Spirit Airlines Shareholders Should Take The JetBlue Deal. You Should Hope They Don’t.

Spirit Airlines shareholders vote on Thursday to decide whether to accept Frontier’s offer to acquire the airline, or reject it – meaning they prefer JetBlue’s richer offer that likely faces greater anti-trust scrutiny.

JetBlue’s proposed deal to acquire Spirit Airlines is better for Spirit shareholders than Frontier’s is. Spirit management supports the Frontier deal, and it will probably be approved. JetBlue is offering 40% more for Spirit Airlines than Frontier is. With Spirit’s shares falling to slightly below Frontier’s offer, the market thinks the successful suitor will be Frontier, not JetBlue.

However a Frontier deal for Spirit is actually better for consumers, even though JetBlue’s product is better than the one offered by either airline.

Why Spirit shareholders should take the JetBlue offer:

    <>I>If you believe the deal won’t close for anti-trust reasons, JetBlue is offering a $400 million breakup fee. Spirit shareholders can take the $400 million and they will still own their shares, and they can still sell the company.

  1. Spirit Airlines says the combination of Spirit and Frontier will make their shares worth $50 each in the future. The only way that could happen is.. inflation. But if the claim were true then Spirit’s board should be demanding more than $25 per share to sell!

Spirit did the Frontier deal first. They have board members tied to Frontier’s Chairman Bill Franke, who used to control Spirit. But if shareholders vote for this, that’s on them.

However institutional shareholders often take the bureaucratic path of least resistance, and independent advisory firms have signed off on the Frontier deal for Spirit. They did this before JetBlue raised the breakup fee to $400 million, with it being ‘too late’ to revisit days before the shareholder vote scheduled for tomorrow.

The good news is that a Spirit-Frontier deal is better for air travel consumers, even if it is worse for air travel product.

  • Frontier offers a worse product than Spirit, without a “Big Front Seat” and without wifi.

  • JetBlue offers a better product with more legroom, seat back entertainment, and free snacks. JetBlue has said they plan to retrofit Spirit’s planes to match their own cabins. (Spirit employees would also make more as part of JetBlue than as part of Frontier – yet union boss Sara Nelson sells out her flight attendants, preferring a Frontier deal since she keeps control of the union that way.)

  • But Spirit + Frontier means far more planes flying under an ultra low cost carrier model. That’s far more capacity charging lower fares, driving down the fares that United, American and Delta can charge.

Leaving aside specific airports and routes, and a top level JetBlue acquiring Spirit means more planes with a better product but higher fares, and Frontier acquiring Spirit means more planes flying at lower fares that benefits not just passengers flying Frontier/Spirit but passengers flying other airlines too because they’re likely to be paying less for tickets on other airlines as a result.

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. I also wonder whether a tapped-out B6 post-acquisition looks at the costs of bringing the NK product up to B6 standards and starts to consider whether it might not be better to meet in the middle (at least from a soft product perspective & loyalty benefits perspective – i.e., things that don’t entail retrofitting existing B6 equipment).

  2. Who is you ? Maybe you aren’t 100% sure who your audience is. Many JetBlue and Spirit employees want this. Have you looked at fares from a consumer perspective? JetBlue causes the majors to squeeze fares much more than spirit does. In fact , the majors have their basic economy like B6 does but they don’t even consider Spirit real competition since low yield flying will be useless in this new environment. Why wouldn’t consumers want a better product ? Have you checked Spirits fares against JetBlue in a real database to give factual information on which airline really provides the Cheaper fare and by how much ?

    Since when did bloggers who have never worked for an airline and don’t truly understand the business start telling the public what they want and don’t want. Why not just spend your miles … sit in some fancy seats and let the reviews allow people to make choices ? Why not just state facts instead of making choices for your readers ? This is lame – stream media .

