The two budget airline companies Frontier Airlines and Spirit Airlines unveiled their plan to merge both airlines into one company that would create the fifth-biggest American airline company. The merging of the airline companies is valued at $6.6 billion being the nation’s fifth-largest airline according to market shares that will place pressure on competing airlines.
This merger deal is important for both airline companies who are all undergoing efforts in recovering from a lapse of business due to the COVID-19 global pandemic. In a combined effort the merging airlines will be able to offer 1,000 flights daily for over 145 destinations through the United States, Latin America, and the Caribbean.
The new deal will also save both companies a combined $1 billion annually without any layoffs of employees and will be adding 10,000 more direct jobs by 2026 with long-term plans of creating thousands of new jobs in collaboration with business partners. This plan is on track for quick progress as the merger was expected to be finalized in the second half of the year due to the approval of Spirit shareholders as they are subject to regulatory review.
Frontier Group Holdings (Frontier’s parent company) has a private equity company Indigo Partners that have a controlling interest and approved the new deal with Spirit Airlines. The merger agreement gives Frontier controlling power to name seven of the 12 board members and Frontier equity holders will maintain control of 51.5% of the combined company.
Indigo Partners is known as a private equity firm specializing in investing in budget airlines with the managing partner of Indigo Partners and chairman of Frontier, William A. Franke, who will head the board of the merged company. Franke has served as a Spirit chairman from 2006 to 2013 with Indigo Partners playing a key role in both airlines going public with Spirit in 2011 and Frontier in 2021.
This promising plan might experience some delay with regulatory challenges as it’s unclear whether the merger will be approved by the federal antitrust regulators in order to combine the two budget airline companies. The Biden administration is taking a more aggressive stance on antitrust cases as increasing the competition in the airline industry is cited as a priority issue in the administration. With antitrust issues being a top priority for the Biden administration, it recently blocked a planned merger with JetBlue and American airlines.
Mergers have greatly shaped the U.S. airline industry within the last 25 years as four of the largest airlines were formed through a series of mergers among 10 airlines. The merger of Spirit and Frontier will be the first U.S. airline merger since 2016 when Alaska Air acquired Virgin America.
The executives behind the proposed Spirit-Frontier merger believe that this deal will bring more competition to the industry. The companies disclosed they will be deciding on new branding before the merger is finalized. The merger will also benefit customers by offering better service and cheaper airfares.