Frontier Airlines and Spirit Airlines, two of the largest low-cost carriers in the United States, have agreed to join forces to become the fifth-largest airline in the country. The boards of directors of both companies approved the deal over the weekend before executives of both airlines announced the agreement in New York.
As a result of the $6.6 billion deal, Frontier Airlines will control 51.5 percent of the combined airline, while Spirit Airlines will own the remaining 48.5 percent. The companies say the deal implies a value per Spirit share of $25.83, which was 19% higher than Spirit's share price at the end of last week.
The new company will need to determine a name for the combined carrier, appoint a CEO and choose a location for the airline's headquarters. Bill Franke, the current chairman of Frontier and managing partner of its parent company, Indigo Partners, will serve as chairman of the new airline. Franke said the combined carrier will "create America's most competitive airline with ultra-low fares for the benefit of consumers."
For Franke, the deal is the latest in a career of investing and overseeing low-cost airlines worldwide, including Spirit. Indigo Partners owned a stake in Spirit from 2006 to 2013, and Franke was chairman of the airline's board before he resigned when Indigo sold its position in the carrier. Indigo bought Frontier Airlines from Republic Airways shortly after that for $145 million.
Since that acquisition, Denver-based Frontier has steadily expanded its route network, adding new destinations and additional flights, often targeting cities where larger airlines such as Southwest Airlines have a strong presence.
Spirit, based in Miramar, Florida, has also aggressively expanded over the past decade and plans to continue that strategy after its merger with Frontier. "This deal is focused on creating an aggressive competitor with ultra-low fares to serve our customers even better," Spirit CEO Ted Christie said in a statement about the agreement.
According to the US Department of Transportation, Spirit and Frontier accounted for 2.8 percent of passenger-mile revenue carried by US airlines in 2013. By 2019, their combined market share had nearly doubled to 5.4%, while the four largest US airlines, American Airlines, Delta Air Lines, United Airlines, and Southwest Airlines, controlled 73.9% of passenger-mile revenue.
Since both carriers fly only Airbus aircraft and don't dominate any particular market, the Spirit and Frontier merger shouldn't raise serious questions for regulators. Nevertheless, President Joe Biden's administration has made it clear to corporate America that it'll examine potential mergers much more closely than Donald Trump's administration. As a result, carriers expect the deal to close in the year's second half.
Spirit shares jumped about 11% at Monday's premarket, while Frontier Group shares fell nearly 3%.
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