Spirit Merger Vote Could Reshape Discount Airline Market | business news

By DAVID KOENIG, AP Airlines Writer

DALLAS (AP) — The prospect of an acquisition of Spirit Airlines threatens to upend the industry’s low-fare end, just as a series of mergers between major airlines has reduced options for travelers.

Spirit is the largest budget airline in the United States, but its days as an independent company seem numbered. The big question is whether it will be sold to fellow discounter Frontier Airlines or to JetBlue, which operates more like the four giants that dominate the US airline business.

The result could determine how many options travelers have for the lowest fares. That’s particularly important for leisure customers, the group Spirit is targeting.

Spirit shareholders are scheduled to vote Thursday on whether to approve a Frontier stock-and-cash offer that is currently worth about $22 per share, or $2.4 billion, and gives Spirit shareholders 48.5% of the combined airline. . Spirit’s board has continued to support the deal in the face of a hostile offer from JetBlue worth $33.50 per share, or $3.6 billion.

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

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

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

People who closely follow the industry are divided on which deal would help consumers the most. Those who prefer a deal with Frontier-Spirit point out that both are “very low-cost airlines” that charge very low fares, although they add a lot of fees. They say that JetBlue has become too much like the larger airlines.

“You end up with another big, high-cost, regular-fare airline (with JetBlue), or you end up with a truly domestic ultra-low-cost airline that’s twice as big as anything else today,” says Robert Mann, CEO and consultant. of airlines for a long time. Consumers, he said, “should look for a continuation of the austere environment and really low rates with the Spirit-Frontier combination.”

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

Keyes said cutting out a competitor always tends to increase fares, but the impact won’t be as bad if the buyer is another budget airline like Frontier.

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

Spooked by the growth of discount airlines, the largest airlines have started selling “Basic Economy” fares in recent years, though they limit the number of bargain seats on each flight.

JetBlue CEO Robin Hayes counters with a decade-old study by MIT researchers that found JetBlue flying a particular route did more to drive down prices than service from low-cost airlines, which account for a small market share. He has taken to calling it “the JetBlue effect.”

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

“It’s not just about catering to people who want to pay $29 or $59 fares. There are passenger segments that JetBlue will serve that Frontier and Spirit will not,” Linenberg said. “There are going to be plenty of seats available, and JetBlue won’t stop offering low fares.”

Savanthi Syth, an airline analyst at Raymond James & Associates, said any loss of cheap seats after a JetBlue-Spirit deal will be temporary because other budget airlines, notably Frontier, will grow.

“Frontier has the order book (for new planes) to step in and pick up what Spirit leaves behind,” he 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 latest figures from the Department for Transport, which covers April, and has finished in the bottom five of the last seven years.

None of the potential buyers seem likely to improve on Spirit’s poor track record. Frontier had the worst complaint rate of the other two years, and JetBlue’s rate last year was higher than all 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 in control of 80% of the US market and ushered in several years of air fares. rising faster than inflation. Then the pace of consolidation slowed, with only one major deal, Alaska Airlines’ acquisition of Virgin America in 2016.

Airline industry officials believe antitrust regulators would prevent American, United, Delta or Southwest from taking on any 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. Smaller 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 will see consolidation,” said Linenberg, an analyst at Deutsche Bank. “Do we need eight or nine or 10 airlines flying from New York to Fort Lauderdale?”

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