The Frontier Airlines-Spirit Airlines merger saga has gone on for months and JetBlue has injected itself into the mix. But the longer it takes to close the deal, the less likely Frontier will have Spirit at all.
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Spirit Stockholder Meeting Delayed Again
Spirit shareholders’ special meeting was convened and immediately closed again on July 8th, after the prior meeting followed the same protocol on June 30, 2022. The new meeting is scheduled for July 15th where shareholders will vote on a Frontier-Spirit merger. New York-based JetBlue placed competing bids in a tender offer for outstanding Spirit shares at an immediate premium to the Frontier offer, but with its own set of circumstances and risks.
In a back-and-forth that has lasted months, JetBlue Airways has submitted ever-increasing reverse termination fees to assuage fears that the acquisition would not pass regulatory approval. Unlike the Frontier-Spirit merger, JetBlue and Spirit would see all branding, employees, and communications become solely JetBlue. The Spirit board of directors believes that JetBlue’s deal is less likely to close and therefore inferior due to the Department of Justice suing JetBlue over its Northeast Alliance (NEA) codeshare with American Airlines. While JetBlue has sweetened its offer to an accelerated payout of the breakup fee, and an increased offer for shares, doubt over the deal closing still impairs the carrier from a later merger with Frontier or another carrier.
Frontier Needs To Compete
The Frontier-proposed deal in a vacuum is a compelling move for them both. The combined company would be one of the largest in the United States, the far and away leader in the Ultra Low-Cost Carrier segment, and would have created positive price pressure on the major network carriers.
But this deal is no longer in a vacuum. The reality is that many Spirit shareholders, especially big institutional investors, don’t benefit in the same way that consumers would from a Frontier-Spirit merger. Airline stocks have always been challenged and taking a 50% plus premium on today’s money makes more sense to a lot of shareholders than it would to potentially build a carrier that could reach a value even higher than the JetBlue offer.
With each rebuffed offer for Spirit, JetBlue has revised terms and put more money on the table. The breakup fee was a constant ante reaching $350 million and then ultimately $400 million in the last round. Frontier matched those offers and always maintained the superior deal because it was likelier to close and regardless of the breakup fee that Spirit could walk away with. It would still make Spirit less valuable and less likely to find a partner to merge with following a failed acquisition, so the Frontier deal was always better.
Investors, however, appear to disagree. If Spirit leadership thought they had the votes for approval of the Frontier merger, the vote would have happened. The continual delays are because the board knows or believes they do not have the votes to approve the merger at which point they will have a fiduciary responsibility to accept the JetBlue offer simply for its breakup fee if nothing else.
Frontier really hasn’t competed with JetBlue in terms of the offer for its Spirit combination. For example, despite matching a prepayment of a breakup fee (JetBlue offered first) and the breakup fee, Frontier removed one of the board seats it had offered to Spirit in the merger. Shareholders have not yet been swayed by Frontier matching whatever JetBlue puts forward, if Frontier wants this merger to happen, they are going to need to compete for this merger as opposed to simply matching whatever JetBlue puts up. They need a far more active approach that causes shareholders to reconsider the value they will get from each offer.
What Happens Next?
Spirit will have to hold this meeting at some point in time, whether they have secured the votes they believe they need or not. The Spirit Board is likely right, the JetBlue deal will not be consummated, and shareholders will get a breakup fee in their pockets but the three carriers will continue to compete.
If Frontier does not put something more compelling in front of these key investor groups, it’s possible that the JetBlue acquisition goes through and Frontier will lose the chance to merge with Spirit forever. The carrier will also find itself even further distant from the largest five carriers in the US and scrambling for growth opportunities or merging with carriers that make less sense for their network and goals.
Frontier has shown little sign that they believe they have a deal in question by merely meeting JetBlue’s offer but that plan hasn’t worked so far. In fact, by the movement of the shareholder meeting to a now fourth voting date is all but confirmed that a vote for a merger would fail. Frontier is running out of time to make a compelling offer, and taking away board seats with a lower immediate cash offer is not moving hearts and minds.
