JetBlue Makes Huge Offer To Buy Spirit Airlines

Two months ago Frontier announced a deal to acquire Spirit Airlines creating a powerhouse ultra low cost airline. However – and this is not an April Fool’s joke – JetBlue has now made a bid for Spirit that’s 40% higher than Frontier’s offer.

Spirit shares closed up more than 22%, and 17% over the Frontier offer. JetBlue closed down 7%. The market clearly sees any deal for Spirit going for more than what Frontier had offered. At this point I’d say whatever airline winds up closing the deal will suffer from winner’s curse.

There’s no question that Spirit’s shareholders are better off with the price of the JetBlue deal, if they think they can get it to close (DOJ doesn’t stop it) or if the breakup fee is high enough. As an ongoing business combination, Spirit seems more valuable to Frontier than to JetBlue. And a Spirit deal could create new complications for JetBlue’s Northeast Alliance with American Airlines.

Terrible Fit

Spirit Airlines is a no frills, high fees carrier. They cram seats in together more than the legacy carriers and more than JetBlue.

While JetBlue is only marginally friendlier to customers (with a bit more legroom, seat back TV, and free internet) than American, Delta, and United – though less operationally reliable – Spirit’s model is based on low costs, low fares, and low service. This is what the corporate culture of Spirit is built around.

It’s great that customers have a choice and product differentiation in the market, they can choose Spirit or choose to pay more to fly other airlines. And it’s great that Spirit competes down price even for those consumers who choose not to fly Spirit. But their model and culture are completely different from JetBlue, which still thinks of itself as offering more of a premium product.

The legacy Spirit operation’s costs will climb. Spirit aircraft will need to be retrofit if they’re meant to fly as JetBlue. Confusion will reign if they’re separate operations. And costs would rise if there’s some product harmonization between the two. And then you’ve got merger costs.

A deal like this undercuts the advantages that Spirit has, and makes no sense as part of an ongoing JetBlue operation. What it does, though, is give JetBlue access to slots and gates in congested airports that Spirit currently has, planes and pilots, though the Department of Justice could take issue with that combination as well.

Anti-Trust Nightmare?

There’s anti-trust concern about a Spirit-Frontier combination. The federal government is concerned that this will mean less low fare competition, but Spirit and Frontier don’t generally compete with each other as much as against legacy carriers whose pricing they can undercut with lower costs. They’re bringing on so many new aircraft that we can safely assume a Frontier-Spirit tie-up will mean more low cost flying in the future rather than less.

If there’s a concern here it should be in re-Frankeifying Spirit which has invested heavily in its product the past several years, improving its operational reliability (last summer and last weekend notwithstanding) once out from under the thumb of the aviation king of cost-cutting. Franke’s Frontier would be the surviving leadership.

However, if the Department of Justice has shown consternation about a combination of Spirit and Frontier, teeth will gnash back and forth between DOJ and DOT over JetBlue-as-acquirer. While the federal government claims JetBlue is a discounter in filings meant to block the American Airlines-JetBlue joint business venture (which they sued to stop shortly after approving it), JetBlue control over Spirit really would mean higher costs at Spirit and less low cost flying and meaningfully increases concentration in South Florida.

And given Spirit’s inroads into congested airports in the Northeast, this would create even more (and legitimately new) anti-trust concerns about an American-JetBlue tie-up in New York since it would give JetBlue a greater presence in the New York market (more concentration) and marginally weaken their case that they can’t operate as a viable competitor to Delta and United on their own. There’s no way that American + JetBlue + Spirit would have been approved, and DOJ would have legitimate new grounds for objection.

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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  1. The offer basically seems aimed at buying planes, pilots, and executives and turning that into additional JetBlue growth rather than a merge of network or strategies. They already said they would rebrand everything JetBlue. And that’s where it makes sense of JetBlue really wants to grow – they get a big fleet they can redirect as they wish and better compete with the majors. It’s probably more important to their long term strategy than NEA – they may just quit that if they have to in order to get this merger approved. The big offer price, and apparent breakup fee indicate they are serious

  2. JetBlue is “marginally better “. Now that’s a laugh coming from a professional. JetBlue made it clear that the product would remain JetBlue. This would be a huge win for all. People fly spirit because they “have to “ Fares will still drop. Competition Will be rough against all these new low fare start ups in Florida.

