After a back-and-forth bidding war between Frontier and JetBlue over the purchase of Spirit Airlines, a deal was finally reached Thursday, with JetBlue agreeing to purchase the Florida-based airline for $3.8 billion.
The deal, which would create the nation’s fifth largest airline, must get past the scrutiny of U.S. regulators who will determine whether the merger violates antitrust laws.
If the deal falls through over antitrust violations, a $70 million reverse break-up fee will be paid by JetBlue. Until the tentative agreement concludes in early 2024, JetBlue and Spirit will continue to operate their airlines independently. If regulators accept the merger, the combined airline would have a fleet of 458 planes and anticipated annual revenue of $11.9 billion.
Although Spirit Airlines CEO Ted Christie had initially voiced concerns that antitrust regulators would strike the deal down, he expressed his support for the merger.
“We look forward to working with JetBlue to complete the transaction,” Christie said.
JetBlue CEO Robin Hayes predicts the deal will generate more competition among top airlines, like American, Delta, United, and Southwest, which control almost 80% of the U.S. airline market.
“We believe we can uniquely be a solution to the lack of competition in the U.S. airline industry and the continued dominance of the Big Four,” said Hayes. “By enabling JetBlue to grow faster, we can go head-to-head with the legacies in more places to lower fares and improve service for everyone.”
The revised agreement between the two airlines calls for “the creation of the most compelling national low-fare challenger to the dominant U.S. carriers.”
However, some experts, like William McGee of the anti-merger American Economic Liberties Project, claim the deal between JetBlue and Spirit will harm competitiveness and raise the cost of airline travel instead.
“Spirit is going to disappear, and with it, its low-cost structure,” said McGee. “Once Spirit is absorbed, there is no question that fares are going to go up.”
Spirit and Frontier had announced a plan to merge in February. However, after postponing the vote count four separate times, the Spirit board of directors finally determined Frontier’s deal was less valuable to the airline and its shareholders.
The JetBlue-Spirit merger will net Spirit shareholders $33.50 per share with an additional $2.50 per share once the agreement gets finalized. At the time of market close, shares of Spirit (NYSE: SAVE) were trading at $25.66.