JetBlue CEO on Spirit Airlines deal: A bigger JetBlue is 'better for competition'

JetBlue CEO Robin Hayes ramped up his pressure on Frontier Airlines on Thursday, saying his company's surprise deal for low-fare rival Spirit Airlines makes much more sense.

"A bigger JetBlue is profoundly good and better for competition than a Spirit and Frontier combination," Hayes said on Yahoo Finance Live.

JetBlue shocked Wall Street by offering to buy Spirit for $3.6 billion late on Tuesday, for $33 a share. The bid counters one from Frontier in February, which put forth a $25 a share bid.

JetBlue (JBLU) shares fell 6% in Wednesday's session as investors and Wall Street fretted about a costly buyout battle. The stock fell another 4% on Thursday.

"In the near- to medium-term, we view this as a negative for JetBlue. It is a much tougher merger to execute than the proposed Frontier-Spirit merger with greater dis-synergies primarily related to labor costs but also due to greater investments related to changing cabin layouts," said Raymond James analyst Savanthi Syth in a research note. "While leverage levels appear manageable, the increase is likely to weigh on investor sentiment. We admit, we did not see this coming."

The analyst downgraded her rating on JetBlue to Market-perform from Out-perform.

"We struggle with the idea given both airlines are concentrated on the East Coast with significant operations in Fort Lauderdale, and would suspect there will be heavy regulatory pushback.," MKM Partners analyst Conor Cunningham said.

Should JetBlue land Spirit, it would significantly boost its presence on the East Coast — notably in the key Fort Lauderdale area. But that robust presence could be a stumbling block to JetBlue winning the new clash in the clouds.

FILE - In this July 19, 2005 file photo, a JetBlue Airbus flies over a pair of Southwest Airlines' jets from Bob Hope Airport in Burbank, Calif., bound for New York's JFK airport. Air fares, which have shown steady drops throughout this year, are beginning to show signs of stabilizing. (AP Photo/Reed Saxon, file)
FILE - In this July 19, 2005 file photo, a JetBlue Airbus flies over a pair of Southwest Airlines' jets from Bob Hope Airport in Burbank, Calif., bound for New York's JFK airport. Air fares, which have shown steady drops throughout this year, are beginning to show signs of stabilizing. (AP Photo/Reed Saxon, file)

“Unlike the compelling Spirit-Frontier combination, an acquisition of Spirit by JetBlue, a high-fare carrier, would lead to more expensive travel for consumers. In particular, the significant East Coast overlap between JetBlue and Spirit would reduce competition and limit options for consumers. It is surprising that JetBlue would consider such a merger at this time given that the Department of Justice is currently suing to block their pending alliance with American Airlines," Frontier said in a statement in the wake of JetBlue's bid.

Said Hayes in response to Frontier statement, "well, of course they would say that. I mean, I passionately believe that people love flying JetBlue. I know we are not perfect. We work hard every day to be better. But it is in our DNA, and it has been in our DNA for 22 years — and we couldn't have been successful in New York without it."

The merger between Frontier and Spirit — seen by pros as being more synergistic and consumer friendly —has already come across the radar of Democratic Senators Bernie Sanders and Elizabeth Warren. Both fear the removal of a competitor in the marketplace could send airfare prices higher.

Hence, it's hard for some to see JetBlue getting off any easier by regulators.

“For decades, the airline industry has been plagued by increasing consolidation, producing massive airline giants while leaving consumers and workers behind. Because the proposed Spirit-Frontier merger threatens to exacerbate these trends — including by potentially increasing prices during a period of high inflationary pressure — we urge the Department of Justice (DOJ) and the Department of Transportation (DOT) to closely review this mega merger for potential violations of the Clayton Act and for concerns under 49 U.S.C. § 41105 and to oppose it if you determine it will threaten competition in the airline industry or ‘the public interest,'" Warren, Sanders and several other lawmakers said in a statement.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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