JetBlue’s CEO Says Its Offer to Buy Spirit ‘Makes the Most Sense’

“There are very few opportunities left out there,” Mr. Hayes said in an interview Tuesday. “When you see an opportunity to accelerate the plan, I think you need to take it.”

JetBlue surprised the industry when it launched a hostile bid—with $30 a share in a tender offer—about two months after Spirit had agreed to be bought by

Frontier Group Holdings Inc.

ULCC 1.76%

This week JetBlue raised the breakup fee it would pay to Spirit if regulators bar the deal to $350 million, up from $200 million. And JetBlue said it would pay $164 million of that up front, putting cash in investors’ pockets more quickly and bringing its total offer to $31.50 a share.

Spirit investors are scheduled to vote on the Frontier deal Friday, and JetBlue has sought to persuade them to reject that deal to pressure Spirit’s board to engage in more serious discussions with JetBlue.

JetBlue and Spirit appeared to have little in common. JetBlue tries to stand apart with more legroom, perks such as free Wi-Fi and a business-class offering that includes suites with sliding doors. Spirit aims to keep costs low so it can offer bargain-basement prices, appealing to a budget clientele with a more bare-bones product and charging fees for extras.

Mr. Hayes said the two airlines are a better fit than it might seem. They fly the same type of jets, which can help keep costs down and make operations more efficient. They both have a large presence in leisure markets such as Florida. And Spirit will help JetBlue grow in rivals’ hubs where it has a more limited presence, he said.

“When we look at the potential combinations, a Spirit-JetBlue combination is the one that makes the most sense,” he said.

It might also be JetBlue’s last chance for some time to land such a deal. In 2016 it lost out to Alaska Airlines in a bidding war for Virgin America Inc. Losing that deal set back JetBlue’s ambitions on the West Coast, analysts said.

Some investors are skeptical of JetBlue’s plans for Spirit.

Frank Holmes,

chief executive and chief investment officer of

U.S. Global Investors,

GROW -2.20%

said it is less clear JetBlue and Spirit are a good fit, and both are concentrated in the eastern U.S.

Others said JetBlue’s offer provides more certainty. Spirit shareholders would be paid in cash if the deal goes through, while under Frontier’s proposal, Spirit investors would be issued stock in the combined company, which could rise or fall based on the travel recovery. And JetBlue’s willingness to provide some payment before regulators review the deal shows commitment, said one shareholder.

Spirit and Frontier executives have argued that JetBlue isn’t truly interested in owning Spirit but merely wants to fend off a potential budget rival.

“If you’re JetBlue, you’re trying to avoid having a powerful combined Spirit and Frontier with lower costs than JetBlue, lower fares than JetBlue and taking a position in the JetBlue markets,” said

William Franke,

Frontier’s chairman and managing partner of Indigo Partners, its majority shareholder. “I think basically, the board is trying to protect its competitive position.”

Spirit’s stock closed Tuesday at $22.67, slightly higher than the current per-share value of Frontier’s offer but well off of JetBlue’s $31.50-a-share bid.

The takeover contest comes at a complicated time for JetBlue. Like many airlines, it has stumbled as it has ramped up after the height of the Covid-19 pandemic, and has said it is losing pilots to bigger carriers amid an industrywide hiring push. It trimmed flying for the coming summer season to try to relieve some of the strain on its operation.

JetBlue’s place in the airline pecking order has slipped in recent years from the fifth-largest by traffic to sixth. A combined Frontier and Spirit would leapfrog JetBlue to become the fifth-largest airline, something JetBlue described as a risk in its annual report this year.

That shift could leave JetBlue struggling to maintain relevance, eventually making it a potential takeover target itself, said

Samuel Engel,

senior vice president of aviation at consulting firm

ICF International Inc.

ICFI 0.01%

“If they’re determined to lead their own destiny and seek a step change in growth, then there just aren’t many other options,” Mr. Engel said.

Spirit has consistently rebuffed JetBlue’s advances, arguing that the prospects for regulatory clearance are remote. JetBlue is already fighting a lawsuit from the Justice Department over a partnership with

American Airlines Group Inc.

AAL 2.39%

in the Northeast. Spirit has argued that JetBlue’s plans to rip out rows of seats and repaint Spirit’s bright-yellow jets would result in less capacity and higher fares for consumers.

“We want low fares. What JetBlue has said is that they intend to take seats out of the market and raise fares. We view that as a problematic narrative,” Spirit Chief Executive

Ted Christie

said late last month.

JetBlue has said it has a larger impact on industry pricing than discounters such as Spirit and would make a more formidable challenger to the big airlines. It has also pledged to divest itself of all of Spirit’s assets in New York and Boston to avoid increasing its presence in markets where the Justice Department has flagged concerns about the partnership with American, though it has stopped short of saying it was willing to exit that deal altogether.

Mr. Hayes said if JetBlue loses out on Spirit, it will simply get back to its plan to grow organically, such as expanding flying to Europe.

Savanthi Syth,

an analyst at Raymond James, said JetBlue has plenty to keep it busy even without Spirit. The question is whether it will be able to pull off its plans, with an industrywide pilot shortage constraining growth and other costs on the rise––an issue that concerned investors even before the recent surge in fuel prices.

“Does JetBlue have enough room to grow? Yes. It’s a matter of can they execute it well,” she said.

