Friday, September 30, 2022

Merger Vote in Spirit Could Reshape Discount Airline Market

DALLAS ( Associated Press) — The cheap-fare end of the industry has been largely jeopardized by the prospect of an acquisition of Spirit Airlines, just as a series of mergers between large airlines narrowed the options for travelers.

Spirit is the largest budget airline in the United States, but its days as a stand-alone company are numbered. The big question is whether it is sold to fellow discounter Frontier Airlines or to JetBlue, which acts like the four giants that dominate the US airline business.

The result can determine how many options travelers have for the lowest fares. This is especially important for holiday customers, the group that Spirit targets.

Spirit shareholders are scheduled to vote on Thursday whether to approve a stock-and-cash offer from Frontier, which is currently priced at about $22 per share, or $2.4 billion, and allows Spirit shareholders to own the combined airline. Give 48.5% share. Spirit’s board continues to support the deal despite JetBlue’s hostile bid of $33.50 per share, or $3.6 billion.

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

Spirit is coveted both because of its relatively young fleet of more than 170 aircraft and its nearly 3,000 pilots—even more valuable during a pilot shortage that could last much of this decade.

Antitrust regulators make sure to scrutinize any deal closely. Frontier and JetBlue both claim that consumers will benefit if they win the Spirit sweepstakes. A Frontier-Spirit combination will operate about 5% of the country’s flights, and JetBlue Plus Spirit will operate more than 7% based on the July schedule, making either American, United, Delta and Southwest a strong competitor.

Those who follow the industry closely are divided on which deal will help consumers the most. Those who prefer frontier-spirit deals point out that both are “ultra low-cost carriers” that charge rock-bottom fares—though they add several fees. They say JetBlue has become too much like the big airlines.

“You either end up with another big, high-cost, regular-fare airline (with JetBlue), or you actually end up with the ultra-low-cost-carrier nationwide that’s cheaper than anything today. twice the size,” says Robert Mann. A longtime airline executive and consultant. “Consumers should be looking for the continuum of a true low-fare, harsh environment with a spirits-frontier combination,” he said.

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

Keys said removing a competitor always results in an increase in fares, but the effect wouldn’t be as bad if the buyer was another budget airline like Frontier.

“Even if you never fly Spirit or Frontier, you owe them a debt of gratitude, making your Delta or American flight cheaper,” he said.

Alarmed by the growth of discount airlines, large carriers began selling “Basic Economy” fares in recent years, although they limit the number of bargain-bin seats on each flight.

JetBlue CEO Robin Hayes countered with a decade-old study by MIT researchers, who found that JetBlue did more to drive down prices by flying a particular route than it did service by budget airlines, which were more expensive than those served by the market. accounted for a small portion. He called it the “JetBlue Effect”.

Michael Linnenberg, an airline analyst at Deutsche Bank, said that if JetBlue succeeds in buying the Spirit, some of the cheapest fares could be gone, but a bigger JetBlue could replace them with seats that appeal to other types of travelers. Huh. He pointed to JetBlue’s “Mint” business-class service, which has been so successful on intercontinental flights that it forced bigger rivals to cut prices on their premium seats.

“It’s not about catering to people who want to pay the $29 or $59 fare. There are passenger segments that will give JetBlue service that Frontier and Spirit doesn’t,” Linnenberg said. There are going to be seats, and it’s not like JetBlue will stop offering lower fares.”

Savanti Sith, an airline analyst at Raymond James & Associates, said any loss of cheap seats following the JetBlue-Spirit deal would be temporary as other budget carriers — including Frontier in particular — grow.

“Frontier has the order book (for the new planes) to step up and leave the Spirit behind,” she said.

It’s even harder to predict whether sales of spirits will make much of a difference to customer service.

Spirit had the highest rate of consumer complaints to the government in the latest figures from the Department of Transportation covering April, and has finished on the bottom five of the past seven years.

Having neither buyer is likely to improve Spirit’s poor record. Frontier’s complaint rate was the worst in the other two years, and JetBlue’s rate last year was higher than all except 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 – gave the four airlines control of 80% of the US market. Abandoned in and rising faster than the inflation of many years beginning airfares. The pace of consolidation then slowed, with only one major deal, Alaska Airlines acquiring Virgin America in 2016.

Airline industry executives believe antitrust regulators will prevent American, United, Delta or Southwest from snapping up 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 Elegant Air, Sun Country and startups Avalo and Breeze could become acquisition targets at some point.

“In the ultra-low-cost space, we probably have a lot of players. I think we’ll see consolidation,” said Deutsche Bank analyst Linnenberg. “Should we get eight or nine flights from New York to Fort Lauderdale or 10 airlines needed?”

Nation World News Desk
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