If Frontier doesn’t get serious about putting in an offer that is stand-alone superior to JetBlue’s, they risk losing the chance to merge with Spirit forever. A vote against the merger at this point is a vote for selling out to JetBlue. It might have once been Frontier’s deal to lose, but now it appears that it’s JetBlue’s regardless of whether that is better for the consumer.
What do you think? Is Frontier risking the Spirit merger by not offering a more compelling offer?
Can’t frontier set their sights on an airline like allegiant if the spirit deal falls through? They have a smaller fleet than spirit but serve more destinations. Admittedly I don’t know much about any of these 3 airlines, but seems like that would be a fine consolation.
Personally I prefer a stronger Jetblue that can better compete at least domestically with the big 3 and Southwest. I fear a stronger spirit would drag those other airlines further down to that level. I’m unsure what it would take to back out of the NEA, but would a stronger jet blue even need to be entangled with AA?
We listened to Hogwash since February which effects the decisions of what people may do in terms of investments – the bottom line – unless you are an insider, you may be misled for months. Let the Buyer Beware
JetBlue merger will not happen. Frontier makes JetBlue lose $400 million dollars. Mission accomplished.
Kyle, why do you assume a tie up with Frontier will be better for consumers? That’s pretty simplistic thinking. JetBlue fares are slightly higher than Spirit and Frontier but they are cheaper than big 3 airlines and you get a much better product that is comfortable (legroom, TV, Free wifi) without so many extra fees. The big three more likely to react to JetBlue.
Best way to think about it is Spirit and Frontier are like Dollar General – good for people who just want cheap price. JetBlue more like Target, which is discount/cheaper than department stores but stylish and quality.
What’s better for the consumer – more Dollar Generals or more Targets? I think there’s an argument we need both and that both play a role in helping reduce costs for consumers. That’s the same for airlines so you need to stop thinking that cheap cheap with lots of fees is the only thing that is good for travelers. Doesn’t quality count for something too?
@John Scouzi – To your first question, the downward pressure ULCCs put on network carriers is far greater than the equipment improvements that JetBlue puts on the same Big 4. American Airlines and United have both taken away IFE options even in aircraft that already had them so while the concept works in theory, it does not in reality.
To your note about Spirit and Frontier being Dollar General, I think this demonstrates that you probably haven’t flown both carriers recently. Spirit offers a Big Front Seat (as large or larger than United, American, and Delta domestic first class) for about $50/flight but it’s usually sold out. Spirit offers wifi, newer planes, and arguably the best frequent flyer program in the country for domestic-only flyers at less than 50,000 miles/year. Frontier doesn’t. So in your example, I would argue that Spirit is actually the Target in this example and Sun Country, Frontier, and Allegiant are Dollar General. JetBlue has, without doubt, the best interiors and nicest equipment in the country especially in the front of the plane. But if you compare prices for JetBlue’s cross-country service, the market is essentially the same as the network carriers, and if you look at their only trans-Atlantic destination (London), they are more expensive than most network carriers for a lie-flat experience.
What’s better for consumers would be for all of these competitors to remain in competition, but that’s not in the cards it would appear. So I would rather have a bigger point-to-point network that cuts out connections than a larger carrier that requires connections in either Boston or Fort Lauderdale. Further, I would argue that if a bigger Frontier-Spirit is soaking up all of the cheaper passengers, there are more seats at competitive prices on the “quality” carriers which should be good for you.
I was top-tier last year with American, and United, this year with Delta and Platinum with United and Spirit in both years. If you live outside of a hub, Spirit is a far better option with Wifi and a big front seat than spending more than double the time at the same cost to fly two regional aircraft that don’t offer those amenities. That’s the quality I am after.
Hi Kyle, thanks for your reply. A few factual issues/errors to point out.
– I HAVE flown these carriers and they are very much Dollar General (Spirit could be Walmart on a good day). Perhaps you have demonstrated you haven’t been to Dollar General lately.
– The big front seat is a fraction of Spirit’s capacity – let’s focus on what 99% of the customer gets on Spirit. That’s a very cramped seat with no legroom and a completely bare bones ride.
