SHAREHOLDERS APPROVE JETBLUE AND SPIRIT AIRLINES MERGER
Author: Liliana Tarillo, Content Creator
The American airline market might shortly welcome a fifth major player following Jetblue’s announcement of its purchase of low cost airline #SpiritAirlines.
Previously, Frontier Airlines and Spirit were negotiating a #merger, and when JetBlue also made an offer, it was initially regarded as a strategic move to raise negotiation prices, as a merger with Frontier would dominate the American low cost airline market. After multiple postponed negotiations due to shareholder hesitation, the deal that would have given Frontier 51.5 percent ownership and Spirit the remaining 48.5, ultimately fell through. JetBlue’s more attractive offer - $1 billion more and a full cash payment that would eliminate Spirit’s debt - was announced on October 19th, 2022.
In the US there are four airline carriers known as the ‘#BigFourAirlines’: Delta Air Lines, United Airlines, American Airlines, and Southwest Airlines. Although none of them surpass a 20% market share, together they make up almost three quarters of the industry. These companies all have over 700 planes each, whereas JetBlue has 282 and Spirit has 176. This merger would immediately bring JetBlue’s total planes up to 458, which would’ve taken JetBlue 8 years to reach on its own. They plan to repaint the Spirit planes and remove seats to reduce crowding and offer the same comfort their brand advertises. Currently the purchase is going for $3.6 billion, which is about $33.50 per share but can go up to $34.50. They are going to pay $2.5 cash per share up front . Jetblue also agreed to pay investors a ticking fee of ten cents per share to compensate for the risk concerning the antitrust laws that may hamper the deal. Should these laws block the deal, #JetBlue will have to pay Spirit’s shareholders $400 million, and a $70 million reverse breakup free to Spirit.
JetBlue is currently dealing with legal trouble due to the antitrust laws legislated in order to encourage competition in the airline industry and hinder the formation of an airline oligopoly. Back in 2021, JetBlue formed the ‘#NortheastAlliance’ with American Airlines, where they have joint marketing and coordinated operations for flights in New York and Boston to be able to compete with Delta and United. This alliance gives the two airlines a 31% market share, which competes with United’s 24% share and Delta’s 22%. The Department of Justice and six states are suing on the grounds that this alliance reduces the competition between the two airlines, which eliminates the lower fares and better service that high competition stimulates, and increases the barriers to entry for companies similar to JetBlue and Spirit who were originally created to offer lower cost options. JetBlue has to prove that this alliance hasn’t affected prices or quality for the customers.
JetBlue must also prove the same in order to receive government approval for the merger with Spirit, but is likely to surpass these regulatory concerns in the final quarter of 2023 or the first months of 2024, following some concessions such as giving up Spirit’s assets in airports such as its spots. The deal is expected to close in the first half of 2024, and it would take 4 to 5 years for the two companies to integrate.
JetBlue won the battle for Spirit. Now it has to win over Biden's Justice Department
Spirit Airlines Shareholders Sign Off on JetBlue Merger - WSJ
JetBlue agrees to buy Spirit Airlines for $7.6bn | Financial Times
How a Merged Spirit and JetBlue Could Compete Against the Big Four U.S. Airlines | WSJ