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Why Is Spirit Airlines (SAVE) Stock Down Today?

Spirit Airlines (NYSE:SAVE) isn’t flying too high this morning. The airline is watching shares sink this morning after rejecting an offer to be bought by JetBlue (NASDAQ:JBLU). The $33-per-share offer would have yielded a profit for SAVE stock investors. Spirit has declined to move forward, though, citing concerns regarding regulatory approval. It is sticking with its original plan of merging with Frontier Airlines (NASDAQ:ULCC).

A yellow, Spirit Airlines (SAVE) branded airplane flying in the air
Source: Markus Mainka / Shutterstock.com

What’s Happening With SAVE Stock

Since news broke this morning of Spirit’s decision, SAVE stock has been falling. As of this writing, it is down more than 9% for the day.

Despite being rejected, JetBlue is up slightly today, even after some early morning turbulence.

Why It Matters

The proposed JetBlue acquisition would have boosted SAVE stock. Spirit knew that when it rejected the takeover offer on regulatory concerns. With that in mind, it is a good thing for investors that the company opted against a merger which it saw as unlikely be completed. Even after JetBlue enhanced its original buyout offer, Spirit dismissed it. As Chairman Mac Gardner stated:

“After a thorough review and extensive dialogue with JetBlue, the Board determined that the JetBlue proposal involves an unacceptable level of closing risk that would be assumed by Spirit stockholders. We believe that our pending merger with Frontier will start an exciting new chapter for Spirit and will deliver many benefits to Spirit shareholders, team members and guests.”

Clearly, the company still sees the Frontier Group merger as the best path forward. As InvestorPlace writer William White reported, the deal will consist of both cash and stock payments with an implied value of $25.83 per share. The original statement released by Frontier claimed that the combination of the two companies would form America’s “most competitive ultra-low fare airline.”

If that is true, it will certainly boost SAVE stock. As NPR reports, demand for air travel is rising and air fare prices are moving in the same direction. With travel trends nearing a return to where they were prior to the Covid-19 pandemic, Americans are eager to resume the plans they delayed. But with an energy crisis leading to an increase in oil prices, operation costs are rising for airlines. This means higher prices, but it creates a window of opportunity for their low-cost competitors. Consumers who are spooked by the high costs of flying Delta (NYSE:DAL) and Southwest (NYSE:LUV) will be seeking more affordable alternatives.

What It Means

Predictions also indicate that ticket costs aren’t going down anytime soon. This leaves time for Spirit and Frontier to successfully complete the merger. They can also chip away at the market share held by their larger competitors.

All this suggests that Spirit’s rejection of JetBlue’s takeover offer was the right move. It will boost SAVE stock in the coming months as demand for low-cost airfare becomes a defining market trend of summer 2022.

On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Samuel O’Brient has been covering financial markets and analyzing economic policy for three-plus years. His areas of expertise involve electric vehicle (EV) stocks, green energy and NFTs. O’Brient loves helping everyone understand the complexities of economics. He is ranked in the top 15% of stock pickers on TipRanks.


Article printed from InvestorPlace Media, https://investorplace.com/2022/05/why-is-spirit-airlines-save-stock-down-today/.

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