It seems that Spirit Airlines and Frontier Airlines are to merge in an announcement today.
Both Spirit Airlines, Inc. and Frontier Group Holdings, Inc have announced a definitive merger agreement under which the companies will combine, creating what they describe as “America’s most competitive ultra-low fare airline”.
The move will bring more ultra-low fares to more travellers in more destinations across the United States, Latin America and The Caribbean, including major cities as well as underserved communities. This is over 145 destinations, spread across 19 countries, offering over 1000 flights a day.
Of course, there’s a money side – with the one airline being stronger able to take on the legacy airlines, which would make the combined entity the fifth largest airline in the USA.
Passenger Benefits
The combined airline is expected to offer more than 1,000 daily flights to over 145 destinations in 19 countries, across
complementary networks. This will be supported by an order book for 350 aircraft.
In terms of network, they aim to increase access to ultra-low fares by adding new routes to underserved communities across the
United States, Latin America and the Caribbean.
For the frequent flyer, they expect to expand frequent flyer offerings.
Meanwhile for staff
Meanwhile for their staff, by 2026 Spirit and Frontier expect to add 10,000 direct jobs and thousands of additional jobs at the companies’ business partners. All team embers are expected to be offered opportunities at the new airline. They expect that Team Members of the combined airline will have better career opportunities and more stability as part of the most competitive ultra-low fare airline in the United States.
Don’t forget the shareholders!
Shareholders are set to win too, with a company that will have annual revenues of approximately $5.3 billion based on 2021 results.
Of course, there will be the “synergy” phase, where savings of $500 million when the merger is complete. They expect to gain this by scale efficiencies and procurement savings across the enterprise with approximately $400 million in
one-time costs.
Onto the agreement
Under the terms of the merger agreement, which has been unanimously approved by the boards of directors of both companies, Spirit equity holders 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 February 4, 2022, representing a premium of 19% over the February 4, 2022, closing price of Spirit, and a 26% premium based on the 30 trading-day volume-weighted average prices of Frontier and Spirit.
The transaction values Spirit at a fully diluted equity value of $2.9 billion, and a transaction value of $6.6 billion when accounting for the assumption of net debt and operating lease liabilities.
Upon closing of the transaction, existing Frontier equity holders will own approximately 51.5% and existing Spirit equity holders will own approximately 48.5% of the combined airline, on a fully diluted basis, providing both Frontier and Spirit equity holders with substantial upside potential.
The merger is expected to close in the second half of 2022, subject to satisfaction of customary closing conditions, including completion of the regulatory review process and approval by Spirit stockholders.
Frontier’s controlling stockholder has approved the transaction and related issuance of shares of Frontier common stock upon signing of the merger agreement.
In Quotes
William A. Franke, the Chair of Frontier’s Board of Directors and the managing partner of IndigoPartners, Frontier’s majority shareholder, noted that Indigo has a long history with both Spirit and Frontier, and is proud to partner with them in creating a disruptive airline.
“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.”
Ted Christie, President and CEO of Spirit said
“We are thrilled to join forces with Frontier to further democratize air travel,”
“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. We look forward to uniting our talented teams to shake up the airline industry while also continuing our commitment to excellent Guest service.”
Mac Gardner, Chairman of the Board of Spirit added
“This combination is all about growth, opportunities and creating value for everyone – from our Guests to our Team Members to the flying public at large,”
“We’re a perfect fit – our businesses share similar values, including our longstanding commitment to affordable travel. At the same time, we have complementary footprints and fleets, including one of the youngest and greenest fleets worldwide. Together, we will be even more competitive for our Guests and our Team Members, and we are confident we can deliver on the benefits of this combination to consumers.”
Barry Biffle, President and CEO of Frontier concluded
“Together, Frontier and Spirit will be America’s Greenest Airline and deliver more ultra-low fares to more people in more places,” said “I couldn’t be more excited for our team members, customers, partners, the communities we serve and our shareholders.”
Which brand will survive?
A good question – the combined company’s management team, branding and headquarters will be determined by a committee led by Mr Franke prior to the close of the merger.
Let’s see what happens next
If this merger doesn’t raise at least an anti-trust eyebrow or two, I would be very surprised. It seems the two airlines are attempting “a merger of equals”, with Spirit being the dominant partner in shareholding at least.
It’s going to be interesting how the merger goes through the regulators as they pour over the details during the next few months….
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Probably makes sense but anti trust could be an issue yes. However, other big US airlines have got away with similar and I’m sure it’ll pass through. Nice modern Airbus fleet too. Perhaps rename it “Frontier Spirit” it would be very traditional North American!
Have to admit I didn’t see this one coming. Technically, Frontier is the surviving corporation, since Spirit shareholders are receiving Frontier stock (and some cash), but on the other hand in many ways Spirit is the dominant partner, they’re certainly better-known nationally. But on the other other hand the new entity will be a subsidiary of Indigo Partners, Frontier’s parent, so it’ll be really interesting to see which management comes out in control.
Not that worried about antitrust issues – at the slot-controlled airports there’s only significant overlap at LaGuardia, and even then the combined airline would be around 10%, perhaps a little more, but at most only a little bigger than Southwest. I could see them possibly having to give up a few slots but DOJ and the Porth Authority would want them to go to a new entrant or a very small player, and I’m not sure who’d want them. Neither airline flies to JFK, and only Frontier serves DCA, to one destination. Outside the slot-controlled airports they might have to give up a few gates at airports where they both have large operations (DFW, ORD, etc), but that’s about it.
This really puts the pressure on JetBlue and Alaska to find dance partners, or for JetBlue to try to expand the “Northeast Alliance” further and deeper.