JetBlue Raises Takeover Bid. Web Data Provides Context

Spirit shareholders to vote on Frontier merger June 10: A look at both sides

On June 6, JetBlue Raised its bid for Spirit Airlines to $31.50 from $30.00. Here’s an analysis of the proposed deal, in the context of Similarweb traffic estimates.

• JetBlue-Spirit would have 29 million monthly website visitors, still trailing network carriers Delta (37.6 million), United (34.1 million) and American (51.3 million), and trailing leader Southwest (52.9 million), by a wide margin, according to Similarweb estimates
• Frontier-Spirit would have 21 million monthly visitors, surpassing JetBlue and Alaska
• Why is Spirit balking at the deal with JetBlue?
  • It would lose brand identity, while the Frontier deal may make more strategic sense
  • Worries about regulators blocking the deal might be overblown

JetBlue-Spirit merger seems to make little sense

A combination of JetBlue and Spirit seemingly would not do much to improve JetBlue’s competitive position against the large network carriers or Southwest, but could allow it to have a broader product assortment to grow its customer base, particularly as inflation rises. Jetblue-Spirit would have monthly website visitors of about 29 million, still trailing the big four airlines by a wide margin.

Spirit argues that the proposed deal would have a difficult time getting past regulators, but JetBlue has offered a large breakup fee if this happens. Notably, the proposed deal could put JetBlue’s existing partnership with American Airlines in jeopardy. Jetblue and Spirit have differing operating models, with the latter being a no-frills low price leader, while JetBlue has a more traditional airline offering with different seating classes and generally higher pricing.

JetBlue could be trying to spoil Spirit’s proposed merger with Frontier, which does have some compelling benefits (discussed below). JetBlue is urging Spirit shareholders to vote no on the merger with Frontier, which values Spirit significantly lower (cash and stock at a value of $21.39 a share, based on Frontier’s stock price on June 6). As a reminder, the Frontier merger would be for 1.9126 shares of Frontier plus $2.13 in cash.

One thing that the JetBlue-Spirit merger would improve is JetBlue’s conversion rate (the percentage of website visitors that make a purchase). Both Spirit and Frontier have significantly better conversion metrics than JetBlue, possibly owing to more customers booking directly with those carriers, versus use of online travel agent (OTAs) or an airline booking service like Sabre. Direct bookings are more profitable for airlines, so a move to more direct conversions (spell out) could help operating margins over time. Below is a look at relative conversion rates for JetBlue, Spirit, Frontier and Alaska since January 2020.

Proposed Spirit-Frontier combo would move to fifth place in share of airline traffic

According to Similarweb estimates for the past three months (through April), Spirit Airlines website (spirit.com) is the sixth most-visited airline website in the United States with a 2.7% share of total travel-related website traffic (and 5.3% share of traffic among the top ten U.S. airlines), while Frontier Airlines site (flyfrontier.com) is ranked eighth, with a 2.1% share of traffic (4.1% of top ten). As a percentage of traffic among the top ten U.S. airlines, the combination would have a 9.4% share.

While the merger would create the fifth largest U.S. airline in terms of revenues and passengers, it’s also notable that the combined share of web traffic for the two would rank the combined company as the fifth largest in terms of total web visits, behind Southwest (23.5% of traffic among top ten U.S. airlines), American (21.3%), Delta (15.4%) and United (13.5%).

While the big four (Southwest, American, Delta, United) would still have a large lead over the rest of the pack, a combined Spirit-Frontier would clearly be the leading low-cost airline in terms of share of airline web traffic, ahead of JetBlue (6.9%) and Alaska (5.1%). Synergies and economies of scale in costs–from personnel to marketing– could allow the combined entity to offer even more competitive prices.

