JetBlue Wins! Agrees to Buy Spirit Airlines for $3.8 Billion in Cash

Will the combination bring benefits?

On July 28, JetBlue announced that it had reached an agreement with Spirit Airlines to buy the discount carrier for $3.8 billion in cash ($33.50 a share). Just the day before, Spirit canceled its merger agreement with Frontier Airlines, which had made an inferior offer to JetBlue (lower total value in cash and stock). The deal would keep JetBlue solidly positioned as the fifth largest U.S. airline (based on Similarweb data on web traffic) while eliminating a destructive price competitor.

The deal adds pilots and planes and eliminates competition, but does not seem to be large enough or anticompetitive enough to be blocked by regulators.

Key takeaways

• Spirit-JetBlue could have 30 million monthly website visitors (assuming no cannibalization), still lagging behind Southwest (59 million) American (54 million) Delta 42 million) and United (40 million).
• The total market share among the top ten airlines would be 12%, approaching United’s 14.6%, but still lagging Southwest (24%), American (21%), and Delta (16%)
• Total aircraft in service would grow by about 62%
• Blocks merger of Spirit and Frontier, which would have overtaken JetBlue in market share

Spirit-JetBlue Combo Would Remain Solidly in Fifth Place in Share of Airline Traffic

According to Similarweb estimates for June 2022, Spirit Airlines website (spirit.com) is the sixth most-visited airline website in the United States with a 5.1% share of traffic among the top ten U.S. airlines, while JetBlue (jetblue.com) is ranked fifth, with a 6.9% share of the top ten. As a percentage of traffic among the top ten U.S. airlines, the combination would have a 12% share.

The merger would help Jetblue close the gap with larger peers, but would not change its total positioning among the top ten airlines. The company would remain behind Southwest (23.5% of traffic among the top ten U.S. airlines), American (21.3%), Delta (15.4%), and United (13.5%).

 Deal Grows JetBlue’s customer base and adds much-needed pilots and aircraft

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 30 million, still trailing the big four airlines by a wide margin. What the deal does provide is a much-needed addition of pilots and other staff in shortage and the addition of aircraft to JetBlue. JetBlue’s fleet of roughly 280 planes would grow by 62% with the addition of Spirit’s 173 planes, a total of about 453. Spirit also has 120 Airbus aircraft on order through 2027.

Given the severe shortage of pilots and other critical staff, one of the main benefits of the merger could be some breathing room on pilot shortages, which could help maintain schedule integrity and airline performance.

Below is a look at the market share prior to and after the deal.

Regulatory approval is not a certainty

Spirit had previously argued that the proposed deal would have a difficult time getting past regulators, and 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, or at the very least, changes to this partnership will probably have to occur to allow the acquisition to take place.

JetBlue and Spirit have different 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’s main intention could have been to spoil Spirit’s previously proposed merger with Frontier, which it has now accomplished. A Spirit-Frontier merger would have overtaken JetBlue as the fifth largest airline while maintaining the ultra low-cost carrier model and allowing for more growth potential in the low-cost market. With Spirit likely to be subsumed by Jetblue, it loses its corporate identity and a large discounter leaves the market. Fares are likely to rise over time but even given that, we fail to see how regulators can block the deal, given the existence of four larger competitors.

Conclusion

JetBlue’s proposed acquisition of Spirit would eliminate the Spirit name and likely mean higher prices for consumers. Spirit has been a price destructor in the industry and the rest of the competitors will no longer have to match these basic economy fares. But we also do not see a compelling reason for regulators to block the deal, based on the number of remaining competitors and the small market share of the combined entity.

The Similarweb Insights team 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.