Frontier's Acquisition of Spirit Could Lead to More Affordable Fares on Additional Routes

Frontier Airlines and Spirit Airlines are looking to merge in a $2.9 billion agreement aimed at creating a larger discount airline that can compete with the major carriers and, according to them, lower fare prices.

Both airlines are ultra-low-cost carriers that attract customers with their incredibly low prices for basic services, but they frequently receive a higher number of consumer complaints.

The proposed merger is expected to face rigorous scrutiny from antitrust regulators in the Biden administration, which has indicated a stricter stance on large corporate consolidations. Consumer advocates have criticized the previous Obama administration for permitting several major airline mergers that significantly concentrated power within the industry.

Nevertheless, the merger between Frontier and Spirit would still place them only fifth in terms of passenger capacity among U.S. airlines and seventh in revenue. They are promoting their merger as a way to provide balance against American, Delta, United, and Southwest, which collectively dominate approximately 80 percent of the U.S. air travel market.

“The Biden administration has clearly indicated over the past year that they aim to foster competition in the airline industry, and this merger is essentially a response to restoring balance against the big four,” stated Frontier CEO Barry Biffle during an interview.

Savanthi Syth, an airline analyst at Raymond James & Associates, mentioned that due to the relatively small scale of Frontier and Spirit, she wouldn’t anticipate antitrust complications “in a typical environment... but considering the Biden administration’s stance of ‘big is bad,’ some resistance is expected.”

Recovery from the pandemic has been sluggish for all airlines—including low-cost carriers

As the pandemic enters its third year, airlines continue to face challenges in recovery. Both Frontier and Spirit reported fourth-quarter losses on Monday—$87.2 million for Spirit and $53 million for Frontier. Additionally, both airlines posted annual losses for 2021.

The airlines assert that if their merger is approved, it will lead to numerous new routes not currently offered by ultra-low-cost carriers, resulting in annual savings of $1 billion for consumers. They also claim that the merged entity will expand and generate 10,000 new jobs by 2026.

In recent years, ultra-low-cost airlines have disrupted the aviation sector, leveraging their lower operational costs—including less experienced staff—to attract customers away from established carriers and appeal to those hesitant to pay major airline fares. Frontier and Spirit claim their costs are up to 40% lower on a per-mile basis, potentially discouraging larger airlines from undercutting their prices.

However, budget airlines lack the perks offered by larger carriers. They do not operate long-haul international flights, have smaller frequent flyer programs, and generally run fewer flights on each route, resulting in limited options for rebooking passengers in the event of cancellations or delays.

Could a merger enhance customer satisfaction?

Frontier and Spirit often report some of the highest complaint rates in the industry, ranking at the bottom in the latest monthly statistics from the Transportation Department. Many complaints stem from canceled or delayed flights. The airlines assert that their merger will lead to a more dependable service with fewer disruptions.

While making these claims, the Federal Aviation Administration (FAA) mandated the suspension of all Frontier flights across the country due to "automation issues." By midday, Frontier had canceled over 110 flights, amounting to more than 20% of its schedule, while also delaying a similar number of flights.

Frontier spokesperson Jennifer De La Cruz stated that the issue was related to technology and has been resolved. She mentioned that the airline is actively working to get its flight schedule back on track for the remainder of the day.

The airlines have yet to reveal the name of the merged company, its CEO, or where the headquarters will be located. Frontier Chairman Bill Franke, who is leading the committee responsible for these decisions and will also chair the new entity, indicated that such announcements will wait until the merger is confirmed.

"Currently, we need regulatory oversight and support for this transaction. This process could take several months," Franke noted, who previously served as chairman of Spirit and whose investment firm, Indigo Partners, is now the largest shareholder of Frontier.

As per the merger announcement, Frontier shareholders will hold 51.5% of the new company. Spirit shareholders will receive 1.9126 shares of Frontier along with $2.13 in cash for each of their Spirit shares, valuing Spirit at $25.83 per share, based on Frontier’s closing stock price of $12.39 last Friday.

During afternoon trading on Monday, shares of Spirit, based in Miramar, Florida, jumped nearly 17% to $25.40, while Denver-based Frontier saw a 3% increase, and Allegiant, another major budget airline, remained relatively unchanged.

The deal is anticipated to finalize in the latter half of the year, pending approval from Spirit shareholders.