Frontier Airlines increased its offer by $2 per share to acquire Spirit, and the Spirit Airlines board unanimously recommends it over JetBlue’s more lucrative – but regulatorily more risky – offer.
- Frontier is now offering $4.13 per share cash plus 1.9126 shares of Frontier.
- At Friday’s close of $10.54 per Frontier Airlines share, the deal is worth $24.29 per Spirit Airlines share.
- That’s still substantially below JetBlue’s offer of $33.50 per share.
- It’s even slightly below the per-share value of Spirit Airlines stock at Friday’s close.
A Frontier-Spirit deal will be approved by regulators, so it’s both easy and not meaningful that Frontier also increased the breakup fee due to Spirit shareholders if anti-trust kills the deal to $350 million. Under this deal Frontier gets one more director and Spirit names one fewer in the combined company.
JetBlue’s deal is more money and contains a $350 million breakup fee. JetBlue is offering to substantially overpay for the stock. Considering that Frontier’s bid isn’t for more than Spirit’s stock is worth today (while the company is in play) it might be wise to take the JetBlue offer and see whether it gets approved.
- JetBlue is offering to divest assets where they’re most vulnerable to regulatory scrutiny
- But if the deal gets scuttled they pocket the money and could still try to do another deal elsewhere (this approach is uncertain to be sure, but offers two paths to greater upside)
Spirit-Frontier is better for customers, because it means more planes flying under an ultra-low cost model, driving down fares in markets where they compete.
Nonetheless, Frontier would probably be better off growing organically and allowing JetBlue to overpay, picking up gates and slots that JetBlue is forced to divest in order to gain regulatory approval.
If shareholders follow the Spirit board’s recommendation, JetBlue gets let off the hook from their own mistake in overbidding. And American Airlines breathes a sigh of relief because the DOJ can’t use this deal as leverage to get JetBlue to walk away from their Northeast Alliance.
Spirit Airlines shareholders will decide on June 30 whether or not to accept this deal.
The real anti-competitve nature of the JBLU offer is that it involves removing seats from every SAVE aircraft in order to convert them to JBLU standards and to raise fares since JBLU is a higher fare carrier.
The difference between the JBLU and ULCC offers is the risk premium. As much as JBLU wants to tell you otherwise, there is substantial risk with the JBLU offer.
It is possible that SAVE stockholders- that are largely institutional investors – will shun SAVE’s board, but that would be highly unusual given the unanimous support of SAVE’s board
SAVE’s institutional investors would really be savvy in requiring Frontier to sweeten the pot even more if Frontier wants them to give them their blessing.
Not sure why Spirit thinks it’s too good for JetBlue
Spirit does no one any favors as an ‘ultra low cost carrier’. They are effectively a sham airline.
I routinely fly from DTW-FLL, a route where only two options exist. (Delta/Sprit). More then 80 percent of the time, the Spirit flight costs the same after you add 100$ in round trip bag fees. Further, there’s no possibility of gaining meaningful status and the seats/entertainment are terrible. Can we just boycott Spirit and kill it off?
It’s not worth it for Spirit to accept JetBlue’s offer, and “see what happens.” Sure, they’ll get the 350M (because there’s zero chance it’s being approved), but the opportunity cost of merging with Frontier is gone.
Whether, “Spirit-Frontier is better for customers,..” depends on what a customer values. Once adding bag and seat fees, the cost differential isn’t that much, but for me, B6’s greater leg room, more comfortable seats, ability to recline, seatback TVs, free snacks, etc. all lead to more comfort — not only for myself, but for everyone — which takes some of the trapped-in-a-cattlecar-with everyone-crammed-on-top-of-each-other-and-nowhere-to-move/nothing-to-do emotional and physical tension out of the experience, reducing the likelihood of conflicts arising, a fight breaking out, people getting inappropriately amorous, etc.,
I don’t fly cattle wagons and prefer higher prices preventing uneducated people from flying.
Ok so here’s where you’re wrong about Spirit-Frontier being better for customers. They compete largely with each other today. Neither have the product, service, or schedule to be meaningfully competitive against the majors. Once one is eliminated there will be no competition in places where there is today. Even a doubled-size Frontier will still be no match against the majors.
What will be particularly bad for customers is the solidification of “fees fees and more fees” models. Of course, the majors will follow while not reducing prices. It’s already happened. Spirit was the one that started charging for carry on bags. Majors came out with ‘basic’ fares that didn’t initially include carry ons. Spirit charged for bags – the majors followed. Spirit increased bag charges – the majors followed. Everything in the industry is “monkey see…monkey do”. We’ve already lost enough from the majors as it is. jetBlue is the one standout offering actual comfort and amenities (if they could only get their schedule to operate reliably). No, an elimination of Spirit by Frontier will most certainly be bad for customers. Prices will definitely rise and service will be reduced amongst other airlines. An elimination by jetBlue will be significantly better for customers as Frontier will be the sole ‘fees fees and more fees’ entrant which will be quite fine as they can continue the model for those who shop exclusively on price. This model will give reason for majors to potentially increase service, amenities, and overall offerings as ‘that’ will be the competitive threat, not greyhound-fares. It’s definitely better for the entire industry if Spirit is eliminated by jetBlue. What is best overall though is for Spirit to clear out their board and c-suite and bring in people who actually want to run a company versus those to sell it for spare parts.