Wed. Dec 7th, 2022

Frontier Airlines says it has made its best and final offer for Spirit Airlines in its bidding war with JetBlue Airways and is asking for another delay in a special shareholder vote that has already been delayed three times.

The Spirit board has been steadfast in its support for a deal it struck with fellow ultra-low-cost carrier Frontier back in February, but Spirit’s shareholders have shown interest entertaining JetBlue’s more lucrative offer.

In a letter to Spirit CEO Ted Christie made public Monday in a regulatory filing, Frontier CEO Barry Biffle said his airline is “very far” from winning the approval of Spirit shareholders, noting the “opportunistic” cash offer from JetBlue.

If Spirit’s board reverses course and throws its support to the JetBlue bid, the Frontier chief said his airline would not match the offer. “Should the Spirit board of directors conclude that it would instead desire to pursue an alternative transaction with JetBlue, we would appreciate being advised of that determination,” Biffle wrote.

Frontier’s latest offer of $4.13 per share plus 1.9 Frontier shares for each Spirit share still works out to roughly $1 billion less than JetBlue’s $3.7 billion package, which includes a $400 million break-up fee if the merger were to be blocked by regulators.

Even so, the Frontier chief executive insisted that his airline’s bid is already the superior offer. “Our proposed combination is not only pro-competitive — making it possible to bring ultra-low fares to more routes in competition with larger, high cost, high-fare airlines — our offer delivers significantly greater value to Spirit stockholders,” wrote Biffle.

Regardless of whether Spirit agrees to merge with Frontier or JetBlue, regulators will be paying attention.

“The combination of either airline with Spirit would create the fifth largest airline in the United States,” said Hayley Berg, chief economist at Hopper, who says the JetBlue deal would likely be better for consumers.

“If JetBlue were to merge with Spirit, 84% of the added network would be incremental to JetBlue’s current domestic service,” said Berg. “With only 16% of routes overlapping, few routes would potentially suffer from the loss of competition between JetBlue and Spirit.”

Comparatively, Berg says, “if Frontier were to merge with Spirit, 65% of the added network capacity would be incremental to Frontier’s current domestic service. With about one third of Frontier and Spirit’s networks overlapping, there is some risk that these duplicative routes would suffer from reduced competition in the event of a merger.”

“I would think that Spirit and Frontier merging is a bigger antitrust concern than Spirit and JetBlue merging,” antitrust expert Florian Ederer, associate professor of economics at the Yale School of Management, previously told Forbes. “That’s because, while JetBlue is a low-cost carrier, it’s not necessarily an ultra-low-cost carrier like both both Spirit and Frontier. So I’d say that there’s a lower risk of the JetBlue-Spirit acquisition being blocked.”

JetBlue has previously accused Spirit of conflicted interests and bad-faith bargaining, but the airlines have resumed talks. Last week, JetBlue CEO Robin Hayes said he was “encouraged” by recent discussions with Spirit.

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