In a move that confused many on Wall Street, JetBlue (NYSE: JBLU) made an offer to acquire Spirit Airlines (NYSE: SPR) for $3.6 billion. This was especially surprising as there had been little indication of such a move. Additionally, Frontier Airlines (NYSE: ULCC) and Spirit Air had agreed to merge in February.
JetBlue's offer values Spirit at about 33% higher than what it got from Frontier which sent shares soaring. However, the merger between Frontier and Spirit made sense given similar business models and planes used. With JetBlue, the synergies are less clear as JetBlue offers more premium offerings such as first-class service and meals on flights. According to the company, the deal would unlock about $700 million in synergies. Both companies overlap on about 11% of routes.
Overall, both are primarily domestic carriers and have been doing well in the post-pandemic economy as they are less dependent on business and international travel. There's clearly a trend towards consolidation in the domestic and budget air sector. JetBlue believes the deal would help them increase their presence at large airports which are dominated by the major carriers. The combined entity would have 675 planes by 2027, whereas JetBlue on its own would have about 350 planes in 2027.
JetBlue has a major presence across the country, while Spirit mainly operates on the East Coast. Previously, JetBlue had made an attempt to buy Virgin America which ended up being bought by Alaska Airlines (NYSE: ALK).
JetBlue made a failed bid for Virgin America, which ended up combining with Alaska Airlines, it's only other attempt at an acquisition in its more than 22 years of flying. JetBlue would also have to reconfigure certain planes owned by Spirit to match JetBlue's interiors which would be a significant expenditure. Compared to Spirit, JetBlue offers inflight entertainment, fewer seats, and more premium options.
Analysts were critical of the move, as they believe it would distract from more important initiatives, debt reduction, attracting talent, and improving operations including a troubling drop in customer satisfaction. The Biden administration has also been tougher on mergers and acquisitions so there is some question of whether it would even be granted approval.