 65% year-on-year improvement in revenue and a 32% decrease in profit. Airlines with growth potential invested heavily to expand their services throughout the quarter.
JetBlue, which is much larger than Frontier, has struggled to grow as fast as expected since losing a similar bidding war to Virgin America in 2016. Alaska Airlines won and was acquired in 2018. has been completed.
Acquisition ethos could change things for JetBlue, but airline mergers are notoriously difficult, with union integrations, outdated and incompatible computer systems, aircraft mismatches, and corporate culture differences. will be needed.
The Transport Workers’ Union, which represents JetBlue’s flight attendants, booking agents and other workers, said it opposed the acquisition of Spirit.
“I believe workers and airline passengers should be worried,” union chairman John Samuelsen said in a statement. “I would like you to be aware that in the event of a JetBlue-Spirit transaction, regulators can intervene and combine these airlines, which can lead to reduced consumer employment and fewer options. “
Spirit, a low-cost carrier with a moderate reputation for service, keeps costs and fares low by charging extra for everything from seat selection to carry-on baggage. JetBlue rank High customer satisfaction We offer more premium options and free perks, such as well-known branded snacks and wireless Internet access.
JetBlue states that the acquisition will provide a better customer experience and lower fares, demonstrating a history of reducing traveler costs when entering new markets. The Justice Department said JetBlue’s presence in Boston created “substantial savings for consumers,” and airlines had a similar effect in New York. Quoted.
But some aviation experts question how JetBlue will keep fares at Spirit’s already low prices. If anything, some of JetBlue’s plans will almost certainly cost these people, such as removing some seats from Spirit planes to increase foot space and selling larger premium seats. Insisted that it would be raised.
In a phone call with analysts and reporters Wednesday, Frontier CEO Barry Biffle said his airline would benefit if JetBlue acquired Spirit.
“If they merge, you probably take one of the most similar careers to us and hit a 40% higher cost, which creates a lot of runways in front of us,” he said. rice field.
Peter Ebis Contribution report.