– “But if you compare prices for JetBlue’s cross-country service, the market is essentially the same as the network carriers…” Isn’t that the point – the network carriers would be much more expensive if JetBlue wasn’t in that market. Also you can’t base your whole argument for the Frontier merger on one set of routes or the London prices you reference (none of which you’ve backed up with any data, so we just take your word for it? Did you do a single google flights search to prove this, is this anecdotal from your own travel searches, or did you do an actual scientific analysis of fare data over some period of time with all the proper statistical considerations?)
– You want point to point? Well that’s what JetBlue is! JetBlue’s point to point model focuses on few base cities and they do offer some connections, but it sounds like you benefit more from the cities Spirit and Frontier have in their points to point network vs. JetBlue
– In your first point, you mix two ideas about the downward pricing pressure of ULCCs and United taking off TVs. Let’s break them apart. Regarding the TVs, you can’t cherry pick facts. Delta has invested big time in its product and modeled a lot of stuff on JetBlue. We have also seen airlines attempt to copy JetBlue’s free wifi model or some version of it, including Delta, American, Southwest and Alaska. JetBlue keeps the pressure on – certainly Spirit and Frontier do not. On pricing, I think that’s sort of the central debate here. You say ULCCs keep downward pressure on legacies where JetBlue does not. Again, based on what analysis? A lot of industry experts say the legacies basically ignore the ULCCs because they are skimming customers. Yea, the ULCCs offer a really low fare (with lots of fees) but that doesn’t prove that the big airlines are responding.. So I’m not sure your claim is 100% rock solid. JetBlue is arguing they bring down fares more than Spirit, and I’ve seen experts agree with that analysis. I don’t know who is right and who is wrong – maybe it’s not so black and white and maybe they all keep the big airlines on their toes in their own ways.
Bottom line is that your support for Frontier is really a head scratcher. Everything you’ve said is based on broad generalizations, loose facts, and your personal/anecdotal experience. I’d rather have the carrier that at least tries to up the game while keeping fares down the winner in all of this. It’s going to be a sad world if the future of air travel is Frontier.
@John Scouzi –
It’s possible we have very different experiences, but statements of factual inaccuracies or errors need to be demonstrated. For example, you say let’s focus on the back of the plane that 99% experience, but here we have a pair of factual inaccuracies. For example, Big Front Seats account for 5% of seat availability on most routes, some slightly higher. A small difference (500% some could argue) but important because many American and United jets also feature the same number of seats on similar sized aircraft (8) depending on the route. So in that instance, not only is the ratio inaccurate, but to suggest that other carriers offer dramatically more would also be inaccurate. Further, on non-Mint aircraft, JetBlue offers no first class or Big Front Seat at all – this is the vast majority of JetBlue equipment. But yes, on to the back of the plane.
Let’s look at those New York-London JetBlue flights. Unfortunately, studies about this year (the last two have to be tossed out due to COVID and JetBlue didn’t fly the route in 2019) are not yet out. But let’s look at non-stops from NYC (we want to capture those Newark departures too) to London (counting Gatwick.) Random dates in coach have JetBlue at a 29%, 36%, and 20% premium in August, September, and October to fly JetBlue over the cheapest nonstop on the route, each offered by British Airways but mere dollars from other competitors for the same dates and routes.
For business class flights, JetBlue is far more expensive than competitors who frankly offer a better whole package when factoring in lounges (JetBlue doesn’t own any of their own), value of miles, and aircraft space. Using the same dates in August, September, and October we see a shockingly higher premium. For August, all fares are elevated and JetBlue is just $3 higher than cheaper competitors all competing at $4,307, but in September, here again we see that JetBlue premium of 18.5% over all other rivals. In October, JetBlue wants a 78.6% premium over Virgin Atlantic’s Upper Class ($4,210 compared with $2,357.) To suggest that JetBlue isn’t selling their seats at a dramatic premium in most instances is a farce.
