Spirit Airlines shareholders reject merger with Frontier

A months-long effort by Frontier Airlines to acquire Spirit Airlines came to an abrupt end on Wednesday when the carriers scrapped their proposal, breathing new life into a rival bid for Spirit by JetBlue Airways.

The announcement came shortly before Spirit announced the results of a shareholder vote on Frontier’s takeover bid. Spirit had repeatedly delayed the vote as it sought to persuade shareholders to support the deal and ignore the lure of JetBlue’s more valuable offer.

The airline industry has consolidated a lot over the past few decades, creating four dominant airlines. For Frontier and JetBlue, the purchase of Spirit represented an opportunity to grow rapidly and gain leverage to divert business from American Airlines, Delta Air Lines, Southwest Airlines and United Airlines.

But either merger is bound to face legal challenges from the Biden administration’s antitrust regulators, who have pledged to be tougher than their predecessors on mergers that could reduce competition.

“While we are disappointed to have had to terminate our proposed merger with Frontier, we are proud of the dedicated work of our team members on the transaction over the past few months,” said Ted Christie, Managing Director of Spirit. , in a press release. “Going forward, Spirit’s Board of Directors will continue its ongoing discussions with JetBlue as we pursue the best path forward for Spirit and our shareholders.”

Frontier’s cash and stock deal was worth about $2.8 billion, based on Wednesday’s closing price. JetBlue’s cash offer is worth $3.6 billion.

Frontier said it was disappointed that Spirit shareholders did not buy into the deal. The airline, which has grown strongly since made public last yearsaid it was nonetheless poised to grow.

JetBlue said in a statement that it would continue negotiations with Spirit and remained “fully committed to completing this transaction so that we can create a compelling domestic challenger for dominant airlines.”

Spirit and Frontier jointly announced their merger plan in February, arguing that a combination would create a national budget carrier. The two airlines complement each other, sharing a low-cost business model with different geographic strengths.

A few weeks later, JetBlue made an unsolicited offer for Spirit. But Spirit executives questioned JetBlue’s intentions, suggesting the offer may have been just to spoil the combination with Frontier. Spirit also said antitrust regulators would likely block a JetBlue merger, though experts said either deal would face intense federal scrutiny.

Wednesday’s news doesn’t mean JetBlue’s offer will be accepted, but it could bode well for Spirit in its negotiations.

“Today’s termination simplifies the path to a potential JetBlue-Spirit merger, but does not guarantee such an outcome,” Jamie Baker and James Kirby, airline analysts at JP Morgan, said in a research note. “Having said that, we’re on the ‘no news is good news’ side, as it suggests that Spirit continues to refine its negotiation efforts rather than simply launch and accept JetBlue’s latest public offering.”

It is unclear whether a majority of Spirit shareholders would support an acquisition of JetBlue. And even if they do, regulators could derail the suit or require harsh concessions from companies, such as requiring them to give up flights or airport gates in places where they significantly overlap. .

The Justice Department is already suing JetBlue and American Airlines to prevent a partnership between these airlines at Boston and New York airports, with a trial expected early this fall.

The acquisition of Spirit would accelerate JetBlue’s expansion plans and create the country’s fifth largest airline. Together, the airlines would control around 10.2% of the market, still behind the country’s four dominant carriers. United, the fourth largest airline, has a market share of 13.9%.

Frontier released quarterly financial results around the same time its Spirit deal was canceled. The airline reported a profit of $13 million on revenue of $909 million in the three months to June. This was a 65% improvement in revenue and a 32% decline in profits compared to the previous year. The airline, which has room for growth, invested heavily in expanding its service throughout the quarter.

JetBlue, which is much larger than Frontier, has struggled to grow as fast as it had hoped since losing a similar bidding war to Virgin America in 2016. Alaska Airlines won , completing the acquisition in 2018.

Buying Spirit could change that for JetBlue, but airline mergers are notoriously difficult, requiring union integration, sometimes outdated and incompatible IT systems, incompatible aircraft fleets and disparate corporate cultures.

The Transport Workers Union, which represents flight attendants, reservation agents and other workers at JetBlue, said it opposes the acquisition of Spirit.

“We believe airline workers and passengers should be concerned,” union president John Samuelsen said in a statement. “If a JetBlue-Spirit deal does materialize, we hope regulators will step in and recognize that combining these airlines could result in job cuts and reduced choice for consumers.”

Spirit, a budget carrier with a reputation for poor service, keeps costs and fares low by charging extra for everything from seat selection to carry-on baggage. JetBlue Ranking very satisfied with customers and offers more premium options and free perks, such as branded snacks and wireless Internet access.

JetBlue said the acquisition would deliver lower fares with a better customer experience, pointing to its history of reducing costs for travelers when entering new markets. The Justice Department cited that reputation in its lawsuit to prevent the company’s partnership with American, saying JetBlue’s presence in Boston created “substantial savings for consumers” and the airline had a similar effect to New York.

But some aviation experts wondered how JetBlue would be able to maintain fares at Spirit’s already low prices. On the contrary, these people argued, some of JetBlue’s plans, such as removing some seats from Spirit planes to increase legroom and selling larger premium seats, would almost certainly increase costs.

In a call with analysts and reporters on Wednesday, Frontier chief executive Barry Biffle said his airline would benefit from JetBlue’s takeover of Spirit.

“If you merge, you take a carrier that’s probably one of the most similar to us, you increase costs by 40% and that creates a lot of runway ahead of us,” he said.

Pierre Eavis contributed report.

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