Four months after starting the conversations, and just a few hours after the Frontier Airlines bid was formally rejected, Spirit Airlines and JetBlue announced a definitive agreement to merge. JetBlue will pay $33.50 to up to $34.15 per share in cash, depending on the timing of closing,
This includes an immediate dividend payment of $2.50 per share once the deal is approved by shareholders. It also includes a “ticking fee” payment of $0.10 per share per month from January 2023 until consummation or termination of the transaction.
This combination is an exciting opportunity to diversify and expand our network, add jobs and new possibilities for Crewmembers, and expand our platform for profitable growth.– Robin Hayes, JetBlue CEO
By the numbers
The deal is subject to shareholder approval – likely easy to secure – and regulatory approval – a much larger challenge. To that end, the companies continue to point out that the combination brings scale to the operation, but still leaves the new JetBlue as just the fifth largest in the US, with a large gap to the other four.
The combined airline will hold a roughly 9% market share, serving approximately 77 million passengers annually. This compares to a 13% share for the next largest airline, and a 23% for the largest. Based on current schedules the combined carriers will operate more than 1,700 daily flights to more than 125 destination across 30 countries in December 2022.
The mostly Airbus fleet currently sits at 458 A220 and A320 family aircraft combined (plus the JetBlue E190s slated for retirement), and more than 300 planes on order. Many of the orders will be used to replace older JetBlue aircraft, but the large order book also offers significant growth potential for the company through the end of the decade.
The carriers also cite increased relevance in key cities of Fort Lauderdale, Orlando, San Juan, and Los Angeles with their combined operations. The combination would also allow JetBlue to compete more aggressively in existing major airline hubs at Dallas, Houston, Chicago, Detroit, Atlanta, and Miami.
JetBlue also reiterated its commitment to divesting Spirit Airlines’ holdings in New York City and Boston to help limit the merger’s impact on the company’s existing North East Alliance (NEA) partnership with American Airlines.
What does a JetBlue-Spirit merger mean for passengers?
Assuming the deal passes regulatory muster, Spirit Airlines’ existing passengers will see significant changes. JetBlue intends to retrofit the planes to match the current “JetBlue Experience” on board.
That means in-seat entertainment (currently powered by the Thales AVANT platform) comes online across the existing Spirit fleet. Both airlines already offer in-flight WiFi, though from different vendors and at different price points. Spirit just officially launched its product a couple weeks ago. At least the pricing should transition to free on the Spirit planes. In-seat power should also be coming to the Spirit planes.
The homogenization of the fleet also means more legroom on board Spirit’s aircraft. And elimination of the Big Front Seat offering. It should mean a boost for Collins Aerospace, however, with a few hundred more ship sets of Meridian seats headed to JetBlue.
Spirit today flies with 228 seats on its A321s and 174-182 on its A320s. JetBlue flies those planes with 200 and 162, respectively (plus a handful with 150, but those are slated for retirement before the deal closes).
Simply removing 10-15% of the seating capacity from Spirit’s operations will drive up unit costs. JetBlue CFO Ursula Hurley acknowledges this challenge. She notes that post-merger the airline hopes to maintain JetBlue’s existing cost levels, costs which are higher than Spirit’s.
It would be unreasonable to expect JetBlue to deliver profitable operations on fewer total seats flying without raising the prices on those seats. Too many fixed costs of the operation preclude that. It will have to operate the legacy Sprit fleet at fares higher than what Spirit charges today. Plus, with a lower fare competitor eliminated JetBlue likely can afford to raise fares beyond what it charges today.
JetBlue continues to argue that its larger presence will force other airlines to lower their fares, resulting in a net savings for travelers across the country, even if the fares its passengers pay are higher than what they used to be at Spirit. It remains to be seen if US regulators accept this argument to approve the transaction.
Did Frontier really win?
Frontier walked away from the bidding war, with CEO Barry Biffle saying the company would not overpay for Spirit. But pundits across the industry are suggesting that perhaps losing the deal may ultimately be a winning position.
The carrier still holds significant order book, with ~20% growth planned for the next few years. It also avoids the pain of merger integration. And it gets to cherry-pick as Spirit and JetBlue work through their integration challenges.
During its earnings call just after the failed bid was confirmed, the company leaned hard into the notion of being “America’s Ultra Low Cost Carrier” with the implication that it will own that market segment completely now that Spirit is gone. Allegiant might have some thoughts about that, but Frontier remains a larger and stronger ULCC player.
Frontier also noted that it could use the NYC divestitures to return to that market. Spirit just won a long, hard battle to snag 16 more slots at Newark, for example. Those slots would likely return to the open market. Ditto for Spirit’s holdings at LaGuardia. Frontier tried the NYC market before and walked away. Not just because of the expense, the company explained, but because the slots available were too limited and poorly timed to run a cost-effective operation. With Spirit’s holdings theoretically up for grabs, that could quickly change.
A favor to ask while you're here...
Did you enjoy the content? Or learn something useful? Or generally just think this is the type of story you'd like to see more of? Consider supporting the site through a donation (any amount helps). It helps keep me independent and avoiding the credit card schlock.