  3. Wow! Deja Vu all over again….I recall People Express buying the original Frontier. Two equally disparate operations and it failed miserably. I can’t imagine two more polar opposite airlines.
    Has to be all about the bean counters and little regard for the reality of operations.

  4. JetBlue’s IT (based on SabreSonic) is already beyond horrific, and this is someone who was a huge B6 fan back in the day and still flies them quite regularly.

    Every day is another problem, and they seem to be getting worse not better. The only reason I stick around is that I know how to exploit all the holes in their stupid system to my advantage which almost counteracts the frustration at trying to use their website.

    I can’t even imagine how bad things will be if they have to integrate Spirit’s operations into their system. Not looking forward to that clusterf**k.

  5. What a bizarre decision.

    Jet Blue has proven itself to be nimble at organic growth. Save a small number of things (a few slots, e.g.) Spirit has nothing that Jet Blue cannot develop organically. And the stench of Spirit can only sully Jet Blue’s brand.

    The market has spoken – this is a terrible idea.

  6. Isn’t FLL a bigger anti-trust concern than New York? Personally I think if the doj made JetBlue dump AA for the deal to go through they would do it in a heartbeat.

    Also JetBlue could just argue the doj has let much bigger airlines merge in the past so why is this a concern.

  7. Piedmont/USAir was a great example of two very profitable airlines merging and immediately start losing money. The mix of cultures was never reconciled and dragged the airlines deeper and deeper into a hole.
    Even worse, this is 2022. It’s become quite fashionable to denigrate, lie about and slander anyone you disagree with and you have the help of the Internet and a significant percent of the population that is vulnerable to conspiracy theories that they think justify any action they take. There will be huge battles trying to merge these two cultures.

  8. This is popcorn grabbing news. It will be interesting to watch how it develops. Will JetBlue be successful in bringing Spirit group up to it’s brand standards?

  9. I suppose the merged airline will call itself “JetYellow” with a “Lemon” business class experience.

  10. @SMr – JetBlue’s product is marginally better than other legacy carriers, not versus Spirit, I draw a huge distinction in product between JetBlue and Spiri.

  11. I think this is a proxy fight for Alaska…..it would drag AS out of the Seattle cave and start realizing that they will be the smallest carrier again. I love them….but have always said a B6+AS tie up would be extremely complementary except the fleet issues but each can operate well already…so you dont necessarily need to combine totally except for passenger expeience and FFP. Bring screens to AS 737s and bring MP to replace mosaic…..drop AA partnership except Oneworld benefits.

  12. Jet Blue can’t come close to competently managing its own operations which are a total and complete dumpster-fire clusterf@ck and it wants to take on this merger? Absurd.

    Jet Blue is badly in need of operational competence, and this merger would only make the airline more difficult to manage without adding those skills. If they merged with AA however . . . .?

  13. Gary,
    the airline product includes what is delivered, not just the amenities on a parked plane.

    JetBlue has been the 9th out of 10th place in on-time among US airlines for years and has one of the highest complaint ratios.

    Spirit delivers its product more reliably than JetBlue.

  14. After JetBlue failed to acquire Virgin America (a fortunate loss to Alaska Airlines), I can only paraphrase Frank Zappa: “Watch out where the huskies go and don’t you eat that yellow airline!”

  15. This is getting crazy. Don’t care which carrier it is at this point, but the mergers need to stop. Consumers have been the major losers over the past 15 years because of these dumpster fires, despite all the corporate speak to the contrary.

  16. You have to love that the Chief Counsel (slightly former, but still an EVP) of AA sits on the board of Indigo.

  17. @ Tim Dunn, do you ever run out of stupid things to say? Running Delta On-Time numbers as a JFK, BOS, MCO, and FLL airline wouldn’t look so great either.

  18. @ Gary — Yeah, well US Airways and AA were a terrible fit, and look at the POS AA we have now as a result. Is Doogie coming out of retirement for this new disaster waiting to happen?

  19. Julie,
    you clearly don’t bother to read the DOT’s on-time statistics.

    Delta’s on-time statistics at JFK are a whopping 25 percent higher than JBLU in the latest report.

    If other airlines – AA included – can run far more reliable operations in the exact same airports that JBLU serves, then the problem is clearly JBLU and not the airports.

