View of JetBlue aircraft at Terminal 5 of John F. Kennedy International Airport on May 12, 2020 in New York, NY.
Pablo Monslave | Getty Images
JetBlue on Wednesday said its $3.6 billion bid for ultra-low-cost carrier Spirit Airlines would help it grow nationwide and better compete with larger carriers.
The offer, which Spirit described as “unsolicited,” casts doubt on the latter’s planned collaboration with Frontier Airlines. Spirit shares rose more than 22% on Tuesday after news of the offering broke, but fell 3% in premarket trading on Wednesday. JetBlue lost 4% while Frontier lost 3%.
Frontier and Spirit have similar business models: low fares, sparse inflight service, and fees for everything from carry-on bags to seat selection.
JetBlue, on the other hand, has spent years building its Mint business class service, which includes loungers and full meals. On the same day that JetBlue announced its surprise offer for Spirit, JetBlue also announced launch dates for its first Boston-London flights.
But JetBlue is mostly focused on domestic travel. The Spirit deal, if approved by antitrust officials at the Justice Department, would give JetBlue more breadth and ability to compete with larger airlines, executives said Wednesday.
It would also allow JetBlue to rapidly expand its fleet and increase its workforce, particularly pilots, thanks to a large Airbus order book shared by both airlines. JetBlue CEO Robin Hayes said Wednesday morning, speaking to analysts, that he expects the US pilot shortage to last for several more years.
JetBlue didn’t reveal how much it would cost to reconfigure Spirit’s Airbus planes to match JetBlue’s interior, which has inflight entertainment like seatback screens and fewer seats, but the airline said it’s a “multi-year” investment would act.
The airline’s bid for Spirit confused some analysts.
UBS called it a “headscratcher”.
“Wait what?” asked MKM partners.
Bank of America said while both JetBlue and Spirit have Airbus aircraft, “we’re struggling to find additional benefits for JBLU.”
Raymond James downgraded JetBlue to market performance after the announcement, saying the product and labor were difficult to combine.
“The process is also likely to distract or possibly dissolve current initiatives, most notably the Northeast alliance with American,” wrote Raymond James Savanthi Syth. “Additionally, the prospect of increased leverage, even if manageable, is likely to weigh on investor sentiment.”
The Biden administration has scrutinized mergers and other alliances.
The Biden administration sued last year to block JetBlue’s partnership with American Airlines, which allows the airlines to coordinate routes at New York City and Boston-area airports.
Asked if JetBlue would forsake that alliance to get a deal with Spirit through regulators, JetBlue CEO Hayes said in the analyst call that the deal “complements” American Airlines’ partnership.