Earlier today, JetBlue Airways submitted an all cash offer to Spirit Airlines for $3.6B, equivalent to $33 a share. According to Spirit, the offer was ‘unsolicited’. In February, Frontier Airlines offered to merge with Spirit Airlines to create the nation’s largest ultra low-cost carrier. That merger proposal was valued at around $26 a share.
Merger With Frontier Made Sense
The unsolicited proposal definitely adds questions to the merger landscape. Up until today, there was little word that the two airlines weren’t on a smooth pass towards integration.
The Frontier and Spirit merger made sense on many levels. Both airlines have received support and guidance from Indigo Partners. Both airlines exclusively operate Airbus A320-series aircraft. The two airlines have similar no-frills policies to include charging for carry-ons, food, and even water bottles. Frontier and Spirit also have a complimentary network. Spirit is a powerhouse low-cost carrier on the Eastern seaboard while Frontier’s strength is in the West. While both carriers have common destinations their route structure currently shares little overlap. Gaining approval for the merger seemed relatively simple as a straightforward merger was unlikely to result in any significant loss of service or jobs for the industry.
JetBlue Might Be a Tougher Sell
The bid by JetBlue on the other hand is a ‘whole different animal’ (to steal from an old Frontier Airlines tag-line). A merger between Spirit and JetBlue would still result in a common fleet as a majority of JetBlue’s aircraft are Airbus A320s. The airlines though have significant east coast overlap. The style of the carriers are also vastly different. JetBlue distinguishes itself with in-seat entertainment, locally sourced snacks, and its expanding ultra-lux Mint service. It also recently added service to Europe on its new Airbus A321XLR aircraft. The potential that this acquisition could be seen as an opportunity for JetBlue to eliminate a competitor on the East Coast could be seen as a blocker to merger approval.
Despite the potentially challenges with a merger between JetBlue and Spirit, Spirit Airlines said in a filing today that, “Consistent with its fiduciary duties, the Spirit Board of Directors will work with its financial and legal advisors to evaluate JetBlue’s proposal and pursue the course of action it determines to be in the best interests of Spirit and its stockholders. The Board will conduct this evaluation in accordance with the terms of the Company’s merger agreement with Frontier and respond in due course.”
Buckle up, folks! This year’s acquisition season between airlines could be in for a dog fight.
