‘We have a lot of momentum': Frontier’s CEO tells TPG he’s confident ahead of Spirit merger vote
Quick summary
Spirit Airlines shareholders are set to vote Thursday on whether or not to approve the airline's plans to merge with fellow low-cost carrier Frontier.
While the merger initially seemed likely to pass, a proverbial wrench was thrown in the works in April when JetBlue made an unsolicited bid to acquire Spirit, raising its offer higher and higher in an effort to lure Spirit shareholders away from the Frontier proposal as part of a hostile takeover.
With much back-and-forth in the skirmish over Spirit, Thursday's vote on the Frontier measure — which Spirit's board and proxy advisory firm Institutional Shareholder Services (ISS) are pushing shareholders to approve — will effectively be a choice: Frontier, or JetBlue?
In an interview with TPG this week ahead of the vote, Frontier CEO Barry Biffle said he was confident that Frontier would win out.
"We have a lot of momentum going into the vote," Biffle said. "I think there's a lot of excitement about the Spirit-Frontier combination, so we're looking forward to a positive vote."
JetBlue's offer is worth more and comes as an all-cash buyout, whereas Frontier's includes both cash and stocks, and has lost some value as stock prices have declined across the airline industry.
Spirit postponed its shareholders vote from earlier this month to June 30 in order to give the board more time to consider JetBlue's offer, while the budget carrier also provided due diligence to the JetBlue team.
Although JetBlue's offer has been valued higher than Frontier's, Frontier has consistently argued — and Spirit's board has vocally agreed — that a JetBlue takeover of Spirit is unlikely to be approved by regulators.
"A merger with Frontier poses less regulatory risk on Spirit stockholders and increases competition in the industry for the benefit of consumers," Spirit board chairman Mac Gardner said in a statement last week in response to Frontier sweetening its offer. "The Board is confident a merger with Frontier is the most financially and strategically compelling path forward for Spirit stockholders, with more certainty and the strongest likelihood of closing."
It was a sentiment that Biffle reiterated, arguing that an acquisition of Spirit by JetBlue would mean higher fares for consumers, with Frontier less able to offer enough competition to drive fares consistently downward.
"[JetBlue] said they would have costs similar to their current costs. They said they would take seats off planes, and then they said their margins would be 2% higher," Biffle said. "The only way that's possible — do the algebra, solve for what the fares have to be."
"If their costs are going to be the same and their margins are going to go up 2%, that means the fares have to be higher than what JetBlue is paying," he added.
JetBlue has said that if it were to acquire Spirit, it would fold the budget carrier under its own brand, which would include removing seats and retrofitting cabins aboard Spirit planes in order to offer a consistent product.
Frontier and Spirit have not publicly said what a combined airline would look like, although the two already have a complementary low-cost business model, which seemingly would make integration more straightforward.
If either airline were to combine with Spirit, it would create the nation's fifth-largest carrier, behind American, Delta, United and Southwest, capable of applying greater pressure on the major airlines.
Biffle believes that regulators are more likely to approve a merger between Spirit and Frontier, saying that the airlines can demonstrate that they would lower costs and exert greater downward pricing pressure on the four biggest airlines.
"When the government really spends time looking at it, they're going to be as excited as we are," Biffle said. "The big four dominate this country and there needs to be a counterbalance. This is finally really an option to do that."
"Anyone that thinks that we're not the driving force of low-fare competition in this country, they haven't paid attention for the past decade," he added.
Regardless of which way Thursday's vote goes, it's unlikely that the issue will be settled immediately, with either losing side likely to make further moves or claims to try and change the deal.
Still, Biffle would not say what the next move would be if Spirit shareholders reject the Frontier deal on Thursday.
"Call me Friday, if that happens, and we'll talk," he said.