Frontier Group Holdings, Inc., parent company of Frontier Airlines, Inc., today issued the following statement regarding Frontier’s proposed merger with Spirit.
Over the last few weeks, JetBlue has proclaimed that Spirit management is hiding behind “false” and “misleading” antitrust concerns so as to deny JetBlue the right to take over—and erase from existence—the nation’s largest ultra-low-cost carrier.
JetBlue is not telling you the truth. A Spirit acquisition by JetBlue would lead to a dead end—a fact that no amount of money, bluster, or misdirection will change. And the only value Spirit stockholders would be likely to receive from JetBlue’s proposal is the reverse termination fee, because JetBlue’s proposal lacks any realistic likelihood of obtaining regulatory approval.
JetBlue admitted that it will permanently remove capacity from the market by retrofitting Spirit’s fleet to remove seats. Antitrust lawyers call that an “output restriction,” and it is fatal to JetBlue’s bid. So are JetBlue’s admitted price increases. Less airline capacity means higher fares. JetBlue’s CEO, Robin Hayes, certainly knows that. He observed just a few days ago, “The average price of air fares will go up because there is [sic] less seats.” That is exactly what JetBlue would do with Spirit’s fleet. Indeed, in announcing its bid on April 6, JetBlue said that the acquisition would increase its profit margins, despite higher costs.
These facts—admitted higher prices and lower output—guarantee that JetBlue could never secure clearance for its proposed acquisition of Spirit. No claimed “divestitures” of airport slots or gates, or false claims or gimmicks, can fix JetBlue’s fatal problems.
And these are not even JetBlue’s only regulatory problems. The anticompetitive rationale for its bid is obvious. JetBlue even admitted it, stating in its 2021 10-K that the Frontier/Spirit deal is a threat to JetBlue’s “competitiveness”—and an example of a merger that “could cause fares of our competitors to be reduced.” Mr. Hayes later conceded that “the timing” of JetBlue’s bid was “definitely driven by the announcement” of the proposed ULCC merger.
Then there is the U.S. Department of Justice’s pending lawsuit against JetBlue to block its Northeast Alliance with American Airlines. Despite assuring everyone—including Spirit shareholders—that a transaction would spread the mythical, so-called “JetBlue Effect,” Mr. Hayes previously admitted the DOJ’s reason for bringing the NEA lawsuit: “DOJ believes that American’s influence will bring an end to the “JetBlue Effect.” The DOJ has therefore already disputed JetBlue’s arguments for a transaction. And, contrary to Mr. Hayes’ assertion that the NEA litigation will be resolved shortly—and thus will have no effect either way on the JetBlue/Spirit acquisition—it will surely take years to resolve the NEA litigation, through trial and all inevitable appeals. While Spirit shareholders wait for what, exactly? A break-up fee, years later, out of the illusory JetBlue bid?
For weeks, JetBlue has filled the airwaves with noise. It has shared an astonishing array of misleading claims, all while ignoring obvious and lethal antitrust problems. Indeed, just yesterday, JetBlue claimed that “outside experts agree that, within the current administration, our transaction has a similar chance as Frontier in gaining approval.”4 JetBlue includes no source, of course—so the “outside experts” it appears to be talking about? Its very own, JetBlue-hired antitrust lawyer.
JetBlue wants you to think that Frontier and JetBlue bring antitrust risk profiles that differ only in degree, not in kind. But nothing could be further from the truth. A JetBlue acquisition of Spirit could not succeed.
A Frontier/Spirit merger is entirely different. Our transaction will increase output and reduce prices by bringing ultra-low fares to more routes in competition with larger, higher cost, higher fare airlines. A combined Frontier and Spirit will stimulate demand by inducing people to fly when the high fares offered by JetBlue and the Big Four would otherwise price them out of the market.
