Spirit and Frontier Confirm Merger
Two of the largest bargain airline carriers announced their merger this week. Frontier Airlines (NASDAQ: ULCC) and Spirit Airlines (NYSE: SAVE) agreed to merge and will become the fifth-largest airline in the U.S. The company boards approved of the deal over the weekend and it was valued at $6.6 billion.
This agreement gives Denver-based Frontier Airlines a 51.5% control in the combined deal. Ted Christie, CEO of Spirit Airlines, told analysts on a call earlier this week:
The transaction is centered around creating an aggressive low-fare competitor that will better serve guests, expand career opportunities for our team members, and create value for our shareholders. We believe we are a perfect fit with Frontier. Our businesses share similar values, including our long-standing commitment to affordable travel.
After news of the merger broke, Spirit shares soared over 17% and Frontier shares were up 3.5%. There’s no news about what name these two (now combined) companies will share, who the CEO will be, or the location of the airline’s headquarters. There are still quite a few details to iron out for these two airlines.
Surviving After Pandemic Losses
It has been a difficult past two years for airlines because of the pandemic. Lockdowns and waves of COVID-19 cases have caused turmoil for all major airlines. It’s been a struggle for airlines to learn how to survive through this pandemic. Not to mention, mask mandates for travelers and vaccines mandates for airline pilots and flight attendants haven’t helped the predicament that these airlines have found themselves in.
It hasn’t been an easy couple of years, but these low-fare airliners have had a slight advantage over other airlines that rely heavily on international travel. U.S. airlines large and small have been focusing on domestic leisure travelers and redrawing their networks to lift themselves out of the pandemic losses.
A merger with Spirit and Frontier could create an expanded route network with new destinations and more available flights. According to consulting firm Cirium, the two airline carriers overlap on approximately 520 routes out of more than 2,800, offering more options to travelers who are conscious of ticket pricing and want the lowest fares.
Both airlines believe the deal will allow for more growth in a competitive industry and will add about 10,000 jobs by 2026. The airlines have no plans to lay off employees.
Trouble Ahead?
This deal seems like an opportunity for two budget airlines to merge and provide travelers with more travel destinations at competitive ticket prices. However, this deal has the chance of facing backlash from the Biden administration.
This administration has been vocal about these types of mergers and has even challenged mergers and partnerships in court. Recently, the Justice Department sued to prevent a domestic alliance between American Airlines and JetBlue Airways. The Justice Department argued that such an alliance could drive up prices and reduce competition within an already tight industry.
An airline analyst at Raymond James, Savanthi Syth, had this to say:
In a normal environment we would not expect any regulatory hurdles, but given the Biden administration’s “big is bad” approach that has led to a DOJ lawsuit against what appears to be a pro-competition Northeast Alliance by American and JetBlue, we would expect some objection.
However, some analysts are optimistic about the deal being approved. Deutsche Bank airline analyst Michael Linenberg said:
We believe the proposed transaction will be approved by regulators given the minimal overlap of route networks and the fact that it is likely to be viewed as pro-consumer.
These airlines are promising with the merger that consumers will be able to experience more competitive pricing and the same low-fare deals that past customers of Frontier or Spirit have come to expect. This makes me optimistic about this merger going through and the Biden administration interfering in the deal.
Keeping the Big Four on Their Toes…
The alliance between American Airlines and JetBlue is one that the Biden administration should keep an eye on. Diana Moss, the president of the American Antitrust Institute, said:
Having this fringe of smaller carriers breathing down their necks is really the only thing left that keeps the Big Four on their toes.
This merger could even pressure the other “Big Four” airlines to bring down their airfare to compete with Spirit and Frontier.
This is something I’ll be watching.
Until next time,
