JetBlue Makes a Surprising Bid for Spirit Airlines

JetBlue Airways has proposed acquiring Spirit Airlines for approximately $3.6 billion, disrupting Spirit's plans to merge with competitor Frontier Airlines.

On Tuesday, Spirit announced that it received an unsolicited offer from JetBlue. The board will review the proposal to determine the best course for shareholders.

In a statement, JetBlue, based in New York, claimed that merging with Spirit would lower fares by establishing 'the most compelling national low-fare competitor' to the top four airlines: American, Delta, United, and Southwest.

Frontier made a similar case in February to advocate for its proposed takeover of Spirit, asserting that the formation of the nation’s fifth-largest airline would save consumers $1 billion annually.

JetBlue proposed a cash offer of $33 per share, claiming this values Spirit at 37 percent more than Frontier's offer. However, Frontier's bid would allow Spirit shareholders to retain 48.5 percent of the merged airline. Frontier estimated its cash-and-stock proposal to be worth $2.9 billion, although a decline in Frontier’s stock has lowered its value since February.

Shares of Spirit, based in Florida, surged by 22 percent after the New York Times initially reported the JetBlue bid on Tuesday, while JetBlue's shares fell by 7 percent.

A merger between Frontier and Spirit would combine Frontier's western U.S. routes with Spirit's network along the East Coast and Caribbean. Both airlines are budget carriers that provide low fares, often offsetting costs by charging extra for services that larger airlines typically include, such as carry-on bags and beverages.

JetBlue operates differently from typical ultra-low-cost carriers. Its base fares are usually higher than those of Frontier and Spirit, but it offers amenities they lack, such as free TV and complimentary internet at every seat.

JetBlue’s strong presence on the East Coast, particularly in Florida, would create significant overlap with Spirit. In a statement on Tuesday, Frontier contended that this would result in reduced competition, increased fares, and fewer choices for travelers.

Furthermore, both Frontier and Spirit are small enough that their merger may not attract significant attention from antitrust regulators, although several prominent liberal Democrats in Congress have expressed concerns about the merger to the Biden administration. Last year, the Justice Department and several states filed a lawsuit attempting to block a much narrower partnership between JetBlue and American Airlines, which is still under consideration.

Colin Scarola, an airline analyst at CFRA Research, indicated that the Biden administration is more inclined to oppose a JetBlue-Spirit merger than a Frontier-Spirit alliance, as it might result in higher fares.

Nonetheless, he considers the JetBlue offer to be more advantageous, stating that 'Spirit will likely take the risk and accept the JetBlue bid. It's simply too lucrative to ignore.'

JetBlue is three times larger than Frontier and nearly twice the size of Spirit. It has previously encountered setbacks in acquisitions, losing its bid for Virgin America to Alaska Airlines.

Frontier is owned by private equity firm Indigo Partners, which once held a significant stake in Spirit.

One area in which all three airlines are alike is in consumer complaints. Last year, Spirit had the highest complaint rate reported to the U.S. Transportation Department, followed by JetBlue and Frontier.