Is it just me, or are airlines more prone to mergers than other industries? In recent memory, I can think of Continental and United, Delta and Northwest, US Airways merging with American Airlines, Southwest and AirTran, Alaska and Virgin America … and there are probably more that I’m either forgetting or happened before I started paying much attention to the airline industry.
This week, Frontier Airlines and Spirit Airlines said they would merge, subject to regulatory approval.
What the Deal Could Mean for Consumers
Here’s an excerpt from the news release announcing the merger between Frontier and Spirit, which describes the combined company as “America’s most competitive ultra-low fare airline.”
Consumers Win With More Ultra-Low Fares to More Places
The combined airline is expected to:
- Deliver $1 billion in annual consumer savings.
- Offer more than 1,000 daily flights to over 145 destinations in 19 countries, across complementary networks.
- Expand with more than 350 aircraft on order to deliver more ultra-low fares.
- Increase access to ultra-low fares by adding new routes to underserved communities across the United States, Latin America and the Caribbean.
- Deliver even more reliable service through a variety of operational efficiencies.
- Expand frequent flyer and membership offerings.
Spirit and Frontier Merger Details
There’s a new website, EvenMoreUltraLowFares.com, that has more details on the merger. A few interesting nuggets of information:
- They expect the merger to close in the second half of 2022.
- It should probably go without saying to anyone who is reading this site, but this doesn’t mean that you can use your Spirit ticket or points on Frontier or vice versa. Even after (if) the merger closes, it will still take time to merge the two companies’ systems.
- The airlines claim that this will “deliver $1 billion in annual consumer savings.”
- If approved, this would make the new Frontier the 5th largest airline in the US and the largest ULCC.
My Thoughts on the Spirit and Frontier Merger
I am generally skeptical of mergers being good for consumers, though of course there remains a lot to be seen. There’s no doubt that there are some areas of overlap where I could understand how there would be close to $1 billion in savings. Whether that gets passed down to the consumer (vs. sent to the shareholders) — call me skeptical.
It will also be interesting to see how easy the regulatory approval process is. I have seen a few articles question whether the Biden administration will even approve this merger. My personal (non-insider) opinion is that it will be approved — after all, there are still 4 other airlines that are larger and while there is some overlap, the combined airline still represents a fairly low percentage of overall traffic. Perhaps it would be required to divest some airport slots / city-pair routes.
The Bottom Line
Frontier Airlines and Spirit Airlines have announced their intentions to merge by the second half of 2022. The new Frontier Airlines would be the 5th largest airline in the United States, pending regulatory approval. The companies suggest that the merge will “deliver $1 billion in annual consumer savings” (air quotes mine based on my skepticism). Time will tell if this merger is approved and/or what the impact will be for consumers and/or the frequent flyer programs of the new airline.
What do you think of the proposed merger between Frontier and Spirit? Leave your thoughts in the comments.
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Concerns a plenty.
Congress mandated low fares set by free market competition and following the CAB closure in 1985, that competition also made new entries very difficult. The four surviving major carriers carried 81% of the market in 2019. The three minor carriers had 19%.
Driving fares ultra downward only makes sense when trying to gain greater share of the market.
No one ever considers the high cost of fuel, aircraft maintenance, engine overhauls (which are rarely accomplished @ $3MM each) or the health and safety factors of avoided maintenance.
No one wants to hear how the years since deregulation have hurt crewmembers who breathe oil fumes on too many flights. Low fares will exacerbate the health problem and will compress the industry further.
The better, safer option will be to raise fares and invite new entries. Ah, but this won’t work in a world of unfair wealth distribution. Catch 22.
I personally think it’s a terrible idea as the goal is to eliminate a competitor. Let’s be honest – a “merger” is really an “elimination”. It always eliminates jobs for one thing (this is a firm 100% guarantee that will happen as we all know). It will be bad for consumers as today there are two ULCCs. If this takeover occurs, there will be one. Further, it will even further solidify the removing of more included goods, services, and amenities that the other airlines include today. This will lead to higher fees across the industry with even more amenities being removed. Once there is a single ULCC there will be nothing to keep their pricing under control. Already we see well over $500 r/t pricing before fees on these airlines between some markets.
This is bad for employees, bad for consumers, and bad for the industry.