Home Travel JetBlue and Spirit Airlines Announce Merger Plan

JetBlue and Spirit Airlines Announce Merger Plan

by Jersey Lady

JetBlue reached a deal to buy Spirit Airlines on Thursday. The merger could reshape the airline industry by putting pressure on the country’s four dominant airlines.

The deal, which values ​​Spirit at $3.8 billion, would create the fifth-largest airline in the United States with more than 10% market share, behind United Airlines with nearly 14% share. Delta and Southwest each own more than 17%, and American Airlines more than 18%.

The merger is likely to face a thorough investigation by the Biden administration’s antitrust regulators. They have taken a proactive stance on corporate consolidation, especially in an industry already dominated by a few companies. , tried to cast it as a way to make the industry more competitive, not less competitive.

“Our position is clear: the best thing we can do in the US to create a more competitive industry is to grow JetBlue,” Chief Executive Officer Robin Hayes said in an interview. said.

The deal was a win for JetBlue and undermined a rival proposal: Frontier Airlines and Spirit canceled the merger deal on Wednesday after Spirit struggled to convince shareholders to support the proposal, but JetBlue It fell short of Blue’s proposal by about $1 billion.

JetBlue and Spirit said they expect to seek regulatory approval for the transaction from Spirit shareholders this fall by early 2024. The two airlines expect to complete the transaction by the first half of 2024 at the latest and start operating as a single airline by the first half of the year. 2025.

However, it may be difficult to complete the merger. Regulators have already sued JetBlue and American over partnerships at Boston and New York airports. And on Wednesday, the Federal Trade Commission filed a lawsuit to block social media giant Meta’s acquisition of small virtual reality company Within.

To address regulatory scrutiny, JetBlue said it would preemptively exit certain airports where both the company and Spirit have a significant presence. One company can become dominant on a particular route or on a particular route, stifling competition and increasing fares for some travelers. If regulators block the deal, JetBlue will pay Spirit $70 million and Spirit shareholders $400 million.

“The aviation industry is tremendously concentrated and legitimately the focus of the Justice Department,” said Bill Baer, ​​a visiting fellow at the Brookings Institution who led the Justice Department’s antitrust division in the Obama administration. I continue,” he said.

Companies that engage in mergers with direct competitors typically claim that mergers will increase competition and benefit consumers, but Baer says that usually doesn’t work out that way. He said the terms of the JetBlue and Spirit agreements suggest the airlines are preparing for an uphill battle.

Under the Agreement JetBlue will acquire Spirit for at least $33.50 per share in cash., significantly above the current price of Spirit. Spirit’s shares climbed less than 6% on Thursday to close at $25.66 per share. This reflects skepticism about the deal. Meanwhile, Frontier shares soared more than 20% on Thursday.

JetBlue said it will pay Spirit shareholders an upfront payment of $2.50 per share upon approval of the transaction, and the equivalent of 10 cents per share next year. If the deal doesn’t close by 2024, the value could rise to $34.15 per share for him.

The combined airline will be based in New York and will be led by Hayes. The airline says it has 458 aircraft, 34,000 employees and an estimated 77 million customers.

JetBlue said it expects to save $600 million to $700 million annually by spreading fixed costs across its larger operations. Based on 2019 figures, annual revenue for the combined airline is projected to be around $11.9 billion.

After years of bankruptcies and consolidations, the airline industry had largely stabilized by the early 2010s, with four major airlines dominating most of the market. In 2016, JetBlue lost to Alaska Airlines in a bid for Virgin America.

The acquisition of Spirit will help JetBlue expand its presence in cities such as Fort Lauderdale and Orlando, Florida, San Juan, Puerto Rico, and Los Angeles. The airline also said it expects growth at major airline hubs such as Las Vegas, Dallas, Houston, Chicago, Detroit, Atlanta and Miami. Competition at airports where one or two airlines control most gates and flights.

But even when the deal works, airline mergers are notoriously difficult, requiring union mergers, sometimes outdated and incompatible computer systems, mismatched aircraft, different corporate cultures, and more. .

“A merger would be a case study of the winner’s curse,” said Eric Gordon, a business professor at the University of Michigan. “JetBlue will face years of nightmares trying to integrate aircraft, systems and cultures from different planets.”

When American Airlines and US Airways merged about a decade ago, it took four and a half years to negotiate a single contract for mechanics, ramp workers, and other employees representing the United States Transportation Workers Union. It took, said Gary Peterson, the union’s aviation director. Split.

“Combining workgroups is like consolidating the Mets and Yankees into an organization,” he said.

Peterson said passengers and workers are generally the losers in such a combination, but unions will fight to protect workers as the merger progresses.

Sarah Nelson, president of the Flight Attendants Association (CWA), which represents flight attendants from 19 airlines, including Spirit, said her union would only support the deal if flight attendants shared in the benefits. said to do.

“Our job is to improve conditions for workers and be strategic about how we do that,” she said in a statement.

The deal between JetBlue and Spirit comes amid widespread frustration with the airline industry, which has struggled to keep up with the rebound in travel demand over the past year.

The Department of Transportation recently announced that it received more than twice as many complaints about airline refunds, delays, cancellations and other issues in May than the same month in 2019. In April, the department received more than three times as many complaints as he did before the pandemic.

While JetBlue ranked high customer satisfaction, Spirit has few fans. And both airlines have struggled to operate smoothly during the recent economic recovery. About 68% of Spirit’s flights and just over 62% of JetBlue’s flights had arrived on schedule by May of this year, according to the Department of Transportation. Spirit was his seventh and JetBlue his tenth among U.S. airlines in on-time performance during this period. Aviation Data According to his provider FlightAware, Spirit has improved significantly in this regard, while JetBlue has only marginally improved.

Some experts have questioned the airline’s claims that the deal will benefit consumers, with JetBlue keeping costs as low as Spirit, known in the industry as an ultra-low-cost airline. I argue that it is not possible.

“In the last 30 years, we haven’t seen an airline merger in the United States yet. It’s good for consumers, it’s good for workers, and it’s good for the cities and regions in which they operate,” said William Sr. J. Magee said. Fellow in Aviation and Travel with the American Economic Liberties Project promoting stronger antitrust policies and enforcement.

The Spirit-JetBlue deal could trigger other airlines to merge to stay competitive, said Helene Becker, managing director and senior analyst at investment bank Cowen. “Once this transaction is completed, it is likely that smaller airlines, especially regional ones, will consider a merger,” she said.

JetBlue and Spirit said they will continue to operate independently with no changes to their loyalty programs and customer accounts until the merger is complete.

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