According to the companies, Frontier and Spirit Airlines seek to merge in a $2.9 billion transaction. This would create a more significant budget airline to compete against the nation’s leading airlines while also promoting cheaper rates. Both are super-cheap carriers that entice customers with dirt-cheap fares for no-frills service. But they also create a lot of customer complaints. Ethics officials in the Biden Administration that have expressed a more rigid stance against significant corporate acquisitions are going to scrutinize the deal closely.
However, the merger would only be fifth in passenger capacity and 7th in profitability among US airlines. Frontier and Spirit are positioning their combination as a countermeasure to American, United, Delta, and Southwest Airlines, which dominate around 80% of the US air travel industry. Frontier CEO Barry Biffle remarked that the Biden government has made it plain since last year to foster competition inside the airline industry. It is a response to the big four regaining competitive balance.
How Airlines are Fighting to Recover?
As the pandemic enters its third year, airlines are fighting to recover. Frontier and Spirit announced fourth-quarter losses on Monday, with Frontier losing $53 million and Spirit losing $87.2 million. Both corporations also expect to lose money in the year 2021. According to the airlines, allowing them to join will open up a slew of new routes that aren’t currently served by ultra-low-cost carriers, saving passengers $1 billion per year. They further predict that by 2026, the combined company will have expanded and added 10,000 jobs.
In recent years, ultra-low-cost airlines have shook up the airline industry, enticing customers away from established carriers. Seducing those who refuse to pay major-airline fares, including less-senior workers, with their lower cost structure. Frontier and Spirit regularly have some of the industry’s highest complaint rates; they were placed worst and second to last in the Transportation Department’s most recent monthly numbers. Many of the complaints are about flights being canceled or delayed. Consequently, the airlines claim that they would be able to build a more dependable airline with reduced flight delays by joining forces.
According to the acquisition statement, Frontier stockholders would control 51.5% of the new firm. Spirit stockholders will get 1.9126 Frontier shares plus $2.13 in payment for each share of Spirit. Valuing Spirit at $25.83 per share depending on Frontier’s Friday closing share price of $12.39. According to the firms, the deal is set to finalize in the second part of the year. Spirit shareholders must yet approve it.