By Anirban Sen and Greg Roumeliotis

(Reuters) -Spirit Airlines Inc cancelled its $2.7 billion sale to Frontier Group Holdings Inc on Wednesday after Spirit shareholders balked at supporting it, leaving JetBlue Airways Corp with an opening to clinch a deal.

The development, first reported by Reuters earlier on Wednesday, came after Spirit pushed back a shareholder vote on the Frontier deal four times, hoping it could muster enough support. Spirit had argued that JetBlue’s $3.7 billion bid was unlikely to be cleared by antitrust regulators.

JetBlue sees Spirit as an opportunity to expand its domestic footprint at a time when the U.S. airline industry is dogged by labor and aircraft shortages. The deal would create the fifth-largest U.S. airline.

Spirit has expressed concern about a tie-up with JetBlue because of the latter’s Northeast Alliance (NEA) partnership with American Airlines.

The U.S. Justice Department filed an antitrust lawsuit against American and JetBlue in September seeking to end the alliance, saying it would lead to higher fares in busy airports in the U.S. Northeast.

JetBlue so far has refused to pull out of the alliance and instead offered other sweeteners like a higher breakup fee and route divestments.

The negotiations between JetBlue and Spirit are progressing favorably and a deal is possible in the next few weeks, according to people familiar with the matter.

The outcome represents a setback for Frontier and its chairman Bill Franke, who was instrumental in kicking off the talks between the two sides last year. Franke’s airline-focused buyout firm, Indigo Partners, is a major shareholder in Frontier.

“While we are disappointed that Spirit Airlines shareholders failed to recognize the value and consumer potential inherent in our proposed combination, the Frontier board took a disciplined approach,” Franke said in a statement.

Frontier shares rose 6.4% to close at $11.27 as investors expressed relief that the company exited what had become a bidding war for Spirit. Spirit shares rose 4% to $24.30, while JetBlue shares rose 3.6% to $8.35.

(Reporting by Anirban Sen and Greg Roumeliotis in New YorkEditing by Chizu Nomiyama, Will Dunham and Matthew Lewis)



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