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Spirit Board Rejects JetBlue Takeover Offer On Antitrust Risks

By Dave Simpson

Ultra low cost carrier Spirit Airlines SAVE.N has rejected JetBlue Airways Corp's JBLU.O $33-per-share takeover offer, saying that it had a low likelihood of winning approval from government regulators.

Details

Spirit shares fell 9.4% to $21.40 on Monday 2 May, suggesting that investors agreed that the current JetBlue bid would fail.

Frontier ULCC.O and JetBlue have been in a battle for Spirit, arguing that a merger with Spirit would help them better compete with legacy carriers, or the "big four" airlines that control nearly 80% of the US passenger market.

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JetBlue on Friday 29 April had "enhanced" its offer for Spirit - but not its $33 per share price - and promised a $200 million reverse break-up fee - or $1.80 per Spirit share - if the deal does not go through for antitrust reasons. JetBlue disclosed the new offer on Monday 2 May.

JetBlue's offer is significantly higher than the current roughly $21.66 per share value of the cash and stock bid that Frontier made in February. Frontier told employees the Spirit board rejection of JetBlue's offer was "good news – we are moving ahead with our combination with Spirit."

Frontier shares fell 3.8% and JetBlue shares rose 2.6% to $11.30 on Monday 2 May.

H. McIntyre Gardner, chair of the board of Spirit, said in a letter to JetBlue that given "substantial completion risk, we believe JetBlue's economic offer is illusory, and Spirit's board has not found it necessary to consider it."

One of their concerns is that JetBlue is already embroiled in an antitrust lawsuit with the government. The Justice Department sued in September to unwind JetBlue and American Airlines' "Northeast Alliance" partnership, alleging the agreement would lead to higher fares in busy northeastern US airports.

"We believe a combination of JetBlue and Spirit has a low probability of receiving antitrust clearance so long as JetBlue's Northeast Alliance (NEA) with American Airlines remains in existence," Spirit said in the letter to JetBlue chief executive officer Robin Hayes on Monday 2 May.

The Justice Department declined to comment.

Spirit also said it believes the Justice Department and a court "will be very concerned that a higher-cost/higher fare airline would be eliminating a lower-cost/lower fare airline in a combination that would remove about half of the ULCC (ultra low cost carrier) capacity in the United States."

Antitrust experts said that they would not be surprised to see the Justice Department, which normally reviews aviation deals, challenge either of the potential mergers involving Spirit.

"This current administration is more hostile to merger activity generally," said Henry Su of the law firm Bradley Arant Boult Cummings LLP.

Andre Barlow of Doyle, Barlow and Mazard PLLC agreed, saying: "This is a budget (aviation) market and the two most significant competitors will be combining if the DOJ does not challenge the transaction."

JetBlue said on Monday that it would offer a remedy package to address regulatory concerns "that includes the divestiture of all Spirit assets in New York and Boston so that JetBlue does not increase its presence in the airports covered by the NEA. The package would also include gates and assets at other airports, including Fort Lauderdale."

Hayes told Reuters in early April he believed the court challenge over the NEA would be resolved before the Justice Department determined the fate of a JetBlue Spirit tie-up. [nL3N2W329X]

Spirit Says JetBlue's $33-Per-Share Takeover Offer Not 'Superior'

The above news followed news that ultra low cost carrier Spirit Airlines SAVE.N said on Monday 2 May that its board has determined JetBlue Airways Corp's JBLU.O $33-per-share takeover offer is not a "superior proposal".

JetBlue Shares Fall As Airline Cuts Summer Flight Schedule

All of the above news followed news that JetBlue Airways JBLU.O shares fell 11% on Tuesday 26 April after the carrier said that it will trim its summer schedule to address a series of challenges ahead of what could be a record US travel season as the COVID pandemic recedes.

US airlines are working to aggressively ramp up hiring as they prepare for an expected spike in summer travel demand. Since September, several major US airlines have been forced at times to cancel hundreds or thousands of flights after severe weather disruptions, particularly in Florida.

JetBlue said it is reducing its originally planned summer schedule by more than 10%, and scheduled aircraft utilization will be down 10-15% from 2019.

JetBlue said it plans to grow capacity 0-5% from 2019 levels, down from its original plan for 11-15% growth. JetBlue cited the impact of surging costs for jet fuel.

JetBlue chief executive Robin Hayes told Reuters that the new plan builds more flexibility into its schedule after acknowledging the airline "let down" customers and crew members with its performance in April and "we knew we had to do a significant reset ahead of the summer so we can deliver a more operable, reliable operation."

Earlier this month, the airline canceled hundreds of flights and saw hundreds more delayed after weather and air traffic controls delays.

"We need to plan for worse attrition than we are necessarily seeing," Hayes said. "We have to be ready for longer delays....We need to put buffers across our whole airline."

JetBlue President Joanna Geraghty told investors on Tuesday 26 April that operations have been slammed by severe weather compounded by air traffic control challenges "particularly across Florida and the Northeast." In total, 45% of JetBlue flights touch Florida.

The Federal Aviation Administration (FAA) said on Tuesday 26 April it will host a two-day meeting with airlines "to discuss ways to increase the efficiency of the existing airspace structure" around congested Florida airspace.

Delays to Florida flights have been exacerbated in recent months by a higher number of operations in nearby military airspace, more frequent thunderstorm activity and stepped-up space launches, the FAA said.

Spirit Airlines Trims Spring, Summer Schedule To Avoid Disruptions - WSJ

All of the above news followed news that Spirit Airlines Inc SAVE.N will cut back on flights in the coming months in a bid to avoid any weather-related disruptions as airlines struggle to meet a spike in demand, The Wall Street Journal reported on Tuesday 19 April.

The move aligns Spirit with carries like JetBlue Airways JBLU.O and Alaska Air Group, which have announced cuts to their summer schedule to avert flight disruptions.

US airlines are enjoying the strongest travel demand in three years as people take to the skies with an easing of the COVID-19 pandemic. Passenger traffic has been averaging approximately 89% of the pre-pandemic levels since mid-February, according to official data.

But Spirit, which has received buyout offers from JetBlue and Frontier Group Holdings ULCC.O, has struggled with weather-related issues and was forced to cancel more than a third of its flights on 4 April.

The Journal report said that the low-cast airline plans to reduce flying by 5% to 6% in June after making smaller adjustments in April and May. Spirit will carry its new June schedule through 9 August, the report added.

The carrier did not immediately respond to a Reuters request for comment.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

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