Frontier Airlines and Spirit Airlines, the two largest low-cost carriers in the U.S. have agreed to merge, creating what would become the fifth-largest airline in the country. The boards of both companies approved the deal over the weekend, prior to the CEOs of both airlines announcing the agreement in New York City.
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The combined press release reads,
Frontier Airlines and Spirit Airlines to Combine, Creating America’s Most Competitive Ultra-Low Fare Airline Highly Complementary Networks to Serve Over 145 Destinations Across the United States, Latin America and the Caribbean Consumers Win With $1 Billion in Annual Savings and Even More Ultra-Low Fares to More Places Combined Airline to Drive Competition and Expand Service to Underserved Small and Mid-Sized Cities Across the United States Combined Fleet Will Be the Youngest, Most Fuel-Efficient and Greenest in the United States Combination Provides Better Opportunities and More Stability for 15,000 Professionals, Adding 10,000 Direct Jobs by 2026.
The deal, valued at $6.6 billion, is structured with Frontier Airlines controlling 51.5% of the merged airline while Spirit will hold the remaining 48.5%. Spirit investors will receive 1.9126 shares of Frontier plus $2.13 in cash for each Spirit share they own.
Together, Frontier and Spirit expect to change the industry for the benefit of consumers, bringing more ultra-low fares to more travelers in more destinations across the United States, Latin America and the Caribbean, including major cities as well as underserved communities.
The stronger financial profile of the combined company will empower it to accelerate investment in innovation and growth and compete even more aggressively, especially against the dominant “Big Four” airlines, among others
The Board of Directors for the new airline will be comprised of 12 directors (including the CEO), seven of whom will be named by Frontier and five of whom will be named by Spirit. Mr. Franke will be Chairman of the Board of the combined company.
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Still to be determined is the CEO name of the combined carrier, and the location of the carrier’s headquarters. The chair of the new airline will be Bill Franke - the current chair of Frontier and managing partner of its parent company, Indigo Partners. In a release announcing the agreement, Franke said the combined carrier “will create America’s most competitive ultra-low fare airline for the benefit of consumers.”
“We are thrilled to join forces with Frontier to further democratize air travel,” said Ted Christie, President and CEO of Spirit. “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.”
For Franke, the deal is the latest in a career of making investments in and overseeing low-fare airlines around the world, including Spirit. From 2006 through 2013, Indigo Partners held a stake in Spirit with Franke serving as chair of the airline before he resigned when Indigo sold its position in the carrier. Shortly after that move, Indigo bought Frontier Airlines from Republic Airways for $145 million.
Since that acquisition, Denver-based Frontier has steadily expanded its route network with new destinations and additional flights, often targeting cities where larger airlines like Southwest have a strong presence. In almost every case, Frontier enters with low fares to gain a foothold with price-conscious travelers.
“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,” said Mac Gardner, Chairman of the Board of Spirit.
“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.”
“Together, Frontier and Spirit will be America’s Greenest Airline and deliver more ultra-low fares to more people in more places,” said Barry Biffle, President and CEO of Frontier. “I couldn’t be more excited for our team members, customers, partners, the communities we serve and our shareholders.”
Spirit, based in Miramar, Fla., has also been aggressively expanding in the last decade and plans to continue that strategy once combined with Frontier. “This transaction is centered around creating an aggressive ultra-low fare competitor to serve our guests even better,” said Spirit CEO Ted Christie in a statement about the agreement.
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Consumers Win With More Ultra-Low Fares to More Places , the combined airline is expected to:
In 2013, Spirit and Frontier had 2.8% of the revenue passenger miles flown by U.S. airlines, according to the Department of Transportation. By 2019, their combined market share had almost doubled to 5.4% while the four largest airlines in the U.S., American Airlines, Delta, United and Southwest, controlled 73.9% of revenue passenger miles.
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Shareholders Win With Superior Value Creation
The combination of Spirit and Frontier is expected to deliver enhanced value to shareholders of both companies.
With a common fleet of Airbus aircraft and neither leading the market, the Spirit - Frontier merger makes sense for now. 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.
Citigroup Global Markets Inc. is serving as financial advisor and Latham & Watkins, LLP is serving as legal advisor to Frontier . Barclays and Morgan Stanley & Co. LLC are serving as financial advisors and Debevoise & Plimpton LLP is serving as legal advisor to Spirit.
