Agreement Reached: JetBlue To Buy Spirit Airlines

Yesterday Spirit Airlines shareholders rejected an agreement to sell to Frontier with JetBlue offering far more money.

Now Spirit’s board has agreed to sell to JetBlue under similar terms as the New York-based carrier’s last offer – a price 40% higher than Frontier was offering at the time it was made a month ago.

  • $470 million breakup fee if the deal falls apart over anti-trust. Spirit shareholders can pocket $400 million of that money, the company gets $70 million, and shareholders still own the company and can re-sell it.

  • Prepayment of $2.50 per share payable as soon as Spirit’s shareholders approve a deal

  • The longer the deal takes to close, the more Spirit shareholders get. Spirit shareholders would receive an additional 10 cents per month starting from January 2023 through date of closing or deal termination, though the first $1.15 counts against the breakup fee.

JetBlue’s deal is worth over $33.50 – JetBlue estimates $34.15 but that’s based on the merger not closing until mid-2024 (!).

Ironically Spirit’s assets should be worth less to JetBlue than to Frontier, since JetBlue will (1) earn less off of those assets [the ultra low cost business model is higher margin than JetBlue’s] and (2) face higher costs, giving many Spirit employees wage increases, and investing in aircraft interiors to bring them up to JetBlue standard.

Meanwhile they’re heavily incentivized to get the deal done, both because they want Spirit and because it will cost them $400 million if they can’t close for anti-trust reasons. That gives the federal government huge leverage in its separate suit to kill the JetBlue-American Airlines Northeast Alliance.

JetBlue has already agreed to divest conflicting assets like Spirit slots in New York and gates in New York and Boston, which are some of Spirit’s uniquely valuable assets, making the deal less useful to JetBlue’s airline business going forward (though reducing the net cost of the transaction).

If the government uses approval of this deal as leverage to get JetBlue to walk away from or limit their American Airline partnership that makes both of those carriers less effective competitors in New York. It reduces competition in the most important air market in the country. It’s a gift primarily to Delta, which also benefits in Boston, but also to United, crippling American Airlines in Manhattan and coming at the expense of consumers flying to and from the Northeast.

There’s little question that JetBlue is overpaying, a classic case of winners curse. They’ll be distracted by this acquisition for years and hampered by its associated costs, while the carrier’s operational challenges remain and potentially amplify from trying to integrate Spirit into its systems.

Winners and losers:

  • JetBlue shareholders: losers
  • Spirit shareholders: winners
  • United and Delta: winners
  • American Airlines: loser
  • (Update, I should have added) Frontier: potential winner, because any DOJ deal to proceed with the merger will involve divesting slots and gates at congested airports and likely a requirement that those go to a low cost carrier… like Frontier. The carrier can pick up premium Spirit assets without the merger expense.

It didn’t take long for the Spirit Airlines board to reverse course from claiming that the JetBlue deal was bad for shareholders. They were extremely negative on it, and now they’ll be bullish on it. Life moves pretty fast sometimes.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. 1) In terms of domestic travel (really all that Jetblue and Spirit do), is NYC still the “most important air market in the country?” It seems like a lot of the airports JetBlue is now focusing on have more long term growth

    2) You’ve never really answered this question – I know slots are limited, but why can’t American (or anyone else) actually compete with Delta/United in NYC without the NEA? Why can’t they launch better service, schedules, and simply coompete for the business? There will likely be slots up for sale in NYC and BOS due to this merger – American should just buy them and actually compete to win.

  2. JetBlue and Spirit are two airlines I will be sure to continue avoiding at all costs. What a basket case of a new airline this will be.

  3. @Anthony –

    “I know slots are limited, but why can’t American (or anyone else) actually compete with Delta/United in NYC without the NEA? Why can’t they launch better service, schedules, and simply coompete for the business?”

    They can’t add flights. They don’t have enough flights to be competitive for corporate contracts. They either won’t serve most destinations, or will serve them with a single flight or two compared to schedules with myriad flights. Combined they can match service by Delta and United, on their own they cannot. And JetBlue’s feed supports connections for international departures too.

