JetBlue is buying Spirit for $3.8 billion after bidding war

JetBlue Airways is buying Spirit Airlines for $3.8 billion in a deal that could increase competition at the top end of the U.S. airline industry while eliminating the largest discount airline for travelers on a tight budget.

The agreement announced Thursday capped bidding war that began in April, and it came one day after Spirit’s attempt to merge with rival discount carrier Frontier Airlines fell apart.

JetBlue and Spirit would become the fifth-largest U.S. carrier, with about 9% of the market. The combined airline would move much closer to the leaders — American, United, Delta and Southwest — while leaving the rest of the pack far behind.

The only major obstacle remaining is the U.S. Justice Department. Antitrust regulators in the Biden administration have been critical of mergers, which they believe hurt consumers by limiting competition. The Justice Department sued to block a partnership between JetBlue and American Airlines.

JetBlue’s case for regulatory approval rests on two main arguments: JetBlue says its reputation for lowering fares, together with the size of a JetBlue-Spirit combination, mean it could force bigger airlines to cut prices. And JetBlue has already volunteered to give up Spirit gates and takeoff and landing slots at airports in New York and Boston that could be given to smaller low-cost airlines, which would boost competition.

“The real issue here though is clearly what can we do in the U.S. to make a more competitive airline industry against the large, big four airlines,” JetBlue CEO Robin Hayes said in an interview. “We believe the most disruptive, the most effective thing that we can do is build a bigger JetBlue more quickly than we otherwise could.”

New York-based JetBlue won Spirit, but its stock barely moved Thursday and has dropped 43% since it jumped into the bidding in April. Other large airlines lost 17% to 28% in the same period.

Shares of Spirit, based in Miramar, Florida, rose 5.6% to close at $25.66, nearly $8 below the price that JetBlue is paying.

Frontier, now positioned to become the largest U.S. discount carrier, soared 20.5% higher.

“I think shareholders are seeing this as a windfall. To be the low-cost carrier in the United States is huge,” said Frontier CEO Barry Biffle, who just spent nearly six months trying to merge his Denver-based airline with Spirit.

Spirit CEO Ted Christie was thrust into the awkward position of defending a sale that he fought against until the end. After arguing since April that regulators would never let JetBlue buy Spirit, he struggled Thursday to explain why he changed his mind.