We break down the implications of this airline shakeup.
The country’s two largest discount airlines, Spirit and Frontier, are merging. We’ve got a breakdown of the deal and how it may affect the price of your next flight.
The details of this mega-merger:
The two low-cost carriers announced this week they’re joining forces in a deal valued at $6.6 billion. Frontier, which is based out of Denver, will have a controlling stake of 51.5 percent in the new company.
“The transaction is centered around creating an aggressive low-fare competitor that will better serve guests, expand career opportunities for our team members, and create value for our shareholders,” Spirit CEO Ted Christie said on a call with analysts. “Our businesses share similar values, including our long-standing commitment to affordable travel.”
The companies also said that they expect to expand, hiring another 10,000 workers by 2026.
Why link up now?
The big airlines have traditionally focused on catering to premium business travelers and international flyers, but that’s all changed with the pandemic and the subsequent shift to remote work. Now United, Delta, American Airlines, and Southwest are turning their attention to domestic travelers and vacationers — including the bargain hunters serviced by Spirit, Frontier, and Allegiant.
The budget airlines have fared better through the pandemic than their larger counterparts, partly because the vacation sector has rebounded from its low point during the first wave of Covid-19 lockdowns much faster than business or international travel.
A merger “makes a lot of sense” now that the “opportunity has ripened by the demand patterns of the pandemic,” a senior vice president at consulting firm ICF told CNBC.
Will it really lead to cheaper flights?
With its signature yellow planes, Spirit has a strong foothold in the east, while Frontier has more coverage in the west, Frontier CEO Barry Biffle said. That should “drive more customers onto our existing flights,” bringing “low fares to more people,” he said.
The merger could motivate bigger airline companies to adjust their pricing strategy in order to compete for customers, which may be a “good thing for leisure travelers,” a Deloitte analyst told Axios.
But not everyone’s so sure about that: “It’s rare to see this kind of consolidation be a positive for consumers,” another market expert said.
But not so fast…
The deal could still be nixed by the Justice Department, which sued in September to block a partnership between American and JetBlue. The DOJ argued the alliance would choke off competition and drive up ticket prices.
One analyst predicts the merger could face some objections given the Biden administration’s “‘big is bad’ approach,” but others have been more optimistic that a Frontier-Spirit merger would win approval.