    They could offer better service in a boutique strategy, that can work to London with BA, but that’s about it. They cannot offer better schedules without more schedule options which they can’t offer without more flights – which they cannot have.

    “There will likely be slots up for sale in NYC and BOS due to this merger – American should just buy them and actually compete to win.”

    I certainly agree with this but the federal government will likely insist as part of any deal that the slots get divested to an ultra low cost carrier – like Frontier. So Frontier may be a winner in this deal after all, premium assets without merger costs. (Updating post)

  4. JetBlue has a partnership with American Airlines, and
    there is a new agreement for JetBlue to purchase Spirit Airlines. Since you can use American Airlines AAdvantage miles to buy a ticket operated by JetBlue, will I soon be able to use my American Airlines AAdvantage miles to buy a codeshare ticket on JetBlue but operated by Spirit Airlines?

    I think everyone wants to experience the luxury and ambiance of sitting in a Spirit Airlines pre-reclined big front seat while jetting from Detroit (DTW) to Austin (AUS) while using their AAdvantage Miles.

  5. Maybe this will bring JetBlue into more markets (or expand) like MCI, MEM, STL and DTW.

  6. Living in Boston, JetBlue was a longtime favorite of mine. As they began to morph into a more typical airline (charging for checked bags, their ridiculously unrewarding Mosaic program, less legroom, ….), they lost their edge, as well as their reliability. When Southwest began flying out of Boston eliminating my need to travel to Providence or Manchester, they became my primary short haul choice, with UA for long haul. I’ve rarely regretted my actions.

  7. This is absolutely terrible news. I just bought a Spirit Airlines Fight Club t-shirt. Now what am I going to do with it?

  8. The entire thesis of the merger is flawed. Spending nearly $4 billion in cash – nearly all airline mergers have been stock – to acquire assets of which the most valuable will be divested to make the acquisition acceptable to the DOJ – is beyond foolish, even before integration costs. Spirit owns little of its fleet outright so JBLU is simply assuming responsibility for those costs. JBLU thinks it will grow in legacy carrier hubs where SAVE and JBLU combined amount to a fraction of the hub carrier size now. JBLU will divest assets in the NE and, after being forced to roll back the Northeast Alliance with American, will end up smaller than it is today.
    This acquisition – it is not a merger – is solely about JBLU trying to secure a future for itself after 20 years of degrading its own product through poor operations and failed understanding of what it takes to succeed in competitive markets.

  9. AA still owns all of TWA’s international routes out of JFK and BOS that aren’t being used .. Like Cairo and Riyad ….

  10. I agree this is a bad business move. B7 isn’t going to be able to complete with DL/UA in NYC and AA will fortify DFW and MIA. The edge B7 had is gone, they are now the new US Airway IMO. AA will get out of the NEA and make NYC a “destination” hub similar to LA and focus on the profits from DCA|DFW|MIA|PHX|CLT and looking to make Chicago break even again.

    The Frontier moved made a lot more sense and now Frontier will be able to get slots at some of these east coast and FL airport that B7 will need to forfeit. AA|UA|DL will enjoy grabbing customers from B7 who don’t want to be dealing with the merger nightmare for the next 4 years.

  11. Who knows, maybe the divested assets will go to a carrier like Breeze. Then AAL can arrange a marketing agreement with Breeze to replace the NEA with JBLU.

  12. The notion that B6′ divested assets will go to an airline that will be willing and able to take on a larger combined B6/NK plus the legacies and WN is more than a fallacy that the DOJ will certainly see. Hoping a couple of smaller airlines will provide meaningful competition is more than a stretch. There is a point at which consolidation cannot be remedied by asset divestitures.

    Timj,
    inactive and currently unused route authorities have no value and are open to any US airline based on the treaties between the US and other countries.

  13. I’ve never flown on Spirit and never will — flew Jet Blue once and it was fine. But they really do not have much of a presence out here in Denver, so it is not a viable option for me….I’m curious to see how Jet Blue folds Spirit into its operations….will they still be two separate airlines/brands, or will the Spirit planes be reflagged as Jet Blue….

