In February 2022 it was announced that Frontier Airlines would acquire Spirit Airlines, forming (by far) the largest ultra low cost carrier in the United States. Now, seemingly out of nowhere, JetBlue has swooped in, and has submitted an offer to acquire Spirit Airlines.
In this post:
JetBlue’s takeover bid for Spirit Airlines
JetBlue has submitted an all-cash $3.6 billion offer to acquire Spirit Airlines, at a rate of $33 per share. This represents a 52% premium to Spirit’s share price on February 4 (when the Frontier takeover bid was announced), and a 50% premium to Spirit’s share price on April 4.
For context, Spirit Airlines is an ultra low cost carrier with a fleet of roughly 180 planes that offers a pretty no frills experience and charges for just about everything, while JetBlue has a fleet of roughly 280 planes and is more full service, and has free Wi-Fi, personal televisions, free drinks and snacks, and more.
The crux of JetBlue’s proposal is that JetBlue’s biggest weakness is that it can’t compete with the “big four” US carriers in terms of network, and acquiring Spirit Airlines would allow the airline to grow significantly. It would make JetBlue the most compelling national low-fare challenger to American, Delta, Southwest, and United.
JetBlue wants to expand the “JetBlue Effect,” whereby fares are brought down in many markets that JetBlue enters, without offering an inferior experience. The airline also states that “travelers shouldn’t have to choose between a low fare and a great experience,” so the expectation would be that the JetBlue experience sticks around, rather than the Spirit Airlines experience.
It’s specifically emphasized that JetBlue would be able to grow in focus cities like Los Angeles, Fort Lauderdale, Orlando, and San Juan, as well as legacy hubs where the dominant carriers control fares, including Las Vegas, Dallas, Houston, Chicago, Detroit, Atlanta, and Miami.
For employees, JetBlue is promising job growth and opportunities, while for shareholders JetBlue is promising accelerated revenue growth and profitability, with operational synergies of $600-700 million in the first year.
I think it’s worth emphasizing that while JetBlue states that this is a “superior proposal” to what Frontier Airlines submitted, there’s of course no guarantee that this will happen.
My take on JetBlue’s plans to acquire Spirit Airlines
When news came out of JetBlue’s plans to acquire Spirit Airlines, I think it’s safe to say that nearly everyone was stunned, and didn’t see this coming. On the surface it almost seems like an April Fools’ Day joke.
Frontier acquiring Spirit seems logical enough, as the airlines are highly complementary — they have similar business models, similar fleets, and highly complementary networks.
What about JetBlue acquiring Spirit, though? Let’s go over some of the pros and cons There are a lot of reasons it doesn’t make sense, including:
- The two airlines have totally different business models, and it sounds like not a whole lot about Spirit would actually stick around
- The airlines offer totally different passenger experiences, and even reconfiguring planes to create a consistent experience would be time consuming and very costly
- The two carriers’ route networks overlap somewhat, in particular in places like Fort Lauderdale
- JetBlue touts how the combination of JetBlue and Spirit, plus the Northeast Alliance with American Airlines, is an amazing combination; this alliance is already under DOJ scrutiny, and I can’t imagine the alliance would stick around in its current form if this takeover were to happen
There are also some reasons it does make sense, though:
- The airlines do have complementary fleets, as both airlines primarily operate Airbus A320-family aircraft
- JetBlue currently competes directly with Spirit in many markets (in particular to the Caribbean), and Spirit causes JetBlue to have to compete with much lower fares; JetBlue would have a lot more pricing power if Spirit were eliminated
- If Frontier were to acquire Spirit, it would make JetBlue an even smaller player in the United States by comparison, so this almost seems like an attempt to avoid Spirit being bought by another airline, rather than JetBlue necessarily thinking Spirit is a great fit (it’s not different than how years ago JetBlue wanted to bid on Virgin America when Alaska did)
Bottom line
JetBlue submitted a bid to acquire Spirit Airlines, just two months after Frontier Airlines announced plans to acquire Spirit. JetBlue believes it has a superior proposal, so it’ll be very interesting to see how this plays out.
