What the JetBlue and Spirit merger could mean for budget travelers – Business Traveler USA | Gmx Pharm

The recent merger is changing the course of the airline industry

Last week, Spirit Airlines ended a months-long merger battle, abandoning its original deal with rival low-cost carrier Frontier Holdings in favor of a $3.8 billion cash offer from JetBlue Airways.

The breakneck tipping point came on July 27, when Spirit canceled the merger agreement with Frontier and announced the next morning that it had accepted JetBlue’s offer.

Currently, JetBlue is the country’s sixth-largest airline in terms of passenger miles, while Spirit is the seventh-largest, according to the Bureau of Transportation Statistics. Frontier is right behind both in eighth place.

A combination of Spirit with either JetBlue or Frontier would create the fifth largest airline in the US, according to industry analysts. But a merger of Frontier-Spirit would likely have underscored the similar business models of the two airlines, which are looking for synergy in the no-frills, low-fare space.

However, Spirit is a fundamentally different airline than JetBlue, both in concept and execution. Spirit’s acquisition will likely produce an airline with an ethos that’s JetBlue through and through.

For one thing, the idea of ​​backless seats and price premiums for everything is unlikely to survive the transition to JetBlue’s more consumer-centric — and pricier — products.

The merger likely spells the end of Spirit as a brand, and with it the airline’s 30-plus year history of ultra-low fares, prompting fear among budget carriers who see $27 one-way trips from, say, Newark to Nashville evaporating.

Still annoying

But for now, at least, the two are touting their low-cost credentials and citing every airline’s history of disrupting legacy airlines’ fare structures. “Spirit and JetBlue will continue to advance our shared goal of disrupting the industry to lower fares on the Big Four airlines,” JetBlue CEO Robin Hayes said in a statement.

Spirit CEO Ted Christie called the deal a “game changer,” adding that the deal “would create the most compelling domestic low-fare challenger to the dominant US airlines.”

The Big Four control around 80 percent of the domestic market. Normally, when low-cost airlines like Spirit and Frontier enter a market dominated by one or more of the larger airlines, competition tends to drive fares down. Consumer groups complain that airline mergers have historically removed this downward pressure and travelers end up paying more.

Enter the Department of Justice, which has the power to block mergers and acquisitions. Given President Joe Biden’s mandate when he took office that his administration look more closely at the impact of mergers on consumers, it’s a good bet that this merger will come under scrutiny.

That’s already the case in JetBlue’s other major antitrust dispute, the DoJ’s lawsuit over the airline’s Northeast Alliance with rival American Airlines.

While the loss of a low-cost competitor in the market could contribute to rising airfares, Henry Harteveldt, president of travel consultancy Atmosphere Research, told NBC News that the presence of an even bigger low-cost carrier catering to budget travelers could put pressure on larger carriers.

“What makes me feel better about this merger is that JetBlue already has a strong value proposition,” Harteveldt said.

A winner of the disruption could be Frontier. While the airline expressed disappointment at being on the losing side of the deal, it said in a statement, “As JetBlue seeks to transform Spirit Airlines into a high-price airline, Frontier will be unmatched as an ultra-low-cost leader.”

planes and people

Another way to look at the upcoming JetBlue Spirit nuptials is less as a marriage where complementary routes and services would be streamlined for efficiency and more as a fortune-making.

“Historically and traditionally, airline mergers have involved combinations of route systems and passenger flows,” said Michael Boyd, president of airline analysts The Boyd Group International. Spirit’s JetBlue acquisition “probably doesn’t play much at all.”

Instead, he said, “The value for JetBlue is not what Spirit wears. Instead, it’s what they fly – aircraft and, more importantly, a willing pool of pilots.” The acquisition of Spirit’s existing fleet of around 180 Airbus 300 Family aircraft at a cost of US$100 million per Piece and another 140 in the order books suddenly makes the price of 3.8 billion US dollars no longer seem so outrageous.

Taken together with a willing workforce of nearly 9,000 employees, the deal looks more like a “compelling combination that will fuel our strategic growth,” as JetBlue’s CEO Hayes put it.

Still, it takes time and money to refit all of these Airbuses in JetBlue livery, install more comfortable seats, and retrain crews. Plus, the marriage has yet to be blessed by skeptical regulators, and in the current environment, that’s hardly a guaranteed outcome. Nevertheless, the companies are optimistic that the transaction can be completed in the first half of 2024.

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