Spirit and Frontier Airlines announced a merger and I’m dreading it. Here’s why.
Frontier Airlines Proposes Buying Spirit Airlines
In surprise news this morning, Spirit and Frontier Airlines made a joint announcement of a proposed merger to create the 5th largest carrier in the US and the largest Ultra Low Cost Carrier (ULCC) in the US. Here’s what the carriers said:
“Denver, Colo. and Miramar, Fla., February 7, 2022 – Spirit Airlines, Inc. (“Spirit”) (NYSE: SAVE) and Frontier Group Holdings, Inc. (“Frontier”) (NASDAQ: ULCC), parent company of Frontier Airlines, Inc., today announced a definitive merger agreement under which the companies will combine, creating America’s most competitive ultra-low fare airline.
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.
William A. Franke, the Chair of Frontier’s Board of Directors and the managing partner of Indigo Partners, 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.”
“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.”
If the merger occurs it would be expected to close in the second quarter of 2022. Spirit Shareholders stand to receive just shy of 2 shares in the new company for every share they own in Spirit (SAVE.) The merged company would easily be the largest airline in the low-cost space with more than 300 aircraft in the combined airline and a substantial market share in the space. The carriers intend to form both a horizontal merger and a vertical merger, lowering costs throughout the supply chain and adding routes and revenue.
Among the finer points, the two carriers would fly to 145 destinations with more than 1,000 daily flights.
Why I Am Dreading It
Spirit won me over when I started to really compare the perks of my American Airlines Executive Platinum status and United 1K status for domestic flights. My ability to clear upgrades on key flights was about 50% with United and slightly higher with American but those also involved a connection. To be able to buy that upgrade for $50/flight was a huge advantage. Every other benefit was the same with Free Spirit Gold – except I received more points for my ancillary purchases with Spirit, and when United could hand out snack boxes in first class, but not to their 1Ks in the back of the plane that didn’t clear an upgrade – due to COVID – Spirit did.
Some of those benefits are in the Frontier program as well, and there are some additions like status for the family too and included DEN membership. That should be good, right?
Spirit is about to complete wifi additions to all of their aircraft. That’s helpful for business travelers or those that find themselves working from anywhere, but unwilling to be out of contact for 3-4 hours on a flight in the middle of the day. Spirit has the fittest fleet (newest aircraft) in the US because they are cheaper to operate (better fuel economy, lower maintenance costs) but that’s also better for passengers and the environment. It also helps with dependability.
Frontier doesn’t offer a Big Front Seat, one of my favorite deals in the domestic travel industry. Those seats are larger than most of the American Airlines, United Airlines, and Delta Air Lines first-class seats (outside of trans-con or repurposed wide-bodies with lie flat) and sold for about $50 (sometimes a little more, sometimes a little less on board.) That’s a steal.
In the back of the plane, Frontier seats are generally uncomfortable. Thin backing and stiff seats are the reason why we don’t even shop Frontier flights, despite flying as cheap as $7 each from Seattle to Denver. Spirit seats might not be Lay-Z-Boy but there is a material difference in comfortability on Spirit coach seats over Frontier.
Spirit opts for less frequent flights often between smaller markets. Spirit offers more consistent traffic on flights between major cities. For example, readers of this blog know I have a home in Pittsburgh and routinely transit to southwest Florida. Frontier flies from Cleveland (we’ve taken it just once) nonstop but only on some days. I have family in Omaha that also fly to Fort Myers and they don’t even shop Frontier for those flights because they know they can’t count on them for when they want to travel. Spirit is far more consistent.
Spirit has been great about growing from big markets. They targeted Miami despite its huge position just 20 miles up the coast in Fort Lauderdale. Spirit flies to as many destinations in Colombia (six) as American Airlines that simply owns a ton of traffic from south Florida to the Americas. Spirit has several destinations in Ecuador, they fly to Perú, and all over the Caribbean. I want that to continue to be able to offer more flights, competition, and options throughout the Americas and Frontier hasn’t sought that market to the same degree from its Denver base. I worry that this push will stop right as growth seems to be accelerating.
Despite the merger being just 48.5% Spirit to 51.5% for Frontier, the board will be split 5 to 7 respectively. Spirit had a posture of improving its guest experience in a way that Frontier was not. Ceding control to Frontier, I fear, will lead to a bigger Frontier, not a merger of near equals nor a combined approach to improve the experience in the way Spirit has demonstrated they will and are.
I don’t fly Frontier. I fly Spirit. More Frontier won’t make me a fan of their approach to the market in the way that Spirit has positioned itself.
Is There An Upside?
I won’t lie that I am hoping a combined loyalty program adds the few benefits that Spirit is missing that Frontier has. I would also like the flexibility to fly more routes with my Free Spirit Gold status.
There is a chance that some route consolidation (especially into Las Vegas, Orlando) opens up aircraft that can be used to fly new routes to markets further afield. Fort Lauderdale to Lima is currently farther than Boston to Iceland (Dublin is also in range), San Diego and San Francisco to Hawaii remain shorter as well – it would be nice to see Spirit stretch its legs further. A broader network will also put pressure on the big four carriers for pricing where they have enjoyed greater frequency and market dominance.
There’s also a possibility that Frontier adopts the Spirit approach to certain aspects of the business. Southwest Airlines was once viewed as these two carriers are now, they invented the “Low Cost Carrier” model before the Ultra Low Cost Carrier model ever existed. Now, Southwest is nearly equal to its big four peers and in some ways offers a premium that others are chasing to match (like messaging onboard.)
There’s also a chance that this bolsters the combined airline’s chances to push back against the big boys and create savings for travelers, though less competition usually doesn’t achieve that.
The Biden Administration has also been resistant to monopolies and is suing JetBlue and American Airlines over their approved codeshare to stop their partnership. It’s possible that reducing ULCCs to just this combined carrier and Allegiant could leave the market segment too slim to pass the regulatory muster.
I just don’t trust Frontier. I have grown fond of Spirit and want to see that carrier continue to grow. If this combination were to take place in 12 months instead of now, I would postulate that it would be Spirit buying Frontier giving me a completely different outlook on this conglomerate merger. I don’t suspect that the carriers will charge more for seat assignments (other carriers already do this) nor increase cost of printing a boarding pass. But I do worry that commitments to wifi across the fleet, or sustaining the Big Front Seat could go and that has me concerned. I will wait for more information before reaching a judgment, but am frankly hoping this does not go through.
What do you think? Will Frontier deteriorate Spirit advances? Will the combined carrier lead to lower costs or greater competition against the Big Four? Do you think the merger will be approved?