I don’t think many of us saw this coming. On the surface, this seems like a very strange combination, as the airlines have very different business models and cabins. On the other hand, the airlines have complementary fleets, and this would no doubt allow JetBlue to compete more fiercely against the other major carriers in the United States.
What do you make of JetBlue’s attempt to buy Spirit Airlines?
I will be we fly Spirit again, the business model just is not for me. But I do t take that personally. Jetblue on the other hand, is an airline I would've glad to see wither away after frontier merges with spirit. I've never forgotten or forgiven their blatant racism in the case of Raed Jarrar in 2003. Jetblue has been a niche player and this is their last hail Mary for market relevance. Good riddance.
If JetBlue wants to grow, why did it abandon the bulk of its west coast network? What happened to all the flights between SEA, PDX, SFO, SMF, LGB, and SAN? What happened to expanding flights in ONT? JetBlue is full of crap
This is the kind of corporate culture/business model miss-match in a big (for JetBlue) acquisition that can sink both companies.
It makes more sense for JetBlue to go after Frontier.
Am I the only one thinking Spirit will be the surviving business model even if JetBlue buys them.
Yes you are the only one considering JetBlue clearly stated it would be the surviving brand if this moves forward.
I’m all for it. Hopefully, Jet Blue continues to grow in a good way.
Ahhh... I can't wait to bask in the remarkable combination of JetBlue's operational efficiency and Spirit's charming customers.
If this merger would alleviate any ongoing pilot or aircraft shortages then it’s going to happen.
This looks like an obvious ploy by JetBlue, to either slow down or stop the a Frontier-Spirit merger by creating the appearance of a feeding frenzy for airline cost competition and consolidation and pump Frontiers merger brakes. There is NO way in the world Jetblue can believe this going to be approved by federal regulators. Speaking of regulators , I believe even the Frontier Spirit merger which in a different economy would make sense, however...
This looks like an obvious ploy by JetBlue, to either slow down or stop the a Frontier-Spirit merger by creating the appearance of a feeding frenzy for airline cost competition and consolidation and pump Frontiers merger brakes. There is NO way in the world Jetblue can believe this going to be approved by federal regulators. Speaking of regulators , I believe even the Frontier Spirit merger which in a different economy would make sense, however with the current administration I believe even this option only has a 50% - 50% chance of being approved, still a better chance then a JetBlue merger. The Feds are also concerned with Job loss and although JetBlue has said they are creating some new jobs with AA in NYC, nowhere in their statement was an offer to protect any jobs for current Spirit employees. Obviously this wont impact Spirit Pilots since there is a pilots shortage, everyone else, including FA's could require a re-evaluation as well as a transfer out of their current base to another City.
JetBlue needs to grow to survive. They lost out on buying Virgin America. Now they're facing a combined Frontier/Spirit, making them an even smaller player. JetBlue needs planes, routes, and crew, ASAP. This acquisition will get them that. Other than Spirit, who can they buy? Alaska has a much bigger market cap and a very different route network and fleet. I don't see them attempting that merger.
So if JetBlue does manage to acquire Spirit,...
JetBlue needs to grow to survive. They lost out on buying Virgin America. Now they're facing a combined Frontier/Spirit, making them an even smaller player. JetBlue needs planes, routes, and crew, ASAP. This acquisition will get them that. Other than Spirit, who can they buy? Alaska has a much bigger market cap and a very different route network and fleet. I don't see them attempting that merger.
So if JetBlue does manage to acquire Spirit, where does that leave Frontier? I suppose they could try to merge with Allegiant and preserve their ULCC model, but it's definitely less of a prize than Spirit would be.
As a JFK-based flyer, I'm definitely rooting for JetBlue... recent woes aside, they've historically had a very good product, great crew, and Mint is just heads and shoulder above the competition. If this acquisition allows them to expand and thrive, I'm all for it.
Odd flex but:
As a frequent flier to southern Florida, I love the pricing pressure Spirit puts in everyone else.