Write to Alison Sider at [email protected]

“There are very few opportunities left out there,” Mr. Hayes said in an interview Tuesday. “When you see an opportunity to accelerate the plan, I think you need to take it.”

JetBlue surprised the industry when it launched a hostile bid—with $30 a share in a tender offer—about two months after Spirit had agreed to be bought by

Frontier Group Holdings Inc.

ULCC 1.76%

This week JetBlue raised the breakup fee it would pay to Spirit if regulators bar the deal to $350 million, up from $200 million. And JetBlue said it would pay $164 million of that up front, putting cash in investors’ pockets more quickly and bringing its total offer to $31.50 a share.

Spirit investors are scheduled to vote on the Frontier deal Friday, and JetBlue has sought to persuade them to reject that deal to pressure Spirit’s board to engage in more serious discussions with JetBlue.

JetBlue and Spirit appeared to have little in common. JetBlue tries to stand apart with more legroom, perks such as free Wi-Fi and a business-class offering that includes suites with sliding doors. Spirit aims to keep costs low so it can offer bargain-basement prices, appealing to a budget clientele with a more bare-bones product and charging fees for extras.

Mr. Hayes said the two airlines are a better fit than it might seem. They fly the same type of jets, which can help keep costs down and make operations more efficient. They both have a large presence in leisure markets such as Florida. And Spirit will help JetBlue grow in rivals’ hubs where it has a more limited presence, he said.

“When we look at the potential combinations, a Spirit-JetBlue combination is the one that makes the most sense,” he said.

It might also be JetBlue’s last chance for some time to land such a deal. In 2016 it lost out to Alaska Airlines in a bidding war for Virgin America Inc. Losing that deal set back JetBlue’s ambitions on the West Coast, analysts said.

Some investors are skeptical of JetBlue’s plans for Spirit.

Frank Holmes,

chief executive and chief investment officer of

U.S. Global Investors,

GROW -2.20%

said it is less clear JetBlue and Spirit are a good fit, and both are concentrated in the eastern U.S.

Others said JetBlue’s offer provides more certainty. Spirit shareholders would be paid in cash if the deal goes through, while under Frontier’s proposal, Spirit investors would be issued stock in the combined company, which could rise or fall based on the travel recovery. And JetBlue’s willingness to provide some payment before regulators review the deal shows commitment, said one shareholder.

Spirit and Frontier executives have argued that JetBlue isn’t truly interested in owning Spirit but merely wants to fend off a potential budget rival.

“If you’re JetBlue, you’re trying to avoid having a powerful combined Spirit and Frontier with lower costs than JetBlue, lower fares than JetBlue and taking a position in the JetBlue markets,” said

William Franke,

Frontier’s chairman and managing partner of Indigo Partners, its majority shareholder. “I think basically, the board is trying to protect its competitive position.”

Spirit’s stock closed Tuesday at $22.67, slightly higher than the current per-share value of Frontier’s offer but well off of JetBlue’s $31.50-a-share bid.

The takeover contest comes at a complicated time for JetBlue. Like many airlines, it has stumbled as it has ramped up after the height of the Covid-19 pandemic, and has said it is losing pilots to bigger carriers amid an industrywide hiring push. It trimmed flying for the coming summer season to try to relieve some of the strain on its operation.

JetBlue’s place in the airline pecking order has slipped in recent years from the fifth-largest by traffic to sixth. A combined Frontier and Spirit would leapfrog JetBlue to become the fifth-largest airline, something JetBlue described as a risk in its annual report this year.

That shift could leave JetBlue struggling to maintain relevance, eventually making it a potential takeover target itself, said

Samuel Engel,

senior vice president of aviation at consulting firm

ICF International Inc.

ICFI 0.01%

“If they’re determined to lead their own destiny and seek a step change in growth, then there just aren’t many other options,” Mr. Engel said.

Spirit has consistently rebuffed JetBlue’s advances, arguing that the prospects for regulatory clearance are remote. JetBlue is already fighting a lawsuit from the Justice Department over a partnership with

American Airlines Group Inc.

AAL 2.39%

in the Northeast. Spirit has argued that JetBlue’s plans to rip out rows of seats and repaint Spirit’s bright-yellow jets would result in less capacity and higher fares for consumers.

“We want low fares. What JetBlue has said is that they intend to take seats out of the market and raise fares. We view that as a problematic narrative,” Spirit Chief Executive

Ted Christie

said late last month.

JetBlue has said it has a larger impact on industry pricing than discounters such as Spirit and would make a more formidable challenger to the big airlines. It has also pledged to divest itself of all of Spirit’s assets in New York and Boston to avoid increasing its presence in markets where the Justice Department has flagged concerns about the partnership with American, though it has stopped short of saying it was willing to exit that deal altogether.

Mr. Hayes said if JetBlue loses out on Spirit, it will simply get back to its plan to grow organically, such as expanding flying to Europe.

Savanthi Syth,

an analyst at Raymond James, said JetBlue has plenty to keep it busy even without Spirit. The question is whether it will be able to pull off its plans, with an industrywide pilot shortage constraining growth and other costs on the rise––an issue that concerned investors even before the recent surge in fuel prices.

“Does JetBlue have enough room to grow? Yes. It’s a matter of can they execute it well,” she said.

Write to Alison Sider at [email protected]