Frontier and Spirit Airlines Merging to Create Ultra-Low-Cost Carrier Giant

The Creation of a Mammoth ULCC

Frontier Group (ULCC) is set to acquire fellow ultra-low-cost carrier Spirit Airlines (SAVE) in a cash-and-stock deal. The merger would leave Frontier as a majority shareholder of the new company. Industry observers note the resulting airline would be a behemoth in the relatively new ULCC market, not to mention the fifth largest airline in the US.

The ULCC model drastically cuts costs and offers consumers much lower fares in comparison to traditional competitors. Most services that come standard on other airlines, such as checked bags and food, are extra charges with low-cost carriers. There are also up-charges for things like extra legroom. Executives say the merger will allow for even more aggressive competition with larger airlines.

Airline Industry Reeling Amid COVID-19

Analysts have speculated as to a possible Frontier-Spirit merger for years. In fact, Spirit’s former chairman attempted to make it happen in 2013 and eventually resigned to purchase Frontier instead. This deal comes as all types of businesses associated with travel attempt to rebound from the pandemic’s disruption. Higher costs and persistent labor shortages have hampered the industry.

Throughout the course of the pandemic, ultra-low-cost carriers that focus on servicing domestic leisure travelers have outperformed other airlines. Larger carriers that rely more on business and international travel have been slower to recover. Still, the ULCC model is facing increased competition from American Airlines (AAL) in particular, as analysts say the company has begun targeting the same types of travelers.

Regulatory Approval No Slam Dunk

Reports note there’s no guarantee regulators will approve the merger. Just last year the Department of Justice sued both American Airlines and JetBlue (JBLU), alleging they’d partnered up to limit competition and raise fares. A similar challenge against American Airlines and US Airways in 2013 ultimately led to a completed merger only after both companies made concessions to the Obama administration.

The newly announced Frontier-Spirit partnership may face similar scrutiny, but company executives are attempting to get out in front of the issue. During a call with analysts to announce the deal, Frontier CEO Barry Biffle previewed their argument saying the goal is not “reducing competition and raising fares.” Both companies also said the Omicron variant hurt their fourth-quarter sales. The ultra-low-cost carrier model is one that increasingly works for many travelers, and regulators will undoubtedly be considering the sector’s future when evaluating this deal.

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