Frontier and Spirit Airlines to Merge; Why this Deal Makes Sense

Earlier this morning, Frontier and Spirit Airlines announced a $6.6 billion merger, a combination of low-fare carriers that would create America’s fifth-largest airline.

While the companies have yet to announce what brand they plan to fly under, the combined company would offer more than 1,000 daily flights to over 145 destinations.

This merger comes at a time where U.S. airlines still find themselves recovering from the long-winded effects of the pandemic, grappling with labor shortages, cost inflation and severe winter weather.

Airline Industry Forecast

A surge of the Omicron variant cancelled more than 10% of flights the first week of 2022 – an impact that will be felt more in the next earnings season. And while the worst of the variant seems to be behind the industry, we see another set of potential obstacles ahead of it…

Cost inflation and the rise in fuel prices.

On that front, the merger, set to close in the second half of the year, is expected to deliver annual run-rate operating synergies of about $500 million. The companies also stated the deal would deliver $1 billion in annual consumer savings, with more ultra-low fares to more destinations.

The combined company is expected to add 10,000 jobs by 2026, refuting the idea that savings will be made through job cuts.

“The merged company will be in an excellent position to combat rising operating costs. Some airlines are experiencing more than 20%-unit operating cost inflation before considering the rising cost of fuel,” says Third Bridge global sector lead Peter McNally.

While air travel within the U.S. has seen a strong comeback, the market has also become increasingly competitive. McNally also states that while major airlines wait for international and business travel to return more capacity is being added to the leisure market.

“Frontier and Spirit are moving to consolidate their positions there with a larger entity that will keep them among the lowest-cost carriers in the industry,” he said.

That’s certainly how the companies see it. The merger will allow the combined company to “compete even more aggressively” against the big four U.S. airlines— American, Delta, Southwest, and United—among others, Frontier and Spirit said in a joint statement.

Spirit CEO Ted Christie said the idea was to create an “aggressive ultra-low-fare competitor,” ultimately leading to more consumer-friendly fares.

What do you think about this deal? Leave your thoughts below!

Final Thoughts

Whether you think this combination is a match made in heaven or not, you can’t deny the many moving parts involved in any merger. As we continue to see how this plan unfolds, you may have your own process to consider. Mergers and acquisitions continue to serve as key strategies for companies looking to increase their market share.

Whether you are looking to take the next step or just gather more information, consider the power of a strategic business partner. Our team of M&A experts here at MCDA CCG, Inc.-headquartered in Placentia, Orange County, California, offer extensive knowledge to assist you through this unique decision and further alleviate any pressure you may feel as we walk you through this process.

Give our office a call today, or contact us here: Get in touch

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