As an AA elite who can earn on and use my status on Jetblue - more direct flights and maybe this is the millionth straw that breaks Isom’s back when Legacy Spirit aircraft get IFE!
Thanks for the reminder that JetBlue should have been the one to acquire VX. Sigh...
Frontier drops their bid to acquire Spirit, leaving them as one of the smallest domestic carriers left. United makes a bid to buy Frontier and Kirby gets the Denver crown he has been coveting since joining UA. Right after everyone is done overpaying for these acquisitions the economy tanks and the airlines come to the taxpayers looking for a bailout to get them through.
I have a friend who is a pilot for Spirit and he said the motivation for the acquisition is simple…JetBlue needs the pilots and planes. They cannot get more planes right now because other airlines have orders that are ahead of them from the manufacturers.
Really hope this is blocked. This would definitely increase airfares. I love JetBlue and will pick it over any domestic if given the option, but sometimes Spirit works just fine for what I need.
Presumably this is about knocking out 2 strong competitors. From my viewpoint anything that helps kill the ULCC is a win in my book. The coach experience has gotten beyond horrible.
It's sad that Jetblue's recent woes have made people think they are a poorly run airline. They still have the best onboard service, food and entertainment by a longshot.
Operationally, JetBlue is poorly run. When your on-time record is worse than the ULCCs, that says a lot.
If the combined company can magically end up with Spirit's operational skills plus JetBlue's product, great. But given the outcome of so many mergers in the past, both in and out of the airline industry, the opposite seems more likely.
JetBlue is a poorly run airline and has been for much of its existence. It has a nifty, cut above product, but can't run a clean operation on the brightest and sunniest of days. From staffing to operations, to aircraft dispatch, B6 is a veritable mess, run by amateurs. The whole point of acquiring Spirit (and through a massive all cash deal) shows the depth of the inexperience at play here. It is a steep...
JetBlue is a poorly run airline and has been for much of its existence. It has a nifty, cut above product, but can't run a clean operation on the brightest and sunniest of days. From staffing to operations, to aircraft dispatch, B6 is a veritable mess, run by amateurs. The whole point of acquiring Spirit (and through a massive all cash deal) shows the depth of the inexperience at play here. It is a steep price to pay for talent (pilots, mostly) and aircraft, which while they fit nicely into the B6 fleet, will see their leases renegotiated if this deal comes to pass. Some argue that the announcement yesterday also blunts the DoJ's case against the AA/B6 Northeast Alliance. Perhaps it does. Long run, JetBlue is destined to merge into one of the big US3 and that US3 will likely be American Airlines. How they'll pull it off? Difficult to say. AA doesn't have the finances to acquire B6, but SPAC's and activist investors and market conditions will probably dictate otherwise.
Excellent analysis.
JetBlue is feeling the pinch on all its core makets, NYC, FLL, MCO and BOS by Spirit.
Compared to Spirit’s fleet size , JetBlue has quite a weak network and poor operational performance. They are heavily in trenches in saturated markets where there is congested airspace.
Does anyone know because frontier/spirit was a merger and this attempt is an acquisition, is Spirit as a fiduciary for its shareholders obligated to...
Excellent analysis.
JetBlue is feeling the pinch on all its core makets, NYC, FLL, MCO and BOS by Spirit.
Compared to Spirit’s fleet size , JetBlue has quite a weak network and poor operational performance. They are heavily in trenches in saturated markets where there is congested airspace.
Does anyone know because frontier/spirit was a merger and this attempt is an acquisition, is Spirit as a fiduciary for its shareholders obligated to accept the highest value offer they receive?
And agreed- (if) this goes through, north east alliance will be gone.
0% chance the government signs off on this one though. Too bad.
JetBlue doesn't want to be left out again after losing Virigin America.
It’s the new inflight entertainment! Mint PAX can now see the live boxing match live-streamed from economy! (Or go ringside if they dare)
Absolutely wild. Definitely seems more like JetBlue trying to prevent Frontier from buying Spirit than them actually wanting to acquire the airline. The customer base of Spirit just doesn't match with that of JetBlue; it doesn't work in the same way of Frontier + Spirit.