JetBlue Airways has reached a $3.8 billion deal to buy Spirit Airlines, which would make them the fifth-largest airline in the U.S.
On Wednesday, Spirit ended its merger agreement with Frontier Airlines, months after bidding war with JetBlue Airways.
The Spirit-Frontier deal was set to continue out their bare in-flight service in exchange for extremely low fares. Their executives agreed to keep it that way even if the airlines completed their $6.6 billion merger deal. The merger would’ve made Spirit-Frontier the 5th largest airline in the U.S. with Frontier having the controlling stake.
“Our business model is built on low fares — that stimulates travel,” Frontier CEO Barry Biffle said in an interview. “We’re going to give people even more low fares.”
What the Frontier-Spirit Deal means for Consumers?
The Frontier-Spirit deal would mean larger competition for the competing airlines, and also one less airline for travelers to choose from.
“We believe the merits of the deal — everyone wins,” Biffle said. “We think we should get a warm reception because the administration has been looking for ways to increase competition and we think this is the answer.”
Analysts feared that after the Spirit-Frontier merger, the airlines would have to raise it’s bare fare to compete with rival airlines and this would pose an issue for travelers and the airline’s bottom-line.
Analysts suggested that an increase in airfare with the Frontier-Spirit merger would more or less be counterproductive because of the rival fare pricing and traveler demands.
Why JetBlue and Spirit Merger May Be The Better Option?
During litigation of the Frontier-Spirit merger, Spirit said they would continue their “ongoing discussions with JetBlue as we pursue the best path forward for Spirit and our stockholders.”
As the original merger deal came to a halt on Wednesday, The new JetBlue-Spirit merger deal was announced Thursday morning. While this merge would still create the fifth-largest airline in the U.S, there are still some red tape that JetBlue and Spirit could be up against.
Spirit airlines lacked shareholder votes on the frontier-spirit merger as stock would have shifted giving Frontier the controlling stake.
According to CNBC, JetBlue is expecting that the merger would fast-track the growth of the airline by having access to a larger fleet of planes and trained pilots, which would give them a competitive advantage over carriers like American, Delta, United, and Southwest.
There has been reports of pilot shortages with carriers such as American Airlines, and the JetBlue-Spirit merger could aide with that against rival carriers as they control most of the U.S market.
What’s JetBlue’s Plan For The Merger?
JetBlue has plans to refurbish Spirit’s yellow planes with interiors in JetBlue style, featuring seatback screens and more legroom.
JetBlue said it will pay $33.50 a share in cash for Spirit, including a $2.50 per share prepayment if Spirit shareholders approve the deal and a 10 cent per month ticking fee starting next year until the deal closes.
Reports show Frontier shares were up 20% on Thursday afternoon. Spirit’s were up more than 4% and JetBlue’s were off nearly 2%.
If the JetBlue-Spirit merger happens, Frontier would likely reign over the ultra-low fares for its travelers while other airlines compete for the ladder with providing in-flight experiences to cater to business travelers.
This merger won’t come without a cost. According to Frontier, Spirit has to pay Frontier $25 million in merger-related costs because of the terminated agreement.