WASHINGTON: JetBlue Airways said it made an unsolicited US$3.6bil (RM15.19bil) bid for Spirit Airlines, potentially snarling merger plans between the ultra-low-cost carrier and Frontier Group Holdings.
JetBlue offered US$33 (RM139) a share all cash, about 33% higher than Frontier’s offer of 1.9126 shares of stock and US$2.13 (RM8.99) in cash, which would value Spirit at US$24.93 (RM105) per share as of yesterday’s closing price.
Airline stocks have suffered over the last two years as air travel dropped dramatically during the Covid-19 pandemic.
JetBlue said the deal would make it a stronger competitor to the largest four United States airlines that control nearly 80% of US passenger travel and boost operations in key markets like the northeast and Florida. It would operate Spirit under the JetBlue brand.
JetBlue, the sixth-largest US airline, said the tie-up would position it “as the most compelling national low-fare challenger to the four large dominant US carriers.”
The move comes as airlines face higher fuel and labour costs, and work to attract more leisure travellers, who have returned at a faster rate than business travellers since restrictions were relaxed.
The deal will get considerable scrutiny from the US Justice Department because both JetBlue and Spirit are important discount carriers, said Andre Barlow of Doyle, Barlow and Mazard PLLC.
“I think the administration is concerned about consolidation that could lead to higher prices. This one impacts consumers, so I think it gets a tough look,” he said.
The Justice Department declined to comment.
The department filed an antitrust lawsuit against American Airlines and JetBlue over their partnership, alleging it would lead to higher fares in busy Northeastern US airports.
It is unclear if JetBlue would seek to continue that partnership if it was successful in acquiring Spirit.
Frontier said it was “surprising that JetBlue would consider such a merger at this time given that the Department of Justice is currently suing to block their pending alliance with American Airlines.”
American did not immediately comment.
JetBlue said the deal if completed is expected to deliver US$600mil-US$700mil (RM2.53bil-RM2.95bil) in net annual synergies and that the combined airline is projected to have annual revenue of about US$11.9bil (RM50.2bil) based on 2019 revenue.
Sprit’s 52-week high of US$39.19 (RM165) is US$6 (RM25) above the reported offer from JetBlue. Just before Covid lockdowns became widespread, Spirit shares traded around US$45 (RM190).
Spirit declined to comment beyond a written statement that it would review the offer.
Frontier said its Spirit deal “is in the best interest of consumers and shareholders and would deliver US$1bil (RM4.22bil) in annual savings for consumers” and argued “significant East Coast overlap between JetBlue and Spirit would reduce competition and limit options for consumers.”
In February, Frontier and Spirit proposed a merger that would create the fifth-largest US airline.
Spirit’s customer service has often faced criticism and the airline cancelled 35% of its flights Monday amid weather issues.
“Customers shouldn’t have to choose between a low fare and a great experience, and JetBlue has shown it’s possible to have both,” said JetBlue chief executive officer Robin Hayes.
The Spirit-Frontier deal faced criticism from some lawmakers and public interest groups warned in March that a merger between the carriers “would destroy competition in the only competitive market segment of the highly consolidated airline industry.”
The proposed tie-ups come as the US airline industry is grappling with volatility in travel due to Covid.
At the same time, costs are soaring on a combination of sharply higher fuel prices and rising wages. — Reuters