Spirit Terminates Frontier Merger, Will Move Forward With JetBlue

After months of drama, including a hostile takeover attempt, it looks like JetBlue will finally be able to acquire Spirit Airlines. 

Despite delaying the vote 4 times, Spirit shareholders made it very clear that they did not prefer a merger with Frontier Airlines, despite a lower regulatory approval risk. Instead, the ultra-low-cost carrier (ULCC) will likely move forward with an offer from JetBlue Airways that offers more money and insurance should the deal fall through.

Let’s take a look at the latest developments …

Spirit Shareholders Reject Frontier

In February 2022, Spirit and Frontier had agreed to merge both ULCCs before JetBlue entered the picture with increasingly aggressive offers.

Spirit management has long preferred a deal with Frontier as it would be more likely to receive government approval, as well as maintain a larger amount of low-fare capacity in the market — which means better prices for flyers. But shareholders strictly looking at the cash offers can’t turn down JetBlue.

“While we are disappointed that we had to terminate our proposed merger with Frontier, we are proud of the dedicated work of our Team Members on the transaction over the past many months. Moving forward, the Spirit Board of Directors will continue our ongoing discussions with JetBlue as we pursue the best path forward for Spirit and our stockholders,” said Spirit CEO Ted Christie in a statement.

All said and done, JetBlue is willing to pay 40% more for Spirit than Frontier was offering, a total of about $3.7 billion in cash, including a $400 million reverse break-up fee if the deal doesn’t get approved. 

That means even if the Spirit/JetBlue deal ends up falling through, shareholders get $400 million in compensation and still get to keep their airline (shares), which they could then sell.

Antitrust Review

The biggest drawback for Spirit management (and maybe some shareholders) is the fact that the merger needs to face an antitrust review by the Department of Justice, which could be problematic.

Regulators will be looking closely at the fact that JetBlue would essentially be removing an ultra-low-cost carrier from the competition, which would increase fares for consumers, as well as the number of new valuable new assets which include gates and slots at high-traffic airports.

On top of that, JetBlue has an existing partnership with American Airlines which could complicate things even further. The Northeast Alliance (NEA) allows for a more unified and streamlined travel experience for passengers on both JetBlue and American, so that arrangement would likely be in jeopardy as well.

If the Spirit and JetBlue merger does succeed, Spirit’s fleet of yellow Airbus A320s would be painted and configured to match the existing fleet of aircraft that JetBlue has been flying for years.

Final Thoughts

At the end of the day, this is pretty big news for the aviation community, as well as for consumers in the U.S.

The potential Spirit and JetBlue merger essentially represents the removal of a major ULCC from the market. That means that fares are most certainly going to increase in markets where Spirit flies to.

In addition, there is the massive cost of integrating the 2 airlines, as well as any potential fallout from the NEA shakeup.

While that, of course, is not good news, passengers should expect an improved product and crews will likely see a pay increase to bring their salaries in line with what their new counterparts are receiving.

If the deal gets done, it is clearly a better value for Spirit to choose JetBlue over Frontier. We will just need to wait to see how things fall into place … or don’t.