JetBlue offers $3.6 billion for Spirit in battle for US low-cost carriers

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A logo of low-cost carrier Spirit Airlines is pictured on an Airbus plane in Colomiers near Toulouse, France, November 6, 2018. REUTERS/Regis Duvignau/File Photo

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WASHINGTON, April 5 (Reuters) – JetBlue Airways (JBLU.O) said on Tuesday it had made an unsolicited $3.6 billion bid for low-cost airline Spirit Airlines (SAVE.N), which could lead to a to hamper proposed mergers between Frontier Group Holdings (ULCC). O) and Spirit. Read more

Shares of Spirit rose 22%, their highest level since mid-February. Airline stocks have suffered from the dramatic drop in air travel during the COVID-19 shutdowns.

JetBlue said the agreement, if completed, is expected to “produce between $600 million and $700 million in net annual synergies and the combined airline is expected to generate annual revenues of approximately $11.9 billion over the 2019 revenue base.

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Sprit’s 52-week high of $39.19 is $6 higher than JetBlue’s reported offer of $33 per share. Just before the COVID lockdowns became widespread, Spirit shares were trading around $45.

Spirit declined to comment beyond a written statement. The US Department of Justice, which would review any proposed merger, declined to comment.

Frontier said its Spirit deal “is in the best interests of consumers and shareholders and would save consumers $1 billion a year.” Frontier said “the significant East Coast overlap between JetBlue and Spirit would reduce competition and limit options for consumers.”

JetBlue, the sixth-largest US airline, said the combination would position JetBlue “as the most compelling domestic low-cost challenger to the big four dominant US carriers” and argued its presence in more markets would lead to significantly larger price cuts. traditional airlines” thanks to what has been called the “JetBlue effect”.

In February, Frontier and Spirit proposed a merger that would create America’s fifth-largest airline. Frontier’s offer would value Spirit at $24.93 per share at Frontier’s closing share price on Tuesday.

Frontier’s offer is 1.9126 shares and $2.13 in cash for each Spirit share.

Spirit’s customer service has often been criticized. “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 Robin Hayes, CEO of JetBlue.

The Spirit-Frontier deal has been criticized by some lawmakers and public interest groups have warned that a merger between the ultra-low-cost carriers “would destroy competition in the only competitive market segment of the highly consolidated airline industry. “.

They argued: “Travelers will pay higher prices for fewer and lower quality options, workers will lose their jobs and small businesses will be squeezed out of a once competitive market segment.”

The proposed tie-ups come as the U.S. airline industry grapples with travel volatility due to COVID. At the same time, costs are soaring under the combined effect of the sharp rise in fuel prices and rising wages.

The Justice Department has filed an antitrust lawsuit against American Airlines and JetBlue over their partnership, alleging it would lead to higher fares at busy airports in the northeastern United States. It is unclear whether JetBlue would seek to continue this partnership if it were 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 ongoing alliance with American Airlines.”

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Reporting by David Shepardson in Washington and Kannaki Deka in Bengaluru; Editing by Maju Samuel, Bernard Orr

Our standards: The Thomson Reuters Trust Principles.

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