Frontier Group Holdings and Spirit Airlines Inc. announced plans in early February for a $2.9 billion deal that would create a new – and big – frills-free budget carrier.
The merger, which would form the fifth-largest airline in the U.S., would give Colorado-based Frontier control of the company with a 51.5% stake in the new entity. Recently, increases in wages, fuel prices, and airport charges have hit the industry hard as it reels from pandemic-related travel fluctuations. Combining the two ultra-low-cost companies would create operational savings that would spur recovery, according to Peter McNally, global sector lead for industrials, materials, and energy at research firm Third Bridge, as reported in Yahoo Finance.
Due to escalating airport fees, Frontier had to stop serving Los Angeles, San Jose, Washington-Dulles, and Newark. Spirit faced wage hikes in 2019 that cut into revenue by 10 percentage points.
If the merger goes through – it’s expected to close during the second half of 2022 – the companies pledged to hold onto their employees and add 10,000 jobs by 2026 while keeping fares low and routes plentiful. They committed to $1 billion in annual consumer savings and more than 1,000 daily flights to more than 145 destinations.
The deal would require approval from the Department of Justice, which acts to protect competition within industries. In September 2021, for instance, the DOJ and six states filed an antitrust lawsuit against American Airlines Group Inc. and JetBlue Airways Corp., claiming their partnership could hike fares and hurt competition in high-trafficked northeastern airports. The airlines have sought a dismissal of the case, which is currently in the discovery phase.
A new brand name and CEO for the Frontier-Spirit partnership has not been announced. Investor Bill Franke, whose private equity firm Indigo Partners is Frontier's majority shareholder, would be chairman of the airline.
The merger would be worth $6.6 billion and would include the assumption of net debt and operating lease liabilities.
