Spirit Rejects JetBlue Takeover Bid to Side With Frontier

Going once, going twice, sold! To… the lower bidder? It’s not often that an auction ends with the highest bidder going home empty-handed, but that’s pretty much what just happened in the airline industry.

On Monday, ultra-budget Spirit Airlines bid bon voyage to over half a billion dollars when it rejected JetBlue’s takeover bid in favor of Frontier Airlines’ more frugal offer. Like passengers on its own cramped, perk-free flights, Spirit asked itself: Do I deserve better than this? and answered with a resounding no.

Spirit in the Sky

So what gives? First, let’s set some tray-table stakes. In early February, Frontier agreed to buy Spirit in a $2.9 billion cash-lock-stock-and-fuselage deal (to be clear, only the cash and the stock were specified by the lawyers). In early April, JetBlue did Frontier one better with a $3.6 billion offer, prompting Spirit’s board to review both options. Acquiring Spirit would have allowed either bidder to put together one of the largest airlines in the nation, creating a true low-cost competitor to Southwest, American, Delta, and United.

Spirit’s review process ended Monday when it picked Frontier, with its board citing the higher regulatory risks associated with joining up with JetBlue:

• Likely looming largest on Spirit’s heads-up display is JetBlue’s controversial “Northeast Alliance” with American Airlines. Struck last December, the agreement sees the two companies teaming up to augment service in and out of New York City and Boston. The Justice Department is currently suing to block the sweetheart deal.
• “We struggle to understand how JetBlue can believe DOJ, or a court, will be persuaded that JetBlue should be allowed to form an anticompetitive alliance that aligns its interests with a legacy carrier and then undertake an acquisition that will eliminate the largest [ultra low-cost] carrier,” Spirit’s leadership wrote in a letter to JetBlue’s CEO.

Economy-Class Empire: So just how big will the Spirit-Frontier fleet be? Together, the airlines would fly over 280 jets and would be the fifth-largest US airline in terms of seats. Although forging ahead of Skywest by some 20 million, according to data from Cirium’s Diio Mi, it would still be some 20 million shy of fourth-place United. Executives claim the tie-up of the low-cost airlines will lead to more price competition with the big four, particularly at underserved airports, and express the humble hope that this will help earn landing clearance from the DOJ.