You say that there is a different experience in the back of the plane but ignore that most carriers offer the same seat pitch. Alaska varied between 30-32″ predominately 31″, Allegiant varies between 30 and 34″, American from 30-34″ with most at 31″, Delta is 30-34″ but most are at 30″, Frontier 28-32″, Spirit the same, JetBlue 32-34″ with 32″ being most common, Southwest 31-32″, 31″ is most of the fleet and United 30-34″ with 30″ being most common. JetBlue doesn’t necessarily offer more room in the back and certainly has not had an effect across the market moving those other carriers to more spacious cabins. The market effect from JetBlue has not been felt in the back of the plane, even if their seats offer more space.
JetBlue is point-to-point? I don’t think you understand what that means. Outside of Boston, Fort Lauderdale, JFK, and Long Beach (all hubs like American, United, Alaska, and Delta) – they are hub and spoke more so than any other carrier. From Kansas City, Dallas, Houston, Minneapolis, San Antonio, Milwaukee and Detroit, JetBlue flies only to Boston or JFK. Pittsburgh gets just Boston, Cleveland, Philadelphia, get Boston and Fort Lauderdale; Chicago, Portland, and a few others get those two and Fort Lauderdale. They don’t fly to St. Louis, Indianapolis, Columbus, among other significant air markets. In fact, the only cities where JetBlue offers true point-to-point are random cities primarily in Florida (Tampa, Fort Myers, etc.) and those points are by-in-large to northeastern destinations like Providence or Washington DC. Compare that Spirit destinations excluding a hub out of Pittsburgh (8) Kansas City (2), Dallas (15), Houston (19), Minneapolis (5), Milwaukee (7), but also St. Louis (6), Indianapolis (4), and Columbus (6.)
Delta invested in seatback IFE, American, and United removed them. We could compare seat count of those two compared to new screens on Delta and it would not be close. You accuse me of cherry-picking, but you’re cherry-picking the one carrier that added screens while ignoring the larger two carriers taking them away. The free wifi example doesn’t really work because Southwest had free messaging before JetBlue had internet on their aircraft, and the other carriers do not emulate JetBlue’s free wifi, then emulate Southwest’s free messaging, a topic I have covered here on this blog.
There is no JetBlue effect on fares. There was a Southwest Effect, then a Spirit Effect, but no such JetBlue Effect and this is well documented.
The last paragraph has been disproved by all of the former, but I can appreciate that you prefer JetBlue cabins. That makes sense. They are perhaps the best in the US, the problem is that they haven’t pushed other carriers to that standard. Maybe they will, but if so, that will not be at the same price as the rest of US carriers meaning that it’s not better for consumers. It is a case of consumers having a choice to pay more for a better experience. What makes the Frontier-Spirit merger a better choice is that it gives the same experience as Delta, United, and American for far less money and more point-to-point options. If you want a better experience, you can pay more to have that experience on all of those carriers, and for that, Spirit wins again because the experience in the front is the same, but the cost is still far lower even when adding in ancillary costs.
I feel like Frontier wins either way. Either they get to acquire Spirit and become the dominant ULCC, or they let jetBlue overpay for Spirit, removing their largest ULCC competitor. And in the event the jetBlue acquisition is blocked, Frontier can come back at that point, perhaps with a lower offer even. I don’t think it makes sense for Frontier to acquire Spirit at any cost.
For jetBlue, they missed out on acquiring Virgin America. They got outbid by Alaska, but of they were willing to overpay this much for an airline, they probably should have done that with VX. Now it’s too late for them…
How would the worlds largest ULCC compete with major network carriers if their products are so vastly different? All the NK/F9 merger would do is decrease service and increase fares. Remember when Jetblue started up? They brought fares down AND made the network carriers invest in TV screens and improve products. Remember when NK became an ULCC? It made the big carriers take away free carry-on bags, seat assignments and even mileage earnings. Fares have not dropped at all. Look at what JetBlue did to business class service and fares in the NYC-LAX/SFO market… They made fares drop and service increase. Ask yourself which of these mergers really puts pressure on the big 3 to get better or lower fares…. on paper it looks like a giant Spirit but in reality, it is Jetblue. The public gets duped by media and narcissists like Ted Christie. Do not believe what you hear coming out if Indigo management The B6-NK merger WILL pass as B6 will do what it takes.