    One more thing. Who runs Spirit ?? What management company ? Who runs Frontier ? Indigo! Did you know they have no financial plan to increase pilot wages for 5 years. NK/B6 will provide workers pay raises… N9/F9 will not and I can only imagine what kind of staffing hell that will create since their pilots are already the lowest paid of the major airlines /LCC

    Re-check your titles and let people think fresh from the start. I’m pretty sure aside from all the recent industry drama JetBlue would be a really TRUE product competitor. Who the heck what’s lots more of ULCC?

  3. An NK/F9 combination is definitely NOT better for consumers. These airlines provide little to no real competition to the majors and never will as an EXP on AA or Medallion on DL, there is no way they will go down to the ULCC model. As is, today, the pricing generally gets rather close if not higher than majors once all the add ons are added. Remember, you have to pay to use the web site for both NK and F9. jetBlue does provide better competition and with the Northeast Alliance there will be better flight options. From an employee perspective, it’s tough to know, but likely nearly everyone will get higher pay. Still, getting swallowed up is not a good or fun thing for anyone.

    Frontier will have zero reasons to offer a better product — their product today is much worse than NK’s (and that’s saying quite a bit!). Truly the best course of action is to leave all as is. Spirit stays a stand alone company, but replace the entire board and c-suite with people who actually ‘want to run the company’ versus sell it off for spare parts like this current group does. It’s truly sad that Spirit management has just given up. All the hot air in the world about “synergies” and “opportunities” blah blah blah – guaranteed the minute it closes layoffs will happen. Mergers NEVER are good for anyone as there is no such thing as a ‘merger’ – it’s an elimination of competition. In this case there are two ULCCs today and allowing one of them to be destroyed will be bad for everyone.

    Not saying that B6 will be much better – although for the flying public, the products are far superior, but B6 can’t seem to get their operations in order. They are consistently late or cancel flights whereas Spirit generally runs one of the most reliable and on time operations of anyone. (Yet management wants to just throw in the towel…) Having more planes might help, but can they survive long enough to handle all the added chaos?

    The best option – No to F9 – No to B6 – replace with management with people who actually want to run an airline versus sales people looking for the highest bid.

  4. Talking about industry impact:

    JetBlue made Delta / United and at once point American add PTVs to all their aircraft , even create sub brands just to compete. JetBlue can compete and lower prices in premium travel segments AND in many cases get close to or beat Spirits fares. JetBlue makes the big airlines better… what did Spirit do ? All the bloggers said Spirit achieved the following :

    Major airlines RAISED fares in response to Spirit. You all created post after post how AA/DL/UA made their lowest fare that once included more features a basic economy fare to compete with Spirit. So now .. Gary. You said Spirit lowered fares at the major airlines ? I’m sorry. All I see Spirit did was make everyone else worse why B6 forced innovation. Spirit forced major airlines to squeeze in more seats .. reduce service and their fares aren’t even lower. Those are facts.

  5. Agree with SMR – adding more ‘bare’ seats squeezed tighter with fewer amenities will make the entire industry worse off. The dream of lowered prices is a joke – eliminating any competition always raises prices, lays off thousands, and makes everything worse for all involved. Except for the executives who get golden parachutes.

  6. First, SAVE shareholders, not their employers and not bloggers get to decide the future of SAVE.
    Second, there have been independent studies that have shown that ULCCs do a better job of keeping fares down after they enter markets than JBLU.
    Third, the fatal flaw with JBLU’s proposal is that it violates two long-standing principles of antitrust law – that a merger will not reduce capacity and it will not raise prices. JBLU execs specifically said their proposal would do EXACTLY those two things.
    SAVE has a merger agreement with Frontier (ULCC) but not with JBLU. JBLU is proposal a hostile takeover, not a merger. There isn’t a single successful hostile takeover in US airline history.
    Finally, the reason for the difference in valuations of the offers is because of the antitrust considerations which institutional stockholders very well understand.
    SAVE, like most of the US airline industry, is owned by institutional investors which are far less influenced by JBLU’s high-pitched attempts to sway a contest that wil be decided on facts and data.

