Everyone has been waiting for the results of the Spirit vote on the Frontier merger for weeks now. After multiple delays, this is done. Spirit shareholders have given a big middle finger to Frontier, wooed away by dreams of JetBlue’s money. The deal as it stands now is dead. Some may assume this means JetBlue will take over Spirit, but that is not necessarily the case. The saga will continue, though it might end very, very soon if reports are to be believed.
When Spirit announced the deal with Frontier, it seemed like it would pass easily. After all, you combine the two and you have a powerhouse of ultra low cost carrier (ULCC) muscle blanketing the US with no airline even a close second. Bill Franke, the money man behind the rise of both Spirit and Frontier in the ULCC space, was the architect of the deal, and he wouldn’t even announce a leadership team. He was in the left seat, had set auto-pilot, and was ready to go.
Then, another airplane t-boned his. JetBlue came in with a very rich offer, and it just kept increasing it. Spirit’s board and management team stuck steadfastly behind the Frontier deal. They never wavered even though the shareholders who actually get to make the final decision felt differently.
Spirit hung its hat on the Frontier deal saying that it was a sure thing. The airline anticipated no trouble getting through regulatory review, and it saw huge upside in the combined airline’s future share price. Since there is no such thing as a genie that can grant you a wish, this was a stretch. There’s no way to predict what a stock price will do.
Shareholders started grumbling early, and Spirit began scrambling. It miraculously got Frontier to up its bid, something I didn’t expect would happen. That seemed like it might seal the deal until JetBlue upped its bid again since it was hellbent on winning. Shareholder sentiment turned back against the Frontier deal, and after multiple delays and confirmation from Frontier that it would not up its offer again… the deal was finally shot down yesterday.
This, it should be clear, does not mean that the JetBlue deal is done by any stretch. Instead, it means the Frontier deal in its current form is dead. Now it goes back to the Spirit board to decide where to go next. It probably does not like its options.
The most obvious path forward is to merge with JetBlue. This is likely the best outcome for the airline, assuming JetBlue doesn’t pull one of these….
Frankly, I don’t see why JetBlue would pull this anyway. It doesn’t seem to have a future strategy other than “buy airline with lots of airplanes.” That will keep it busy for years instead of having to fix its own issues and create an organic growth strategy. Besides, if it backed off now, Frontier would probably just come right back in and have little trouble getting its original deal approved with no other credible offer on the table.
So then the question will come down to Spirit’s board once again. Does it go with JetBlue or does it decide to go it alone? I don’t even think there is an option. Spirit’s board and management has completely and totally backed the Frontier deal without wavering. The shareholders want none of that. How could these people keep their jobs when the owners of the company don’t think they have the best interests of the shareholders in mind? It could get ugly.
The easy out here is to sell to JetBlue, collect the money, and then go away completely as JetBlue absorbs the operation. Anything else would presumably result in the board being ousted.
It’s too early to say that the JetBlue acquisition will or will not happen for sure, but if it does, how will this play out? There are some clear winners and losers here. This is how I see it, in order.
Winners
- Frontier, which becomes the largest ULCC and has its primary competitor taken out completely
- Spirit shareholders, who get a boatload of money
- Pretty much every other airline that had any overlap with Spirit and no longer will face those low costs
- Lawyers and bankers because they always come out winning
- JetBlue senior management, which no longer has to come up with an actual strategy for a few more years while they’re busy digesting the merger
Losers
- Everyone else at JetBlue because it will now be able to continue floundering, burdened by a large merger
- Travelers who like Spirit’s low fares… at least until Frontier moves into the routes Spirit will abandon
- Spirit senior management and board because they are out of a job, but they’re richer
- American because its Northeast Alliance with JetBlue is now in grave danger
I haven’t understood this JetBlue deal since the beginning, but it’s a lot of money and it saves the Spirit board from having to face a shareholder revolt. Now, we just have to wait and see if it gets done or if there is another path that unfolds.
