This week is crucial for Spirit Airlines as its shareholders will finally have to decide which company to merge with: JetBlue or Frontier?
It is a story that is rather surprising, in its details and in who it involves. It is also surprising because it has dragged on as long as it has. Spirit and Frontier first announced that they were in talks about a merger back in February this year. But in early April, JetBlue shocked everyone by making its own offer.
Spirit, JetBlue and Frontier all have very similar fleets. But that’s where JetBlue’s similarities end, with both of the other two companies. As airlines in the United States go, Spirit and Frontier are Ultra Low-Cost Carriers (ULCCs). JetBlue is not. Analysts thought that mergers could feature in aviation’s post-pandemic picture. But a JetBlue-Spirit merger was not an obvious development.
JetBlue, Frontier and Spirit – A Clash Of Operating Models?
But maybe it should have been. In competitive terms, some worried that a Spirit-Frontier merger would remove some competition, in key markets. But merging Spirit into JetBlue instead of Frontier would have the same effect. JetBlue would have little interest in maintaining Spirit’s ULCC business model. So if JetBlue gets Spirit, Frontier would effectively stay alone in those routes.
Spirit’s board rejected JetBlue’s first offer, as we saw. While JetBlue’s offer was substantially higher than Frontier’s, there were doubts that it would go ahead on competitive grounds. Authorities are already taking a close look at JetBlue’s operational partnership with American Airlines, in the northeastern US. But then JetBlue came back, raising its offer.
And this time, JetBlue offered Spirit a reverse termination fee – something Frontier also offered later. This fee is payable to the airline in case the deal stumbles, for example, due to regulatory obstacles. Frontier also improved its offer and terms. In total, JetBlue has now made five offers for Spirit. But Frontier remains in the fight, maintaining that it is a much safer option.
Market Vs Network
But exactly what would JetBlue gain, by beating Frontier to getting Spirit? Spirit has a strong network in Florida, and on to destinations in the Caribbean. But there is no guarantee that JetBlue would retain Spirit’s market share, after a merger. Again, Spirit is an ultra-low-cost operator, and JetBlue’s fare structure wouldn’t necessarily appeal to the same market.
Another theory is that JetBlue wants the network itself, particularly in slot-deprived bases. Before its attempts to “steal” Spirit from Frontier, JetBlue tried getting Virgin America. This was the last airline merger in the country. It was Alaska Airlines that got Virgin in the end. Virgin had a handy number of slots in key US airports, mainly on the west coast.
With less than a week to go, Frontier seems confident that it will get Spirit in the end. But whether JetBlue or Frontier wins over Spirit’s shareholders, the resulting airline will be the fifth in size in the United States. Completing the merger will likely happen well into 2023.
Spyros Georgilidakis has degrees in Business Enterprise and Management. He has 14 years of experience in the hospitality and travel industries, along with a passion for all-things-aviation and travel logistics. He is also an experienced writer and editor for on-line publications, and a licensed professional drone pilot.