JetBlue Airways will buy another discounted air service from Spirit Airlines in a deal announced on Monday.
“We are thrilled to deliver this compelling combination that fuels our strategic growth, enabling JetBlue to deliver our unique blend of low fares and exceptional service to more customers, on more routes,” said JetBlue CEO Robin Hayes, in a statement. “We look forward to welcoming Spirit’s exceptional team members to JetBlue and together creating a fifth customer-centric carrier in the United States.”
The cash offer was made at a price of $33.50 per share, the company said, for “total diluted net worth of $3.8 billion and adjusted enterprise value of $7.6 billion. dollars”.
This represents an increase of 50 cents per share compared to the offer made by JetBlue to buy its competitor in April.
Hayes told reporters that such a merger would result in a broader so-called “JetBlue” effect, reducing the cost of travel for customers, regardless of airline choice. Spirit’s CEO seems to be on the same page.
“We are excited to join forces with JetBlue as part of our enhanced agreement to create the most compelling domestic low-cost challenger for dominant U.S. carriers, and we look forward to working with JetBlue to complete the transaction. The combination of our two airlines will be a game changer,” Ted Christie, president and CEO of Spirit, said in a statement.
Research has indicated that the entry of low-cost carriers into a market results in lower rates for other carriers. This was dubbed the “South West Effect” by the Department of Transport as early as 1993, but was referred to as the “JetBlue Effect” when that carrier entered the markets.
The airline industry went through a period of deregulation beginning in 1978. Before that, there were over 400 domestic air carriers. Four carriers – American, Southwest, Delta and United – now share 80% of the domestic market.
If the plan proposed by the boards of JetBlue and Spirit goes through, the airlines would become the fifth largest in the country.
That is, of course, on the condition that federal regulators allow the merger, which isn’t a certainty.
In September 2021, a plan between JetBlue and American Airlines to coordinate certain services ran into an antitrust lawsuit filed by the Justice Department, which alleged the partnership between the airlines would reduce competition and drive up prices. .
In a March letter to President Biden’s administration, US Senators Elizabeth Warren and Bernie Sanders, among others, urged the Justice Department to carefully consider whether a $6.6 billion merger between Spirit and Frontier Airlines would be good for consumers. This merger would theoretically have made Frontier the fifth national carrier.
“Even though the fifth carrier, JetBlue, with Spirit, would have only 9% market share, compared to 13% for the fourth airline and 23% for the largest carrier. Post-merger and with its initial divestments committed, the largest share of seats a combined JetBlue-Spirit will have in any of its largest metropolitan areas is 40%, compared to the 57-91% share that incumbent carriers have in their largest metropolitan areas,” JetBlue said in a statement.
“The four largest carriers control over 80% of the market. Creating a low-cost, customer-centric challenger with size and scale is the best opportunity to disrupt incumbent pricing in the current landscape,” the company said.