Frontier Airlines and Spirit Airlines, the two largest low-cost airlines in the United States, agreed to merge, creating what would become the nation’s fifth-largest airline. The boards of both companies approved the deal over the weekend, before the CEOs of both airlines announced the deal in New York.
The deal, valued at $6.6 billion, is structured with Frontier Airlines controlling 51.5% of the merged airline while Spirit will own the remaining 48.5%. Spirit investors will receive 1.9126 Frontier shares plus $2.13 in cash for each Spirit share they hold. The companies say the deal implies a value of $25.83 per Spirit share, which would represent a 19% premium to the value of Spirit shares at the end of last week.
It remains to be determined the name of the combined carrier, who will be the CEO, and the location of the airline’s headquarters. The chairman of the new airline will be Bill Franke, who is the current chairman of Frontier and managing partner of its parent company Indigo Partners. In a statement announcing the deal, Franke said the combined carrier “will create America’s most competitive ultra-low-cost airline for the benefit of consumers.”
For Franke, the deal is the latest in a career of investing in and overseeing low-cost airlines around the world, including Spirit. From 2006 to 2013, Indigo Partners held a stake in Spirit with Franke as the airline’s chairman before stepping down when Indigo sold its position in the carrier. Shortly after this decision, Indigo purchased Frontier Airlines from Republic Airways for $145 million.
Spirit Airlines planes are seen parked at the end of a runway at Orlando International Airport on the sixth day the airline canceled hundreds of flights.
Paul Hennessey | Light flare | Getty Images
Since that acquisition, Denver-based Frontier has steadily expanded its route network with new destinations and additional flights, often targeting cities where major airlines like Southwest have a strong presence. In almost all cases, Frontier offers low fares to gain a foothold with travelers looking for lower cost tickets.
Spirit, based in Miramar, Fla., has also been aggressively expanding over the past decade and plans to continue that strategy when combined with Frontier. “This transaction is focused on creating an aggressive competitor at a very low price to even better serve our customers,” Spirit CEO Ted Christie said in a statement regarding the agreement.
According to the Department of Transportation, in 2013, Spirit and Frontier accounted for 2.8% of revenue passenger miles flown by US airlines. By 2019, their combined market share had nearly doubled to 5.4%, while the four largest US airlines, American Airlines, Delta, United and Southwest, controlled 73.9% of revenue passenger miles. .
With both carriers flying only Airbus aircraft and neither dominating a particular market, a Spirit/Frontier merger makes sense on paper. Yet the Biden administration has made it clear to corporate America that it will review potential mergers far more aggressively than the Trump administration. The carriers expect the deal to close in the second half of this year.
TBEN’s Meghan Reeder contributed to this article