JetBlue Swoop in on Acquisition of Spirit Airlines in ‘Low Cost’ Mission

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Ollie Martin
Updated: 6 Apr 2022

Key points:

  • JetBlue announced on Tuesday its $3.6B bif for ultra low-cost Spirit Airlines
  • The company hopes to expand its flight paths to attract larger numbers of leisure travellers
  • The bid is over 30% higher than the previous bid from Frontier Group Holdings

JetBlue (JBLU) announced in late trading on Tuesday that the company intends on acquiring Spirit Airlines (SAVE), in a bid to develop a formidable low-cost airline. The company made an unsolicited bid of $3.6B for Spirit, placing the proposal one step ahead of a previous bid made by Frontier Group Holdings. The deal would allow JetBlue to remain in the upper echelons of US passenger choice at a time when the market is otherwise dominated by the so-called four legacy airlines, which currently control nearly 80% of the total US passenger market. 

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By acquiring Spirit, it would expand the limited flight paths that have become indicative of the JetBlue brand. In the simple words of CEO Robin Hayes “what we want to do is create a bigger JetBlue”. The move acts as a tactical response to various economic headwinds; including higher fuel and labor costs that aren’t likely to wane in the near future. By expanding company reach, the airline will attract larger numbers of leisure consumers; who are piling back into air travel following the end of pandemic restrictions. 

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JetBlue nipped ahead of Frontier’s previous offer with a bid of $33 a share all cash, around 30% greater than the previous 1.9126 shares of stock and $2.13 in cash on the table. The premium was reflected in late Tuesday trading, with shares of Spirit closing at a gain of 22%. Even after the rally, SAVE shares are still trading comfortably below pre-lockdown levels.

Whilst no formal response followed from Spirit, the company is currently reviewing the offer. Robin Hayes noted that the bid is expected to be followed by a ‘vigorous’ antitrust review from the US DOJ that could last into FY23:

“We've had unprecedented amounts of consolidation, which the DOJ has approved and now it's about how do we make sure the rest of us can continue to discipline the legacy carriers and create that competition…We believe ultimately this is the best deal out there that is going to really drive more competition.”

 

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