On February 7th, low cost carriers Frontier Airlines and Spirit Airlines
revealed that they would be merging to create a single airline entity. According to the two
airlines, the pairing would mean $1 billion worth of savings for future passengers.
The new airline would remain under the Indigo Partners umbrella, where Frontier Airlines
sits today. Let’s take a deep dive into these two airlines and what we can expect from their merger…
Some low-cost carriers have found it difficult to offer low fares while still being liked by
the public. Sometimes, offering low base fares means that certain things passengers are used
to having for free suddenly require an extra fee. This might include things like seat selection and
a carry-on bag. Add this to densely-configured cabins with non-reclining seats and a lack of
complimentary snacks or beverages, and passengers can get angry if they
somehow booked a flight with a budget airline expecting a full-service carrier experience.
This might give us some insight into why both Spirit and Frontier rank fairly high
among America’s most hated airlines. Indeed, a recent Wall Street Journal analysis evaluating
9 of the country’s largest airlines, the list had Frontier tied with American Airlines for
6th best, while Spirit was down at 8th spot- one above the normally well-ranked JetBlue.
But with Spirit and Frontier often receiving so many complaints from passengers,
do two “wrongs” make a right? How will passengers
actually benefit from the merging of two of the country’s most disliked carriers?
Speaking about the merger, Spirit President and CEO Ted Christie said,
"This transaction is centered around creating an aggressive ultra-low fare competitor to serve our
Guests even better, expand career opportunities for our Team Members and increase competitive
pressure, resulting in more consumer-friendly fares for the flying public. We look forward to
uniting our talented teams to shake up the airline industry while also continuing our
commitment to excellent Guest service." Well, the merger of Frontier Airlines
and Spirit Airlines will likely create a huge wave across the US airline industry-
perhaps more for its competitors. The airlines will go from competing
against one another to sharing each other's potential passengers.
The greater offering will likely be seen as a win for many who fly with one airline or the other.
With the two airlines becoming one, Frontier's equity holders will own
around 51.5% of the new venture, while Spirit's equity holders will own approximately 48.5%.
Bill Franke, Managing Partner of Indigo Partners,
Frontier's largest shareholder, will go on to be the Chairman of the Board for the new airline.
This board will have 12 members, seven from Frontier and five from Spirit.
The deal is set to be closed in the second half of this year, assuming that everything goes to plan.
At the same time, however, the airline's new name, brand, and headquarters have yet to be disclosed,
and will be announced sometime before the deal is closed.
The merger of the two airlines will create even more possibilities for passengers.
While there are a fair few airports that have both Frontier and Spirit,
there is also a good portion that only sees just one or the other serving them at present.
According to a website set up for the merger, the new mega-Ultra-low-cost-carrier
will offer over 1,000 daily flights to more than 145 destinations.
Serving 19 countries with 283 aircraft, the airlines
will provide more than 650 non-stop routes. Given outstanding aircraft orders, the fleet
size is set to balloon to more than 350 aircraft next year and almost 500 aircraft in 2026.
On the topic of fleet growth, the end of 2026 will see the combined airline fly as
many as 493 aircraft- an increase of 75%. The large majority of this will be brand
new Airbus A320neo family aircraft, which both Frontier and Spirit operate.
This shared type offers a fleet-related synergy with the merger.
Looking at the two airlines as they are now, they have 286 aircraft together,
comprising A319s, A320s, and A321s. 175 A320 family aircraft come from Spirit Airlines,
while some 111 A320 family aircraft come from Frontier.
This is much smaller than Southwest’s 730-plus
aircraft, but fairly close to very, very close to JetBlue’s 282.
Spirit’s current average fleet age is about seven years
while the average age of Frontier’s jets is just over four years.
A further 360 or so aircraft are on order, especially A320/A321neos. The combined carrier
will become the USA's fifth-largest airline with about a 7% share of the total market.
At the end of 2022, the two airlines, combined, expect neo planes to make up 51% of the fleet.
By 2026, however, that number is expected to hit 79%,, giving the airlines a relatively low
average fleet age, along with the benefits that come with increased fuel efficiency.
Despite becoming the country’s fifth largest airline,
it'll still be about 60% smaller than all-737 operator Southwest,
the original low-cost-carrier. The chart you see here is how the line-up would
look if they merged right now, when ranked by available seats between January-August 2022.
If you combined the available seat miles of both airlines for 2021,
the combined airline would've been larger than both JetBlue and Alaska Airlines.
Both were, however, already larger than fellow budget airline Allegiant.
The two airlines have indicated they are looking to use this fleet to expand ultra-low-cost
offerings across the US and provide an effective ULCC challenge to the big four US airlines.
With all that said, the merger should help reduce seat-mile costs,
probably increase yields, improve competitiveness, grow dominance, and increase shareholder value.
When it comes to strategies and networks, Spirit and Frontier are somewhat different.
The former operates most of its flights with daily or more services, stimulating demand
with low fares and, most of the time, going head-to-head against other major airlines.
Frontier, on the other hand, prefers to operate peak-day flying, with just a few frequencies
per week, connecting many smaller communities across the US to major leisure destinations.
Nevertheless, the two airlines are broadly complementary:
Frontier has heavy exposure in the Western United States, where it has established
roots. In contrast, Spirit has oriented most of its network around the Eastern United States,
with some inroads into the west. Interestingly, there is zero overlap on about 60% of routes.
Orlando, Denver, Las Vegas, Philadelphia, and Atlanta are Frontier's busiest airports,
while it's Fort Lauderdale, Orlando, Las Vegas, Los Angeles, and Detroit for Spirit.
As you can see, Florida is a market where the two airlines have the largest degree of
overlap. Miami and Orlando are two big markets that demonstrate this, but the
two airlines have indicated they are considering schedule depth as part of the combined plans.
In case you didn’t already know, just because airlines announce that they want to merge
or make an acquisition, it doesn’t always mean that this will be allowed to happen.
That’s because most governments regulate the market in some form or another,
having special departments that regulate and foster healthy competition in the market.
Thus, for Spirit and Frontier, one of the biggest hurdlges is regulatory approval.
While a combined airline will have 'only' 7% of the market, it will quite possibly contribute to
a reduction in consumer choice in a country that has already had multiple mergers and acquisitions.
Barry Biffle, Frontier's CEO, stated the following in the presentation regarding regulatory approval:
"We've reached out to the Administration, and we're really excited about telling them our story.
I mean, this merger is completely different than any other merger in the past in the US.
This is not about reducing competition and raising fares.
This is about getting more low fares to more people in more places,
and we're excited to tell our story to them and I think it'd be well received."
The Biden Administration has taken a stand on competition in the airline industry.
To that extent, it is even pursuing a lawsuit against the American-JetBlue Northeast Alliance,
which the Department of Transportation (DOT) had already approved.
It remains unclear what the Administration's stance is on the Frontier-Spirit deal,
but it will certainly take time to review it and decide what it wants to see happen.
Much of the timing and decision on this remains out of the control of the airlines.
Beyond regulatory approval, there are other challenges in a merger.
This includes merging IT infrastructure, setting up a new headquarters,
figuring out management teams, streamlining processes, and working with labor unions.
According to executives from both airlines,
unions were notified early in the process and there will need to be some negotiations.
The two airlines are planning to close the deal by the end of the year,
which is an ambitious timeline considering the size of the deal.
However, the airlines are expressing confidence in their ability to succeed.
Have you flown with either Spirit or Frontier Airlines?
What was the experience like? And do you think this merger will actually benefit passengers?
Or will it just benefit shareholders? Let us know what you think by leaving a comment!