  14. Spirit The best most entertaining airline in the world.
    Qatar can only dream about their luxurious hard product & on board dining and amenities
    I will miss the Big Front Seat.,Gang wars in the aisle and at check in
    being charged fees when making a cc reservation for someone else
    In person fees for boarding passes..The need for miniature luggage to avoid massive fees
    Miserable rude customer service.Life will never be the same.Please say it ain’t so
    So so sad I’m crying salted tears
    My only question after grieving is how will this affect airfares? Sigh

  15. Many have mentioned that B6 can’t run it’s airline well on a good perfect weather day. In many ways, I see NK running a better operation day-to-day, except for NK’s occasional service meltdowns, which then are exasperated by their often less than daily schedule on most routes and lack of interlining. When people can’t get home – and lack of money to purchase another ticket – then TikTok and social media “blows-up” and filters over to mainstream media. NK’s typical customer is vastly different than B6’s customer. The demographics between the two airlines are at opposite ends of the economic spectrum.

    If I were a member of the B6 board, I would be asking B6 ELT’s about keeping senior and middle managers from NK. Although, I have a feeling, B6 ELT’s will have little in the way of communications with NK, and many middle and virtually all ELT’s once the merger (if approved) closes will be shown the door.

    Some have mentioned that the acquisition of B6 will allow them to expand into other areas of the U.S and international routes. Within the U.S., using B6’s current cost structure, they will get creamed on routes currently served hopscotch by NK – not just Frontier and Allegiant, but the big boys as well. If anything, I implore B6 to use many of the cost saving methods already in use by NK. Why does B6 have to take out so many seats? They don’t. For high leisure and VFR routes – the current NK densification model would service B6 very well on thin and served less than daily routes. Why do you need premium service on most of Sprit’s routes – you don’t.

    B6 can come up with another name for the product on routes where the aircraft is super densified. B6 already has premium service on select routes – but not all routes. They should continue with that model and incorporate NK’s success. Reduce costs on everything. If B6 were to follow through and un-densify the NK fleet, B6 is going to get creamed by all their competitors such as WN and others. Take a look at the current NK route map. They have lot’s of competition – but they do so in a way to avoid mostly the wrath of the big boys.

    On the other hand, is the goal of B6 to “bulk-up” the northeast corridor with the NK aircraft? How many potential new pax are there by adding LGA to wherever city 10x daily and at B6’s current cost structure? This is not going to work. Then, slot issue raises it’s ugly head.

    The you have the union issue. Today’s unions are much more politicized and with a an administration that will do just about anything to have a union set-up on your property or business, B6 will not be able to sit idly by spinning their thumbs and delaying bargaining agreements that catch-up the NK employees to B6 pay scales. Not that the B6 scales are much higher – but they are higher. The unions will have no patience to wait years for a combined bargaining agreement – like what happened when NWA purchased Republic, or America West purchased US Air.

    Some have mentioned divestitures at FLL. I would also expect to see some divestitures at MCO where NK has significantly grown it’s ops, and to a lesser extent, B6. My dream, to see both of those airlines merge and move the dredge at MCO over to the new Terminal C. Based on today’s schedules making the combined carrier the largest airline in terms of number of flights. I expect Justice to poke their noses at MCO and require some kind of reduction, such as MCO-EWR.

    Some are comparing the merger to PanAm’s acquisition of National. In terms of costs, yes B6 is significantly overpaying for NK’s assets, and the increase to labor costs. The other pieces of Pan Am/National really don’t compare to the B6/NK merger.

    If the merger is approved, even with divestitures and carve-outs, if it goes sideways, I expect to see shareholder lawsuits aimed directly at the B6 board and senior B6 ELT’s.

    Will Breeze and Avelo want to play at the divestiture/carve-out table? Will WN be able to use the “I’m a low-cost carrier too” and give me some more slots excuse?

    I think Chester is smiling right now, and just waiting for the opportunity to place his his pole in the water and reel’em in….that’s who I think will be a winner in this…Chester – if the merger is approved.

    SO_CAL_RETAIL_SLUT

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