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The bidding war for Spirit Airlines has ended. JetBlue and Frontier both sought to acquire Spirit. Today, we learn that JetBlue has completed the deal at a price of $3.8 billion. Alison Sider of the Wall Street Journal reported on the deal, quoting JetBlue CEO Robin Hayes:
Buying Spirit would supercharge JetBlue’s growth, accelerating its plans by years, Mr. Hayes has said. The combined airline will have 458 planes—up from JetBlue’s fleet of just over 280 jets now—and will have over 300 more on order. Spirit’s pilots are a big part of the allure as well, at a time when airlines are struggling to replace the thousands who retired during the pandemic and are facing a growing shortfall.
Will the deal create value in the long term for JetBlue? It's a fascinating question. Historically, firms in the airline industry has struggled to be consistently profitable. Richard Branson once joked that the easiest way to become a millionaire is to start as a billionaire and then open an airline. Airlines have had even more trouble being profitable when they have tried to straddle two contrasting business models. For instance, when Delta launched Song to compete with the likes of Southwest, they struggled mightily. The same goes for United with Ted, and British Airways with its Go! subsidiary - which aimed to compete with EasyJet and Ryanair in Europe. In each case, the full-service legacy carrier tried to also run a low-cost subsidiary, and the two business models did not co-exist successfully in the same corporation.
Joanna Bailey wrote about this deal several months ago for the Simple Flying website. She noted,
"The offer of $3.6 billion, or $33 per share, represented a premium of around 30% over the price Frontier had agreed. Clearly, JetBlue sees a value in the carrier, but why? On the surface, they aren’t exactly a match made in heaven. Spirit is a true ULCC (ultra low cost carrier), lightweight, efficient and no-frills; JetBlue is very much a hybrid airline, offering better services at affordable price points, but not truly low-cost. At first glance, Frontier looks to be the better option, but how does that pan out when we consider routes, fleet, and what’s best for the passengers?"
Bailey concludes that Frontier seemed a better fit as you consider competitive positioning, fleet configuration, and route network. She explained, "The Frontier-Spirit tie-up would have created the largest ULCC in the country, with a fleet of almost 500 aircraft targeted by 2026."
Perhaps, though, JetBlue doesn't plan on operating two contrasting business models moving forward. A quote from CEO Robin Hayes in the Wall Street Journal today seems to suggest a shift away from the ULCC strategy at Spirit:
“This is about creating a larger JetBlue,” Mr. Hayes said Thursday. JetBlue has said it plans to retrofit Spirit’s distinctive bright yellow planes to match its own fleet, including tearing seats out of Spirit’s more crowded cabins. The combined airline would be based in New York, with Mr. Hayes at the helm, the airlines said Thursday.
Ok, so perhaps we won't see an attempt to straddle. This quote though suggests a different question: If JetBlue plans on transforming Spirit to match the existing JetBlue strategic positioning, then what's the rationale for the merger? Why acquire the airline rather than just contining to add planes and routes to the existing JetBlue network? It will be interesting to hear and see why acquisition might create more value than organic growth in this case. Many people have their doubts about this deal... understandably.