Frontier Airlines announced it had agreed to purchase its low-cost rival Spirit Airlines this morning in a deal valued at $6.6 billion. It’s huge news for the airline industry as a whole—as well as for those among us who enjoy computing the size of our belongings with a tape measure and flying with leg room that makes the most sense for a 12-year-old.
The merger is a rather aggressive move during what’s been the worst two years imaginable for the airline industry. Even after a whopping $16 billion in federal grants, the largest U.S. passenger airlines experienced a collective $841 million in pre-tax losses in the first nine months of 2021, per data from Airlines for America. That was even prior to the surge of the Omicron variant and then the weather that grounded thousands of flights each day over the holiday season.
But that’s precisely why it may make sense for Frontier and Spirit to combine right now: Airline staffing shortages are at new heights, and things aren’t going all too well alone. Spirit suffered an $87.2 million loss in the last three months of 2021. In the company’s most recent earnings call in October, Spirit CEO Ted Christie warned of high fuel prices, staffing issues—particularly in Fort Lauderdale—and a surge in Delta cases. “The direct and indirect impacts of the pandemic have lasted longer than anyone could have predicted,” he said on a call with analysts. And that was months ago, prior to Omicron making everything a whole lot worse. Frontier’s net income was net positive in its latest-reported quarterly earnings report, but was down 61% from 2019 levels.
This deal will also put the two budget airlines in a better position to go up against “The Big Four”—American, Delta, United, and Southwest. These companies hold a remarkably close reign on the market, with more than 80% of market share of domestic air travel in the U.S. A new Frontier-Spirit entity would leapfrog JetBlue and Alaska Airlines and become the fifth largest carrier in the market, according to an investor presentation the companies jointly issued this morning. It would also give them the ability to unite staffing forces in the few dozen airports they both operate in.
While Frontier is acquiring Spirit (Frontier shareholders will own a 51.5% stake in the combined entity, while Spirit shareholders will own about 48.5%), Spirit actually has more planes in its fleet, with 173 at 2021 year-end compared to Frontier’s approximately 112 aircraft. The new entity, which is expected to form after the deal closes in the second half of 2022, pending regulatory approval, will be making more than 1,000 flights a day to more than 145 airports. The entity plans to add an additional 10,000 workers by 2026.
Despite many predictions that the airline industry would shrink amid new deals during COVID, we actually haven’t seen much consolidation so far, apart from Korean Air’s planned acquisition of Asiana Airlines, originally announced in November 2020. On a global scale, the sector has been rather sleepy, particularly since governments back many of the largest airlines. There have been attempts to tag-team: American Airlines and JetBlue tried to consolidate operations in Boston and New York in 2020, but the Department of Justice recently sued in response to that attempted alliance.
Frontier and Spirit haven’t said whether flights will operate under one of the names, both, or a new brand altogether. Perhaps they’ll merge the two into something like “Spontier” or “Frontier-it.” No one has ever paid me to name a brand, and they shouldn’t start anytime soon.
See you tomorrow,
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