    It is also worth noting that JetBlue, Spirit and Frontier are all guiding to very low or no profits for the quarter that ends tomorrow while the big 3 plus Southwest and Alaska are guiding to much higher profits with 4 out of the 5 guiding to double digit operating margins. Never since deregulation have the legacy carriers been as well positioned relative to low cost competition.

  7. @Tim. Studies .. what studies. Please reference them.

    Spirit / JetBlue combine for a whopping 9% of the US air travel market. That’s the smallest of all recent mergers and in no airport even FLL will they combine for more market share than what any of the majors represent in their own hubs. Looks at DL in ATL… American in PHX/DFW. No way you can approve all those massive mergers and tell 2 little guys no. JetBlue already said they would be willing to give concessions where necessary but even that seems ridiculous.

  8. It doesn’t matter what anyone thinks. Shareholders are going to take the best deal for them and that is absolutely the Jetblue offer. We’ll just have to wait and see what happens after Spirit is acquired. Because they absolutely are going to be acquired by one of these two airlines. I have never understood all the bad press over Spirit airlines. They were never competing with the big airlines. Spirit is for the guy wanting to go from point a to point b with almost no luggage. For those kinds of trips, I always use a backpack. And get the cheapest ticket.

  9. SMR,
    you have been pretty active in this thread.
    Frontier released a letter yesterday that recaps the two studies about the higher stimulation from ultra low cost carrier fares vs. JBLU.
    I know Just because ULCC highlighted the study – even though both were done well before the SAVE merger proposal- you see it as biased.

    The logic that you and others continue to make trying to compare JBLU to what legacies were allowed to do years ago is that the DOJ is not compelled to repeat what it did in the past, esp. if it has regrets in what it did.
    And Delta is the size it is in Atlanta because Eastern failed and Delta ORGANICALLY (ie without DOJ approval) grew its presence in Atlanta to fill the size that Eastern vacated.
    Even though AirTran grew using Delta’s retired DC9s and then Southwest bought AirTran and discarded the 717s which Delta acquired and is using throughout the Eastern US as well as to Dallas Love Field where Delta just won the right to gain its own gate at an airport that, like Chicago Midway and Houston Hobby, is more concentrated in the hands of one carrier – Southwest than any legacy carrier hub. Period. Full stop. And the DOJ signed off on the deal with American, Southwest and the cities of Dallas and Ft. Worth.

    Every legacy carrier hub – including Atlanta – has gates available for new entrants but that still is not true at Dallas Love Field.

    You are barking up the wrong tree about the wrong squirrel.

    None of which changes that American, Delta and United NEVER said they would remove capacity and raise fares as part of their mergers. That is exactly what JBLU has said it will do with a SAVE acquisition.
    Well, actually, American did say that about its attempted acquisition of Delta. and that merger ended up on the cutting room floor.

  10. Tim. The Frontier CEO also posted a video about how pilots were going to flock to Frontier for quick upgrades!! Hilarious. They have a slower upgrade to captain then the legacies and half the pay. How will Frontier and Spirit staff their new airline with rock bottom A320 pay rates and garbage pilot contracts? It’s VERY clear they have no budget for pilot raises. That right there makes the merger a guaranteed failure.

  11. I don’t take investment or business advice about airlines from people whose expertise is in airline points and credit cards.

  12. DesertGhost! Spot on buddy. I am not expert either, just sharing my opinion but I am also not making others assume I know what they want. The media SUCKS so bad.

  13. Well … coming from a totally different perspective …

    I frequently travel domestically by air. The vast majority of that is with the majors. Yet, I have flown Spirit a few times and their product is fine. They got me safely from Point A to Point B and on time.

    How many amenities does one really need while being transported? Is it so hard to sit quietly in a chair and take a nap, just chill, or read a book for a couple of hours? Can most people avoid withdrawl symptoms while not having free snacks, or available wifi for a couple of hours?

    The main issue I have with Spirit and their ULCC peers is the potential for significant travel disruption in case of irregular operations. Yet, recently, the majors have not been significantly better is far too many instances.

  14. Jetblue acquires Spirit to force breaking up with American is wayyyyyyyy better than Frontier acquiring Spirit.

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