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Our view: JetBlue buying Spirit puts Atlantic City flights in holding pattern

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JetBlue buyout of Spirit

Some analysts think JetBlue wants to buy Spirit to get its pilots and Airbus planes, the same as it flies. Recently a JetBlue A320, left, passed a Spirit A320 at Fort Lauderdale-Hollywood International Airport.

Money talked for shareholders and the best business deal for Spirit Airlines walked, starting a long period of uncertainty for Atlantic City’s only regularly scheduled carrier.

Frontier Airlines chairman Bill Franke, who had pioneered the successful ultra-low-cost model at Spirit, announced in February a plan to combine the two into a worth challenger to the four major U.S. airlines. We said at the time that would create a larger, stronger deep-discount airline likely giving Atlantic City International Airport connections to more destinations, fares among the lowest in the industry, and maybe bringing visitors flying to the resort city.

Spirit’s board agreed, but the management of JetBlue Airways launched an unwanted bid to acquire Spirit, offering to pay almost a billion dollars more for it. When Spirit shareholders indicated they preferred more cash to shares in a better airline business, Frontier abandoned its proposal. Last week, JetBlue agreed to pay $3.8 billion for Spirit.

Sharing a business model would have made it easier for Spirit and Frontier to consolidate and reduce costs further. Full-service carriers such as United Airlines spend almost twice what they do in costs per seat-mile, excluding fuel. JetBlue spending is closer to the premium airlines than the ultra-low-cost carriers, and it has said it will reconfigure Spirit planes to match its own roomier seating layouts.

A Heard on the Street column Friday in the Wall Street Journal talked about why JetBlue had overpaid for Spirit. One reason is that a prior attempt to grow by acquiring another airline had failed, leaving it desperate to succeed before anti-trust regulators stop further industry consolidation.

The column said finding enough pilots is helping drive decisions by airline executives these days. North American demand for pilots already exceeds their availability, following early retirements in the pandemic. Global supply will fall short of pilot demand in 2024, and a shortfall of 29,000 pilots on this continent is forecast by 2032. Spirit pilots fly the same Airbus planes as JetBlue the buyout would readily add staff and capacity.

Spirit and its low fares may simply disappear. Frontier shareholders think so and its stock took off as if it will now dominate the ultra-low-cost flight market. And if JetBlue’s purchase was a corporate raid for its parts rather than its business, service to Atlantic City may not fit the JetBlue model and disappear as well.

Perhaps the best outcome for South Jersey’s interest would be JetBlue failing to get federal anti-trust OK of its takeover of Spirit after months of struggle.

To get shareholders to agree to a deal making less business sense, JetBlue had to offer to pay something even if the deal is blocked. It will pay Spirit shareholders a prepayment of $2.50 per share when they approve the transaction; another 10 cents per share starting next year for each month it takes to win approval and close on the deal; and $70 million to Spirit and $400 million to Spirit shareholders if the deal doesn’t close.

Possible hostility to the deal is already indicated by a U.S. Department of Justice lawsuit against JetBlue. The government is seeking to block its alliance with American Airlines on service to the New York and Boston areas.

Whatever happens, there will almost surely be years of uncertainty for Atlantic City’s only scheduled airline service. That will discourage casinos and other businesses from plans that would depend on such service, and perhaps even efforts to further develop the airport and area around it.

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JetBlue Airways is buying Spirit Airlines for $3.8 billion in a deal that could increase competition at the top end of the U.S. airline industry while eliminating the largest discount airline for travelers on a tight budget. The agreement announced Thursday capped bidding war that began in April, and it came one day after Spirit’s attempt to merge with rival discount carrier Frontier Airlines fell apart. JetBlue and Spirit would become the fifth-largest U.S. carrier. The only major obstacle remaining is the U.S. Justice Department. Antitrust regulators in the Biden administration have been critical of mergers, which they believe hurt consumers by limiting competition. The Justice Department sued to block a partnership between JetBlue and American Airlines.

Spirit Airlines and Frontier Airlines agreed Wednesday to abandon their merger proposal, opening the way for JetBlue Airways to acquire Spirit. Spirit, the largest budget carrier in the United States, said it was still in discussions with JetBlue “and expects to provide a further update in the near future.” The decision by Spirit and Frontier to terminate their deal was announced while Spirit shareholders were still voting on the proposal. It was apparent that despite the support of Spirit’s board, shareholders were prepared to reject the Frontier deal. The Frontier offer was worth more than $2.6 billion in cash and stock, far short of JetBlue’s all-cash bid of $3.7 billion.

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