Spirit-Frontier merger aims to set up one of the nation’s largest discount airlines

Spirit Airlines of South Florida and Frontier Airlines of Denver would become the nation’s fifth largest airline — and likely one of the largest discount carriers — if government regulators allow a planned merger announced by the companies Monday.

The airlines both advertise themselves as “ultra-discount” carriers that serve mainly leisure travelers. Besides one airline charging cheap fares on flights to a broad cross-section of U.S. and foreign destinations, the proposed airline pairing offers intriguing consumer possibilities for a frequent flier program, analysts said.

According to the airlines’ statement, the merger would allow the combined company to:

  • Offer more than 1,000 daily flights to more than 145 destinations in 19 countries, across complementary networks.
  • Expand with more than 350 aircraft on order.
  • Increase access to ultra-low fares by adding new routes to locations with limited service across the U.S., Latin America and the Caribbean.
  • Expand frequent flyer memberships.

“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,” said Spirit CEO Ted Christie in a statement.

In a telephone interview, Christie said the similarities of the airlines’ fleets, which consist of European-made Airbus jetliners, as well as their low-cost business models, will deliver efficiencies that result in substantial fare savings.

“Both of these airlines operate the most fuel-efficient fleets in the country,” he said.

“Spirit and Frontier have similar price points in the market,” Christie added. “We are similar carriers. On average we’re [charging] 30% lower than the prevailing fare in the market.”

Once the airlines become one, they will control around 7% of the U.S. domestic aviation market as measured by capacity, which is dominated by the “Big 4″ of United Airlines, American Airlines, Delta Air Lines and Southwest Airlines. Collectively, the Big 4 control 80% of the market, making it difficult for smaller airlines such as Spirit and Frontier to compete, Christie said.

“We are going to incrementally grow,” he said. “So there will be more jobs. We can deliver benefits to our shareholders.”

Nick Ewen, editor of travel website The Points Guy, said airline passengers are less interested in cumulative savings than the individual deals they’d receive when they fly.

“The average traveler who’s looking to fly Frontier or Spirit, or really any airline, doesn’t care about cumulative, annual savings across all passengers,” he said. “They want to see it reflected on the price of their tickets. As long as they still classify their individual flights in the category of a ‘deal,’ that’s what will matter.”

He said his site will be “paying very close attention” to how the airlines combine their frequent flier programs, which are designed to foster customer loyalty and repeat business. Many airline programs have dissatisfied customers who complain about award availability, dilution of benefits and complexity.

“I see a major opportunity here for the combined carrier to aggressively court travelers turned off by issues at legacy airlines — especially as it relates to elite travelers,” Ewen said.

The two companies unveiled their merger plans in New York early Monday morning after the boards of each airline voted in favor of the deal over the weekend. The combined companies would create the nation’s fifth largest airline.

The new carrier’s headquarters, brand name and leadership will be announced at a later date, after company shareholders and federal regulators give their approvals.

The terms call for Frontier to buy Miramar-based Spirit for $2.9 billion in cash and stock. The total deal is valued at $6.6 billion when accounting for the assumption of debt and other liabilities.

A Spirit Airlines Airbus A320 takes off from Fort Lauderdale-Hollywood International Airport. The Miramar-based budget airline is being acquired by Frontier Airlines of Denver for $6.6 billion. (AP Photo/Wilfredo Lee)

A Spirit Airlines Airbus A320 takes off from Fort Lauderdale-Hollywood International Airport. The Miramar-based budget airline is being acquired by Frontier Airlines of Denver for $6.6 billion. (AP Photo/Wilfredo Lee) (Wilfredo Lee/AP)

Spirit maintains an a la carte pricing system, charging additional fees above the quoted fares for certain seating, luggage and other services.

Both airlines serve the U.S., Latin America and the Caribbean.

Spirit is the leading carrier in daily flights and passengers to and from Fort Lauderdale-Hollywood International Airport, where it maintains its biggest operation.

After a short hiatus, Frontier is scheduled to resume service there on Feb. 17 with a dozen nonstop flights.

Christie denied that financial losses driven by the COVID-19 pandemic helped influence the decision to merge. Airlines have suffered a devastating stretch during the pandemic despite assistance from the U.S., and are in a weakened position heading into 2022.

On Monday, Spirit reported a 2021 loss of $440.6 million, excluding special items, such as federal pandemic aid. The results were an improvement from the $719.6 million deficit posted in 2020. Frontier lost $299 million last year, around the same amount as the previous year.

South Florida HQ site still needed

The deal raises questions about the status of Spirit’s proposed new headquarters in Dania Beach. The airline is now located in a corporate park in Miramar.

In 2019, Spirit declared it would invest $250 million to build a headquarters near Fort Lauderdale Hollywood-International Airport, and move up to 1,000 employees to the location.

In the interview, Christie said the project remains an important part of the airline’s future. “A sizable piece of that project is designed to satisfy our training needs of crews,” he said. “Regardless of what happens, we need that space.”

But he added that as important as South Florida and Florida are as contributors to the airline’s fortunes, “this is a real chance for South Florida to put its best foot forward.”

The Greater Fort Lauderdale Alliance, the economic development arm of Broward County, said it is prepared to respond.

“We’ll be doing everything we can to help the company determine that we would be the best location of choice,“ said Ron Drew, executive vice president at the alliance. “We have one of the largest aviation clusters in the country, of which Spirit has been an important part for many years.

“We also have a great pool of talent who is located here or wants to be here. … We’ll be working hard to make our case to the company about the reasons the new company would want to be here.”

Both airlines said they intend to add 10,000 people to the payroll by 2026. Spirit employed more than 8,750 system-wide at the end of last year, with roughly a third in South Florida.

One tension point could come from Denver-based Frontier itself.

The company is emerging as the predominant carrier in the deal; any decision about the base of the merged airline’s operations and other major decisions would be under Frontier’s control.

According to the companies’ statement Monday, the new airline’s board of directors will be comprised of 12 directors, including the CEO, seven of whom will be named by Frontier and five of whom will be named by Spirit.

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The merger is expected to close in the second half of 2022, subject to federal antitrust reviews, and approval by Spirit stockholders.

A Frontier Airlines jetliner taxis to a runway to take off from Denver International Airport. The airline is buying out South Florida-based Spirit Airlines in a merger of low-fare carriers. (AP Photo/David Zalubowski, File)

A Frontier Airlines jetliner taxis to a runway to take off from Denver International Airport. The airline is buying out South Florida-based Spirit Airlines in a merger of low-fare carriers. (AP Photo/David Zalubowski, File) (David Zalubowski/AP)

Antitrust scrutiny possible

The carriers may be in for a very close look by antimonopoly regulators. The Biden administration has signaled a tougher line against big corporate mergers.

Existing Frontier shareholders will own approximately 51.5% and existing Spirit stockholders will own approximately 48.5% of the combined airline.

Spirit shareholders will receive 1.9126 shares of Frontier plus $2.13 in cash for each existing Spirit share they own. This implies a value of $25.83 per Spirit share at Frontier’s closing stock price of $12.39 on Friday.

Shares of Frontier rose 3.15% on Monday to $12,79 while shares of Spirit jumped about 16.2%. to $25.25.

Information from the Associated Press appears in this report.

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