    But AA hitched itself to B6 in the NE and now B6 is literally willing to risk the company in order to try to gain a more significant role for itself in the nation – very possibly at the expense of a partnership with AA

  20. I’m hoping this is enough to just make Frontier lose interest. After all, that buyout is specifically about eliminating a competitor. I have to wonder if jetBlue really is serious about this. Neither of these buyouts make sense for consumers as there is zero guarantee that even a Frontier elimination of Spirit will keep the same business model and prices. There will be no reason for Frontier to keep the model as they will have no one to worry about competition. They will be free to add even more fees all the while having higher base fares. The whole “we’ll compete with the majors…” is of course empty promises and hot air.

    It’s sad that Spirit is just selling out considering how it managed to survive in the darkest times and they just never gave up. This is what happens when the world is run by bankers. Fingers crossed none of these get approved. There is absolutely NO win at all for consumers in any of these tie ups.

  21. Gary, have you flown JetBlue much in recent years, other than to try their Mint product? I used to be quite fond of B6. During the pandemic they’ve been an absolute clusterfuck. Operational reliability is abysmal. Customer service is nonexistent and the IT is full of glitches to the point where it’s unusable for anyone trying to do anything but the most basic of functions. They’ve blocked most avenues for customers to seek compensation when they get screwed over. It’s sort of reminiscent of what United did at the beginning of the pandemic, except now it’s two years into the pandemic. At this point, I can’t fly this shitshow of an airline even if they offer one of the best products to London… and I have close collaborators in the UK, so London is an important market for me.

  22. @ Tim, Cherry picking Delta mainline on time in one month, excluding their regionals, at JFK then comparing that alone to B6 is bad math and you know that.
    Plus, my point and comparison was all of Delta at 4 airports, not your usual cherry picking of stats for Delta Mainline in one month at JFK.

    Try to do better.

  23. If Jet Blue is doing this by issuing stock it will dilute existing shareholder value. If it is doing this merger with cash (and borrowing) the debt load will impair future growth. That plus the cultural differences. I could see Jet Blue in bankruptcy in 7 years.

  24. Could not pick two Airlines more different than each other. Eliminating competition in FLL and MCO where both carriers have a large presence and dealing with substantial Southwest competition may be a driver but this merger looks terrible on many fronts. JetBlue would be better off going after FRONTIER and growing in Denver and obtaining the aircraft and employees than digesting a horrible mix of product,service and reputation than what Spirit brings to a merger.

  25. @Gary – let me stipulate your points… and egos are at play. But how long do you envision B6 can remain a standalone operation? It faces greater risks at every turn. It has seen what overpaying has done with AS/VX and knows the AS culture. It now knows the AA culture. Doesn’t it have to prepare for the possible unwinding of the Northeast Alliance if DOJ choses to act? Wouldn’t it at least be nice to make F9 pay more for NK? What are its options to remain independent over the next 5 years? (I also note that Baldanza is on its Board — I’d love to be a fly on that board room wall or Zoom call.) I think they have to drop a grenade. The question is will it blow off their foot or someone else’s, which is truly a fair point.

  26. @PDT – “how long do you envision B6 can remain a standalone operation” at least until a Republican becomes President, a Democrat DOT + DOJ will work in lock step to block any deal that has JetBlue acquired by a bigger airline.

  27. The new combined airline will operate two tiers of service. Original JetBlue will now be called Blue – which is what the passengers will be as they recall the much better service offered previously.

    Spirit will be rebranded as Black & Blue, a reflection of both the fights between passengers and the battle for very limited overhead bin space.

  28. I fly United down & Spirit back from Florida last month (someone else booked the trip) and the seats on Spirit had more padding and the FA’s were cheerful and lively the whole trip, in contrast to never being seen after the safety spiel on United. Never had been on Spirit before but on this trip it was better than United.

  29. @Julie – you can manipulate the numbers any way you choose but the results are the same; JetBlue is unreliable and an operational train wreck. Ask anyone who had to deal with their latest meltdown in BOS this past weekend.

    Our company, with HQs in Boston and Manhattan, switched over to Delta a few years ago and never looked back. No comparison and a far better run system-wide operation. Been that way for the last decade.

  30. I think @CMC has it right, and it’s what I thought immediately. Why would they go 40% over? This is just to make F9 go away. B6 has no interest in NK. There’s no risk to them in doing this. DOT would never approve. An F9-NK merger would hurt B6 and would likely be approved.

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