Merger vote at Spirit could reshape discount airline market: Travel Weekly

DALLAS (AP) — The prospect of a Spirit Airlines takeover threatens to upend the industry’s low-fare segment, just as a series of major airline mergers have narrowed choices for travelers.

Spirit is the largest low-cost airline in the United States, but its days as a standalone company seem numbered. The big question is whether it’s being sold to another discounter Frontier Airlines or to JetBlue, which operates more like the big four that dominate the US airline industry.

Late Wednesday, Spirit postponed a shareholder vote on a merger with Frontier from Thursday until July 8. Spirit said it would use the extra time to continue talking to Frontier and JetBlue Airways about their rival offers for Spirit.

The result could determine how many choices travelers have for the lowest fares. This is particularly important for leisure customers, Spirit’s target group.

Spirit shareholders are considering a stock and cash offer from Frontier that is currently worth about $22 per share, or $2.4 billion, and would give Spirit shareholders 48.5% of the combined airline. Spirit’s board continued to support the deal in the face of a hostile bid from JetBlue worth $33.50 per share, or $3.6 billion.

JetBlue claims that its all-cash offer is financially superior. Frontier argues its proposal will be better for Spirit shareholders in the long run, assuming airline stocks return to pre-pandemic levels.

The two covet Spirit because of its relatively young fleet of more than 170 planes and some 3,000 pilots – even more valuable during a pilot shortage that could last most of this decade.

Antitrust regulators are sure to scrutinize either transaction carefully. Both Frontier and JetBlue say consumers will benefit if they win the Spirit competition. A Frontier-Spirit combination would operate around 5% of the nation’s flights, and JetBlue plus Spirit would operate more than 7%, based on July schedules, making either a stronger competitor to American, United , Delta and Southwest.

People who follow the industry closely are split on which offering would help consumers the most. Those who prefer a Frontier-Spirit deal point out that the two are “ultra-low-cost carriers” that charge very low fares – although they add many fees. They say JetBlue is too much like the big airlines.

“You either end up with another big, high-cost regular-fare airline (with JetBlue) or a truly national ultra-low-cost carrier that’s twice the size of anything out there today,” says Robert Mann, a longtime airline executive and consultant. Consumers, he said, “should seek out the pursuit of a true austere low-cost environment with the Spirit-Frontier combination.”

Scott Keyes, the founder of travel site Scott’s Cheap Flights, doesn’t like either offering, “but I like the JetBlue option even less.”

Keyes said removing a competitor always tends to increase fares, but the impact won’t be as severe if the buyer is another low-cost airline like Frontier.

“Even if you never fly with Spirit or Frontier, you still owe them a debt of gratitude for making your Delta or American flight cheaper than it otherwise would be,” he said.

Spooked by the growth of budget airlines, major carriers have started selling “Basic Economy” fares in recent years, although they limit the number of discount seats on each flight.

JetBlue CEO Robin Hayes contradicts a decade-old study by MIT researchers that found that JetBlue flying a particular route did more to reduce prices than low-cost airline service, which represents a small part of the market. He used to call it “the JetBlue effect”.

Michael Linenberg, an airline analyst for Deutsche Bank, said if JetBlue succeeds in buying Spirit, some of the cheaper fares could go away, but a larger JetBlue could replace them with seats that appeal to other types of passengers. travellers. He pointed to JetBlue’s “Mint” business class service, which has been so successful on transcontinental flights that it has forced bigger rivals to cut prices for their premium seats.

“It’s not just about meeting the needs of people who want to pay $29 or $59. There are segments of passengers that JetBlue will serve that Frontier and Spirit don’t,” Linenberg said. “There’s going to be plenty of seats there, and it’s not like JetBlue is going to stop offering low fares.”

Savanthi Syth, airline analyst for Raymond James & Associates, said any loss of budget seats after a JetBlue-Spirit deal will be temporary as other budget carriers, including Frontier, expand.

“Frontier has the backlog (of new planes) to step in and pick up what Spirit leaves behind,” she said.

It’s even harder to predict whether a Spirit sale will make a big difference in customer service.

Spirit had the highest rate of consumer complaints to the government in the Department for Transport’s latest figures, covering April, and finished in the bottom five of the past seven years.

Neither of the two potential buyers seems likely to improve Spirit’s poor balance sheet. Frontier had the worst complaint rate the other two years, and JetBlue’s rate last year was higher than everyone but Spirit and Frontier.

Several mergers between 2008 and 2013 – Delta bought Northwest, United absorbed Continental, Southwest bought rival low-cost carrier AirTran, and American and US Airways combined – left four airlines to control 80% of the US market and ushered in several years of airfares rising faster than inflation. The pace of consolidation then slowed, with only one major transaction, the acquisition of Virgin America by Alaska Airlines in 2016.

Airline industry officials believe antitrust regulators would block American, United, Delta or Southwest from recruiting rivals, but that doesn’t rule out further consolidation. Some analysts say a merger of JetBlue on the east coast and Alaska on the west would make sense. Small players Allegiant Air, Sun Country and startups Avelo and Breeze could become takeover targets at some point.

“In the ultra-low-cost space, we probably have too many players. I think we’ll see consolidation,” said Linenberg, an analyst at Deutsche Bank. “Do we need eight, nine or 10 airlines flying from New York to Fort Lauderdale?

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