JetBlue Bids $3.6 Billion For Spirit In U.S. Low-cost Carrier Battle

JetBlue Airways said Tuesday it made an unsolicited $3.6 billion bid for low-cost carrier Spirit Airlines on Tuesday, potentially snarling merger plans between Frontier Group Holdings and Spirit.

Shares of Spirit rose 22%, their highest level since mid-February. Airline stocks have suffered as air travel fell-off dramatically during the COVID-19 lockdowns.

JetBlue said the deal if completed is expected to "deliver $600 million-$700 million in net annual synergies and that the combined airline is projected to have annual revenue of about $11.9 billion based on 2019 revenue.

Sprit's 52-week high of $39.19 is $6 above the reported offer from JetBlue of $33 per share. Just before COVID lockdowns became widespread, Spirit shares traded around $45.

Spirit declined to comment beyond a written statement. The U.S. Justice Department, which would review any merger proposal, declined to comment.

Frontier said its Spirit deal "is in the best interest of consumers and shareholders and would deliver $1 billion in annual savings for consumers." Frontier said the "significant East Coast overlap between JetBlue and Spirit would reduce competition and limit options for consumers."

JetBlue, the sixth-largest U.S. airline, said the tie-up would position JetBlue "as the most compelling national low-fare challenger to the four large dominant U.S. carriers" and argued that its presence in more markets would trigger "significantly greater fare decreases from legacy airlines" through what has been called the "JetBlue Effect."

In February, Frontier and Spirit proposed a merger that would create the fifth-largest U.S. airline. The Frontier offer would value Spirit at $24.93 per share as of the closing price for Frontier shares Tuesday.

Frontier's offer is 1.9126 shares of stock and $2.13 in cash for each share of Spirit.

Spirit's customer service has often faced criticism. "Customers shouldn't have to choose between a low fare and a great experience, and JetBlue has shown it's possible to have both," said JetBlue Chief Executive Officer Robin Hayes.

The Spirit-Frontier deal faced criticism from some lawmakers and public interest groups warned that a merger between the ultra-low-cost carriers "would destroy competition in the only competitive market segment of the highly consolidated airline industry." They argued: "Travelers will pay higher prices for fewer and lower quality options, workers will lose their jobs, and smaller firms will be muscled out of a once-competitive market segment." The proposed tie-ups come as the U.S. airline industry is grappling with volatility in travel due to COVID. At the same time, costs are soaring on a combination of sharply higher fuel prices and rising wages. The Justice Department has filed an antitrust lawsuit against American Airlines and JetBlue over their partnership, alleging it would lead to higher fares in busy Northeastern U.S. airports. It is unclear if JetBlue would seek to continue that partnership if it was successful in acquiring Spirit.

Frontier said it was "surprising that JetBlue would consider such a merger at this time given that the Department of Justice is currently suing to block their pending alliance with American Airlines."