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Spirit Airlines shareholders approve merger with JetBlue

Oct. 19, 2022 Updated Wed., Oct. 19, 2022 at 5:11 p.m.

An aircraft marshal guides a Spirit plane on the tarmac in 2017 at Fort Lauderdale International Airport in Florida.   (Saul Martinez/Bloomberg)
An aircraft marshal guides a Spirit plane on the tarmac in 2017 at Fort Lauderdale International Airport in Florida.  (Saul Martinez/Bloomberg)
By Lori Aratani Bloomberg

Spirit Airlines shareholders voted Wednesday to approve a merger with rival JetBlue Airways, a deal that would create the nation’s fifth-largest carrier but one that will face scrutiny from federal regulators.

Executives at the two airlines said they hope to conclude the regulatory process and close the deal in the first half of 2024.

Winning shareholder approval could be the easy part for airline executives, who will need to persuade the Biden administration and some lawmakers the deal is a win for consumers.

The Justice Department has taken an aggressive role in fighting deals it thinks will reduce competition and harm consumers.

One of those battles is playing out in a Boston courtroom and centers on an alliance JetBlue formed with American Airlines to operate selected flights in the Northeast.

In a statement, Spirit chief executive Ted Christie called Wednesday’s vote “an important step forward on our path to closing a combination that will create the most compelling national low-fare challenger to the dominant U.S. carriers.”

JetBlue hailed the vote as a “major milestone” in its push to create a “high quality, low-fare national challenger to the Big Four airlines.”

The airline’s statement emphasized JetBlue executives’ contention that the pairing would increase competition in the industry, a view likely to be scrutinized as the deal moves through regulatory review.

Officials at the Justice Department, which will review the proposed merger, did not respond to a request for comment Wednesday.

The merger agreement was announced in July and followed months of back-and-forth among the two carriers and Frontier Airlines, which announced its intention to merge with Spirit in February.

That proposed deal between two carriers known for low fares seemed likely to win approval from Spirit shareholders until JetBlue made its surprise bid in April.

Spirit initially resisted JetBlue’s overtures, arguing a merger with the New York-based carrier was unlikely to win regulatory approval. But ultimately, the low-cost carrier was unable to persuade enough of its shareholders to back a merger with Frontier.

A shareholder vote on the Frontier merger was delayed four times.

Under the terms of the deal, JetBlue would pay Spirit shareholders $33.50 per share in cash.

The deal also includes a prepayment of $2.50 once shareholders approve the transaction, plus a “ticking fee” of 10 cents per month starting in January.

Kerry Tan, an associate professor of economics at Loyola University Maryland, said a merger with Spirit could help improve JetBlue’s operations by providing it with additional jets and staffing.

On the flip side, JetBlue is unlikely to adopt Spirit’s business model, which focuses on low fares with few frills. Tan said that could lead to concerns that airfares will rise if the merger is approved.

“With Spirit no longer providing that downward pressure on airfares, there is a real concern about what might happen,” he said.

The proposed merger comes at a time when bankruptcies and mergers mean just a handful of major players dominate the industry.

According to the Justice Department, the top four airlines had 55% of the domestic air travel market in 2000, with a dozen smaller carriers competing for the rest.

By 2020, the top four accounted for 81% of the market, with the number of smaller competitors dwindling.

JetBlue’s bid to acquire Spirit, however, is complicated by the fact it that it comes as the carrier is facing scrutiny over another alliance that is being challenged by federal regulators, Tan said.

JetBlue is embroiled in an antitrust suit brought by the Justice Department and attorneys general in six states and the District of Columbia over a partnership it launched in 2021 with American Airlines.

The arrangement, known as the Northeast Alliance, allows the two carriers to share jets and revenue on certain routes in the Boston and New York areas.

The carriers contend the partnership enables them to better compete with larger players such as Delta Air Lines and United Airlines that operate more flights in those markets.

The Justice Department argues the arrangement, while not a traditional merger, reduces competition and could lead to higher prices in one of the nation’s busiest air corridors.

The trial, which began late last month, is taking place in U.S. District Court in Massachusetts.

JetBlue executives have argued that a merger with Spirit would create an airline better equipped to compete with American, Delta, United and Southwest Airlines.

Analysts say JetBlue’s aggressive pursuit of Spirit could help accelerate its growth and potentially shield it from becoming a takeover target itself.

At a time when airlines are struggling to hire and train employees, particularly pilots, a merger would give JetBlue access to experienced aviators and also allow it to expand to key markets, including Chicago, Dallas-Fort Worth and Houston, where it does not have a strong presence.

JetBlue was the fifth-busiest carrier before the pandemic, with 43 million passengers in 2019, while Spirit ranked eighth, according to Transportation Department data.

Frontier was the ninth-largest airline. Frontier and Spirit combined would have eclipsed JetBlue to become the fifth-largest carrier.

Even if JetBlue is able to merge with Spirit, it is not clear that would be enough to turn the “Big Four” into the “Big Five,” Tan said.

“To me, this is [JetBlue] trying to leapfrog their way into being a major player, but I still don’t think they’re going to be able to compete head-to-head with American or even Southwest,” he said.

If regulators prevent JetBlue and Spirit from merging, their agreement indicates JetBlue would have to pay a $70 million fee to Spirit, along with an additional $400 million in fees to shareholders.

As an additional protection, the agreement includes the unusual ticking-fee provision.

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