Spirit and Frontier would overtake JetBlue and Alaska in website traffic

Since January 2020, the five airlines we looked at in a previous report (Alaska, Allegiant, Frontier, JetBlue and Spirit) have all tracked industry trends in overall website traffic – with a big crash in volume from March-April 2020 at the start of the pandemic, followed by a slow recovery over time through summer 2021 and a seasonal dip in the fall. It does not appear that any change in customer sentiment took place over that time period, despite the rise of the delta and omicron variants. However, it does look likely that the combination of Spirit and Frontier’s monthly website traffic would dominate the traffic levels of both Alaska and JetBlue.

With a combined 187 routes (before likely network rationalization) the combined Spirit-Frontier would leapfrog JetBlue (100) and Alaska (115) on that metric as well. Of course it is possible that the airlines could cannibalize each other’s website traffic to some extent, but given the increase in size and scale of the combined airlines, overall cannibalization is likely to be relatively limited. We look below at trends for deduplicated audience, which eliminates duplicate visitors and duplicate devices to give a good estimate of the total audience at each company’s website over time.

Spirit would lose brand identity, and autonomy if bought by JetBlue

One notable part of the JetBlue takeover bid is that it contemplates operating all Spirit aircraft under the JetBlue name, effectively wiping out Spirit’s brand identity. In effect for JetBlue this is a big purchase of routes, planes and pilot contracts without taking on Spirit’s operating strategy or brand. Under the proposed Frontier deal, Spirit retains its brand identity and remains in charge of its strategy and operations. This may be a big reason why Spirit is balking at the deal.

Getting a deal past regulators might be tough, but should be possible

Another reason Spirit is using for fighting against acquisition by JetBlue is that it will be tough to get the proposed deal past regulators. However, the Department of Justice (DOJ) has approved bigger mergers than this in both the airline and non-airline space, including the recent T-Mobile/Sprint tie-up and the past merger of American Airlines and US Airways in the airline space, which created a much bigger market share change than the proposed JetBlue-Spirit combination.

The charts above show U.S. airline market share (based on Similarweb data on website traffic) currently (April 2022) and after a potential combination between JetBlue and Spirit. The industry remains overwhelmingly dominated by the big four airlines, and an argument can be made that the deal increases the competitiveness of JetBlue versus peers. We think the deal can pass regulatory muster with the potential diversification of some overlapping slots. The argument that the deal cannot be approved does not hold water in our view.

How far is JetBlue willing to go?

JetBlue’s cash offer is a significant improvement over the contemplated value of Spirit in the Frontier merger ($21.39) and is also a lot higher than the close of Spirit’s stock on Friday May 13 (prior to the announcement of the hostile bid) of $16.35. JetBlue is also offering a $350 million reverse break-up fee if the deal gets denied by government regulators, while Frontier is offering a $250 million break up fee. The higher value in the deal could prove too compelling for stockholders. It will be interesting to see what happens if shareholders do vote “No” on the merger with Frontier, which may be JetBlue’s ultimate goal all along.

Conclusion

The hostile bid JetBlue made for Spirit Airlines does not seem to make a lot of sense strategically but could be a move to block Spirit’s merger agreement with Frontier Airlines.

JetBlue would gain share of web traffic by buying Spirit, but would not significantly close the gap with the big four carriers. A deal between Spirit and Frontier would push them past JetBlue in terms of web traffic, and could create a powerhouse low cost carrier.

The Similarweb Insights Newsroom is available to pull additional or updated data on request for the news media (journalists are invited to write to press@similarweb.com). When citing our data, please reference Similarweb as the source and link back to the most relevant blog post or similarweb.com/blog/insights/.

Methodology

Disclaimer: All data, reports and other materials provided or made available by Similarweb are based on data obtained from third parties, including estimations and extrapolations based on such data. Similarweb shall not be responsible for the accuracy of the materials and shall have no liability for any decision by any third party based in whole or in part on the materials.

by Jim Corridore

Senior Analyst

Jim provides insights across multiple sectors. With 30 years on Wall Street and numerous awards for stock-picking, he is a SUNY Albany graduate.