JetBlue set to buy Spirit Airlines in a previously unlikely marriage
Out with Frontier, in with JetBlue.
JetBlue has reached a deal to acquire Spirit Airlines, a stunning reversal that now has JetBlue in the driver's seat to take over the Florida-based budget carrier.
Just weeks ago, Spirit appeared likely to merge with fellow ultra-low-cost carrier Frontier Airlines. But a deal between those two carriers was officially terminated Wednesday, paving the way for JetBlue's acquisition that was announced early this morning.
The agreement seems to end an unlikely bidding war for Spirit that surprised the industry and left casual observers wondering how Spirit had suddenly become such a hot commodity.
Spirit first agreed to merge with Frontier in February, but JetBlue made its own bid in April — kicking off months of back-and-forth wrangling for Spirit that eventually saw JetBlue's bid turn hostile. But Spirit's shareholders never warmed to the deal, which lost momentum and officially fell apart as it seemed certain to be voted down.
By the numbers: A snapshot of the merger between JetBlue and Spirit
The latest deal with JetBlue, valued at about $3.8 billion, would have the New York-based carrier pay $33.50 a share in cash for its acquisition of Spirit and its fleet of yellow Airbus jets.
With a tie-up now being welcomed by Spirit, JetBlue CEO Robin Hayes touted the deal, which would create the nation's fifth-biggest airline after American, Delta, United and Southwest.
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The merger, Hayes said, would create a "compelling combination that turbocharges our strategic growth."
Still, the proposal is expected to face substantial headwinds in Washington, where regulators may not be as enthusiastic about the tie-up as JetBlue's CEO.
A Frontier-Spirit deal would have brought together two ultra-low-cost carriers with complimentary route networks and similar operating models and fleets. In the process, it would have created a budget behemoth that could have challenged the four biggest U.S. airlines, which — combined — control about 80% of the domestic U.S. market.
A Spirit merger with JetBlue, however, would bring two together airlines with disparate business models and passenger experiences. JetBlue likes to bill itself as something of a "boutique" carrier, positioned between budget airlines and the big full-service carriers. It has the highest average legroom in coach among U.S. carriers, and offers free seatback entertainment and inflight Wi-Fi. Spirit, on the other hand, is a true no-frills carrier, charging cheap base fares but tacking on fees for everything beyond boarding the plane.
The two share a common fleet type — but little else. Despite that, Hayes spoke optimistically of bringing the two airlines together and of how the combined carrier could compete nationally.
"We look forward to welcoming Spirit's outstanding Team Members to JetBlue and together creating a customer-centric, fifth-largest carrier in the United States," Hayes said in the statement announcing the merger agreement. "Spirit and JetBlue will continue to advance our shared goal of disrupting the industry to bring down fares from the Big Four airlines."
Now, JetBlue will have to convince regulators that its vision of a merged airline is in the public interest.
It's widely thought that the Justice Department might have looked more favorably at a Frontier-Spirit merger, which would have continued to operate under a model promising rock-bottom fares and lots of (tightly packed) seats per plane.
JetBlue's bid, however, calls for retrofitting Spirit's planes into its own less-dense configuration by removing seats and adding perks. JetBlue's fares, on average, are also higher than Spirit's.
That means to approve the deal, competition regulators would have to swallow the idea that removing seats from a true budget airline to make way for a bigger — and likely more expensive — JetBlue would be a net win for consumers.
For now, Spirit and JetBlue will continue to operate separately as they get ready to make their case in Washington.
If approved, the combined carrier would be led by Hayes and remain headquartered in New York under the JetBlue brand. Spirit's brand would eventually disappear.
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