Spirit Airlines rejected a $3.6 billion takeover bid from rival JetBlue Airways and said it would merge with budget carrier Frontier Airlines instead.
Dubbed as a “bold move” by the airline industry, JetBlue surprised everyone when it unveiled its proposal to acquire Spirit on April 5.
JetBlue and Frontier have been in a battle for Spirit, arguing that a merger with the airline would allow them to better compete with the “Big 4” carriers (American Airlines, Delta Air Lines, Southwest Airlines and United Airlines) controlling nearly 80% of the US passenger market.
The combination of Spirit and JetBlue would create the fifth largest US carrier and supplant the proposed $2.9 billion merger with Frontier Airlines.
However, Frontier criticized JetBlue’s offer, highlighting a lawsuit from the Justice Department over an existing alliance between JetBlue and American Airlines that lets the companies sell each other’s seats on certain regional flights. And the likelihood of winning approval from government regulators are considered low.
JetBlue on Friday had “enhanced” its offer for Spirit and promised a $200 million reverse break-up fee if the deal doesn’t go through for antitrust reasons. JetBlue disclosed the new offer on Monday.
JetBlue’s Northeast alliance antitrust issue
In a letter to JetBlue CEO Robin Hayes and despite the improved offer, Spirit said: “We believe a combination of JetBlue and Spirit has a low probability of receiving antitrust clearance so long as JetBlue’s Northeast Alliance (NEA) with American Airlines remains in existence,”.
In September 2021, the Justice Department sued the JetBlue and American Airlines’ “Northeast Alliance” partnership. The civil antitrust complaint alleged that the alliance would eliminate competition in New York and Boston and thus could lead to higher fares in the busy North-eastern US airports, as well as impacting air travelers nationwide.
US Attorney General Merrick B. Garland said: “in an industry where just four airlines control more than 80% of domestic air travel, American Airlines’ ‘alliance’ with JetBlue is, in fact, an unprecedented maneuver to further consolidate the industry,”
Sprit asked JetBlue to abandon its partnership with American Airlines at closing, but JetBlue was “unwilling” to terminate it or consider other options to reduce the benefits it expected to reap from the alliance.
H. McIntyre Gardner, Chairman of the Board, said that given the substantial completion risk Spirit wouldn’t therefore consider JetBlue bid offering significant values.
In contrast, Spirit believes that merging with Frontier will enable the combined business to achieve scale, improve operational reliability, and do an even better job of delivering ultra-low fares to more consumers and competing more effectively against the Big 4 carriers.