Spirit Airlines has been expected to merge with Frontier Airlines, in a deal announced two months ago. But today JetBlue stepped in with an offer 40% higher than Frontier’s to acquire Spirit.
It’s an odd play. They get planes, pilots, and gates but they’re saying they don’t want to keep Spirit’s business model and they won’t be able to keep its low costs. If you’re paying a 40% premium over a deal the Spirit board accepted, and don’t even plan to keep the business model, brand and goodwill (such as it is) then surely you’re overpaying for the parts.
At least when Alaska Airlines outbid JetBlue for Virgin America – buying its gates and slots in congested airports, and then not making real use of them – Alaska executives could argue the deal would work out because the Virgin customer base was worth marketing their credit card to. That doesn’t seem as strong an argument if JetBlue were to make it with Spirit.
JetBlue would get valuable assets in places like New York (an anti-trust problem for their Northeast Alliance with American) and Fort Lauderdale (a real problem of concentration) and while the Department of Justice has called JetBlue a low fare airline when arguing they shouldn’t be able to tie up with American, the Biden DOJ is likely to be even more displeased with taking a low cost player off the board than they are with Spirit-Frontier turning two low cost players into an even larger one.
Here, though, is how JetBlue is describing the deal to its employees. JetBlue says,
- They’ll keep low fares and good service, along with the JetBlue culture. Losing Spirit’s cost structure won’t make the deal worth more, and integrating Spirit’s employees will be a beast.
- They’re touting growth in Fort Lauderdale and Orlando but that concentration is likely to raise concerns at DOJ.
- They’re touting using Spirit’s assets to grow in Boston and New York but the government would never have signed off on JetBlue+American+Spirit and the combination gives the Department of Justice a legitimate argument that conditions have changed since the Northeast Alliance with American was approved.
- They’ll get more Airbus planes both Spirit’s fleet and order book. That’s true, but these become expensive planes, and that’s even before retrofitting all the Spirit planes with JetBlue interiors which they say they’ll do.
- Less outsourcing they’ll insource functions Spirit currently doesn’t do themselves, again growing the cost structure and reducing the value proposition of the asset they’re buying.
Here’s the full message to employees which originated with aviation watchdog JonNYC:
This is certainly an interesting development. I’m skeptical that Spirit can be worth more to JetBlue than it is as a standalone business (since JetBlue’s stated plans reduce the value of that business, they’re buying it for parts) and more than it’s worth to Frontier (which would continue its focus on low costs).
It’s possible that a larger carrier could earn more with the assets than the ultra low cost carrier though. But it would turn on its head American Airlines CEO Robert Isom’s maxim of the industry that it’s Spirit’s and Frontier’s approach that’s most profitable.
lets just merge all three together and have one big party……
Where’s Dougie The Merger/Takeover Guru?
Has there ever been talk of a JetBlue/Alaska merger? Wouldn’t that make more sense? It seems that they could each benefit from the addition of the other’s route network and become a viable national airline with combined connections to California/Hawaii/Pacific NW — and Northeast/Florida
If the deal does go through, the 31 A319 neo’s NK has on order are surely to get axed or swapped to A220-300’s.
@ Paul Bloomhardt:
Yes, if gets brought up every five minutes on FlyerTalk, home of every Executive VP of Hypothetical Network Planning.
It’s actually not as genius an idea as it seems because their networks aren’t actually that compatible. Surprisingly not everyone in the United States lives within five miles of a seaport with access to the Atlantic and Pacific Oceans (which basically describes AS/B6). The service outside of coastal areas is weak bordering on pathetic. The fleets are incompatible. The frequent flier and loyalty programs are incompatible. Having crew bases and planes on both coasts doesn’t help when you need to get crews and planes 2500 miles (Alaska closed the JFK base they inherited from Virgin, which shows you how much they loved having that kind of model).
Is it possible B6 only wants to make Frontier pay more for Spirit?
It makes some sense in that Jet Blue has very little coverage in the midwest and planes are going to be hard to get in the near term. Spirits fleet is young and valuable. They also have some additional latin American routes so there is a lot of plug and play dynamic to it which could jump start major growth.
If anything, Alaska buying Frontier for the adjacent routes would make more sense if the B6/NK acquisition happened.
Truly insane. Whatever cachet JetBlue may have had originally, it is a garbage outfit at this point – management as well as operations. Such a waste of JFK slots.
Well Gary when you put it like that it doesn’t seem like a good idea lol.
I think JetBlue is still peeved losing out on Virgin America.
So JetBlue gives people the blues these days…..
B6 leadership are not able to manage the current airline. They are the last people that should be looking to take anyone over.
April 1st was 4 days ago.
As Ken points out above, one possible motivation for this offer could be to drive up Frontier’s acquisition costs. It’s not an unknown ploy, as high acquisition costs can be a drag on a newly combined entity. I’ve seen some argue that’s what JetBlue also did to Alaska when the latter acquired Virgin America. One of the downsides of companies carrying extra cash on the books is that an acquiring entity can essentially use the newly acquired company’s cash to help finance the takeover.
@eponymous coward
I raised a digression for sure, but you give a good summary of the Alaska/JetBlue mismatch. Interesting…. Their fleets are indeed a complete mismatch – didn’t think of that… And the lack of central U.S. presence a big hole for both airlines. They would need something like a St. Louis or Milwaukee hub to serve the Midwest. Too bad, because each AS and B6 are more like regional carriers anchored on opposite coasts, and little north/south traffic on the other coast. Your point about the 3500 mile gap for crew and equipment swaps is well taken. So yes, some kind of Spirit/Frontier or Spirit/B6 combination makes more sense.
thank you, Gary, for making it clear that AA-B6-NK (or anything) isn’t going to pass DOJ muster. AA-B6 is under DOJ scrutiny. There is no appetite in Washington for allowing big public companies like airlines to get larger. There were objections from key legislators with the NK-F9 merger. To think that AA-B6-NK isn’t a threat to low fares is the height of head in the sand
Is it possible the Latam / Florida Spirit routes are a hidden profit center and much of the rest is loss making which B6 can prune?
We know how much of a cash cow the old Eastern routes were to AA
@Greg I came to say the same. Spirit and JetBlue have both seriously ramped up their Caribbean and Central/South American flying the past few years. Almost 50% of Spirit’s routes out of their expansion into MIA are these destinations, in addition to the same routes being flown out of FLL already.
Meanwhile, the legacy plays into these markets have only gotten worse: LATAM-Delta offer much less connectivity than the AA partnership did, and AA-GOL is limited to Brazil.
Imagine the career killer job of integrating Spirit into JetBlue…..or has JetBlue fallen so far it will be easier than I think?
There are no guarantees that a DOJ lawsuit against this proposed merger, if JetBlue’s offer gets accepted by Spirit’s Board, and a lawsuit is filed to stop it, would automatically win in court. There’s also no guarantee that the DOJ’s current lawsuit against the NEA will be successful. Virtually anyone can file a lawsuit. Prevailing in court is a different matter entirely.