May 19, 2022

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Frontier and Spirit merger would create the fifth-largest airline in the US

Spirit rejects JetBlue’s offer, saying it wants a less lucrative deal with Frontier

The airline said it does not believe regulators will allow JetBlue to buy Spirit.

“We believe a combination of JetBlue and spirit (save) Has little prospect of receiving antitrust clearance as long as JetBlue’s Northeast Alliance with American Airlines (AAL) “Given the high risk of achievement, we believe that JetBlue’s economic proposal is fictitious, and Spirit’s board of directors did not find it necessary to consider it,” said a letter from Spirit to JetBlue issued early Monday.

JetBlue announced Monday that it is offering Spirit $200 million in breakup fees if the deal does not go through for antitrust reasons. But a Spirit spokesperson said the company’s board of directors declined to offer breakup fees as well.

In February, Spirit Agree on an agreement With border (FRNT). Although the airlines refer to their proposed group as a merger, it is Spirit shareholders who will be bought, receiving a stock-and-cash deal of $25.83 per Spirit share. Given the Friday closing value of Frontier’s stock, its value is now slightly lower – $22.42 per share.
In April, JetBlue announced that Full cash offer $33 per share. It did not raise the bid price on what it referred to as an “improved” bid in its Monday statement, with a $200 million break-up fee being the primary addition.

The ultra-low-cost aviation market

Both Spirit and Frontier are very low-cost carriers, offering very low base fares but charging extra for just about everything else – even carry-on baggage.

In its letter to JetBlue, the company said Spirit believes the Department of Justice is unlikely to agree to a deal under which an ultra-low-cost airline would be purchased by a higher-fare airline, raising prices for consumers.

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The Biden administration has already taken a more active approach to promoting competition and challenging mergers on antitrust grounds.

For example, in September the Ministry of Justice File a federal lawsuit to try to finish An alliance between America and JetBlue, although this is not a complete amalgamation. The Justice Department said it had raised fares and reduced options for air travelers to and from major cities in the northeastern region. American and JetBlue deny the charge and are taking the case in court.
The most active stance on antitrust and competition rules in the airline industry comes two decades after 11 airlines merged into four major airlines – American (AAL)And united (UAL)And delta (DA) And Southwest (love) – That among them more than 80% of the country’s air traffic.
If Frontier’s purchase of Spirit goes ahead, the combined company will jump on JetBlue and Alaska Air (ALK) Based on miles driven by paying passengers, according to 2021 statistics. This would make it the fifth largest airline.

“Spirit believes that the merger with Frontier will enable the ultra-low-cost carrier business to achieve scale, improve operational reliability, increase consumer relevance, do a better job of delivering ultra-low prices to more consumers and compete more effectively,” Spirit said in a letter to JetBlue Monday. .

Jet Blue (JBLU) She did not immediately respond to a request to comment on Spirit’s refusal of her offer and whether she was now planning to pursue a hostile bid to purchase Spirit.

Spirit shares were down 9% in late morning trading Monday upon the announcement, while Frontier stock was down about 2%. JetBlue’s stock price is up 2%.

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