Spirit Airlines, Inc. and Frontier Group Holdings, Inc. announced a merger agreement.
No name for the combined airlines was announced. Frontier serves Wilmington-New Castle with twice-weekly fights, Philadelphia International Airport, and more recently Baltimore-Washington/Thurgood Marshall. Spirit serves both Philadelphia and Baltimore-Washington.
A joint release touted the benefits of the merger that would create the fifth-largest U.S. airline. The airlines stated that the combination would add flights to under-served cities that have lost service due to the Covid-19 downturn and labor shortages.
William A. Franke, chair of Frontier’s board and the managing partner of Indigo Partners, Frontier’s majority shareholder, noted that Indigo has a long history with both airlines. “We worked jointly with the board of directors and senior management team across both carriers to arrive at a combination of two complementary businesses that together will create America’s most competitive ultra-low fare airline for the benefit of consumers.”
Franke moves from Spirit to Frontier.
Franke’s Indigo had a controlling interest in Florida-based Spirit. It moved it into the ranks of ultra-low fare carriers that offer low base fares and then charge for everything from seat assignments to soft drinks and luggage in overhead compartments.
Indigo sold off its stake in Spirt and acquired Frontier, at the time a struggling carrier, and converted it to the ultra-low fare format. Frontier vowed to improve the low-fare flight experience, a problem that plagued Spirit, which remains the butt of jokes from comedians and talk show hosts.
It has been widely speculated that Franke, 84, had an ultimate goal of combining the two airlines, despite their slightly different operating styles. Spirit typically offers daily flights to its destinations, while Frontier serves many cities with flights that run a few times a week.
The Spirit model makes the airline more of an option for budget-minded business travelers who could return to the skies when the pandemic recedes.
Franke is the former CEO of Phoenix-based America West, acquired by US Airways, now American. He went on to form Indigo, which in addition to Frontier, has a controlling interest in low-fare airlines in Mexico and Europe.
Under the new owner, Frontier also dropped service from Wilmington-New Castle but added a small number of flights to Orlando last year.
Both carriers fly Airbus jets, with Frontier having one of the newest and most fuel-efficient fleets.
Under the deal, Frontier and Indigo would control slightly more than half of the merged company’s stock.
Betting on Biden administration OK
The merger represents a bet on the Biden Administration’s blessing for the deal. The administration has vowed to take a closer look at mergers.
Under previous administrations, airline mergers were routinely approved, leaving the nation with four large carriers with “fortress hub” airports and more pricing control. Examples include the American hub in Philadelphia and Southwest’s operation at Baltimore/Washington.
Even if the merger of Frontier and Spirit goes through, the combined carrier would be about half the size of Southwest Airlines, the fourth-largest carrier in terms of total revenue.
In making a case for the merger, the carriers said their growth plans would add 10,000 new jobs by 2026 and would bring lower fares to many destinations.
The low fare promise is sometimes undercut by the added fees that can add up to fares that are close to those of other airlines. Spirit and Frontier focus on shorter routes where passengers carry less luggage.
The company would have annual revenues of approximately $5.3 billion based on 2021 results on a combined basis.
