Why JetBlue is so desperate to buy Spirit – Quartz

Why JetBlue is so desperate to buy Spirit – Quartz

JetBlue badly wants to buy Spirit Airlines. Since April, the company has been locked in a battle with its smaller rival, Frontier Airlines, over a potential Spirit merger. On June 20, JetBlue raised the price of its offering to $3.6 billion, about two-thirds more than the current price of Frontier’s offering, which is approximately $2.2 billion.

At times, JetBlue’s offered price has nearly doubled Frontier’s, but Spirit’s board of directors has consistently rejected JetBlue’s advances for fear of monopolistic regulators blocking the deal. The US Justice Department is already suing JetBlue to block a proposed partnership with American Airlines, which prosecutors say would unfairly undermine competition.

The Spirits board is now in talks with both JetBlue and Frontier, and expects to conclude the talks before the company’s June 30 shareholder meeting. In a letter accompanying JetBlue’s most recent offer, CEO Robin Hayes wrote that he expected to “reach a friendly, negotiated agreement” with the Spirits board.

if such an agreement Not there Ensuing, Hayes threatened to continue JetBlue’s campaign to persuade Spirit shareholders to vote against Frontier’s acquisition proposal at its June 30 meeting. JetBlue is appealing directly to Spirit shareholders to override the board and sell its stock to JetBlue for $33.50 per share — a 57% markup from the stock price the day before the company’s offering.

JetBlue has offered to sell some of its assets to avoid antitrust investigations (though it refuses to give up on its partnership with American Airlines), and if the deal is eventually blocked by regulators it has sold Spirit $ 350 million offered to pay the breakup fee.

Why is JetBlue so obsessed with buying spirits?

There is a clear hierarchy among US domestic airlines. The four largest carriers—American, Southwest, Delta and United—control two-thirds of the market. After that, there has been a sharp drop in market share among regional and budget airlines, none of which control more than 6% of the market.

But the alliance between Spirit and Frontier or JetBlue would make it the fifth-largest US domestic airline in terms of market share. In any case, the new airline will be a cut above its regional and budget rivals, and will move very close to the scale of the big four airlines. As Hayes wrote in his letter to the Spirits board, the merger between Spirit and JetBlue would “create a true national competitor to the major legacy carriers.”

Spirit is particularly attractive to JetBlue because of its presence in Fort Lauderdale and Orlando. Both Florida destinations are on JetBlue’s list of six strategic “focus cities” (PDF) where it aims to expand its footprint. The merger with Spirit will give JetBlue access to gates and routes at both airports and make the combined airline the largest competitor in those two cities.

A merger would also rapidly boost the size of JetBlue’s fleet of aircraft and its roster of pilots. After widespread retirements during the pandemic, pilots are now in short supply, forcing airlines to cancel flights as consumer demand for air travel grows.

Ultimately, JetBlue wants to buy Spirit because it would prevent Frontier from buying Spirit. JetBlue listed a successful Frontier-Spirit merger as a potential business risk in a January SEC filing. “If the proposed merger [between Frontier and Spirit] Meets regulatory and stockholder approvals, the combined airline is expected to be a major competitor to JetBlue, which could impact our competitiveness,” the company wrote.

Both JetBlue and Frontier have lost hundreds of millions of dollars during the pandemic. As JetBlue noted in its SEC filing, both operate in the domestic aviation industry characterized by “low profit margins, high fixed costs and significant price competition against competitors.” [that] are bigger and they have more financial resources and name recognition.” For any company, adding another Goliath competitor to that list represents an existential threat.

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