Frontier Airlines
Photograph ©2021 by Brian Cohen.

Frontier Airlines and Spirit Airlines to Merge

The ultra deal of two ultra-low-cost airlines.

A definitive merger agreement between Frontier Group Holdings, Incorporated and Spirit Airlines, Incorporated — which are the respective parent companies of Frontier Airlines and Spirit Airlines — was announced earlier today, Monday, February 7, 2022; and it will result in the creation of the fifth largest airline in the United States once the merger is completed.

Frontier Airlines and Spirit Airlines to Merge

Spirit Airlines
Photograph ©2018 by Brian Cohen.

The combined entity is expected to be the most competitive ultra-low-fare airline in the United States, with expanded service to cities and communities which are considered to be currently underserved.

The terms of the merger agreement has been unanimously approved by the boards of directors of both companies, according to both this official press release from Frontier Airlines and this official press release from Spirit Airlines; and the terms of the agreement are as follows: “Spirit equity holders will receive 1.9126 shares of Frontier plus $2.13 in cash for each existing Spirit share they own. This implies a value of $25.83 per Spirit share at Frontier’s closing stock price of $12.39 on February 4, 2022, representing a premium of 19% over the February 4, 2022, closing price of Spirit, and a 26% premium based on the 30 trading-day volume-weighted average prices of Frontier and Spirit. The transaction values Spirit at a fully diluted equity value of $2.9 billion, and a transaction value of $6.6 billion when accounting for the assumption of net debt and operating lease liabilities.”

Once the merger transaction has closed — which is expected to occur sometime during the second half of 2022, subject to satisfaction of customary closing conditions, including completion of the regulatory review process — existing equity holders of Frontier Airlines will own approximately 51.5 percent of the combined airline on a fully diluted basis; and existing equity holders of Spirit Airlines will own approximately 48.5 percent of the combined airline on a fully diluted basis. Furthermore, the board of directors for the new airline will be comprised of 12 directors — including the chief executive officer — seven of whom will be named by Frontier Airlines and five of whom will be named by Spirit Airlines. This information suggests that Frontier Airlines is actually acquiring Spirit Airlines and is close — but not necessarily — a merger of equal entities.

The controlling stockholders of Frontier Airlines have approved both the transaction and related issuance of shares of common stock of Frontier Airlines upon signing of the merger agreement — whereas the transaction is still subject to approval by the controlling stockholders of Spirit Airlines.

Purported Benefits of the Combined Airline Entity

Frontier Airlines
Photograph ©2021 by Brian Cohen.

The purported benefits of the combined airline entity include:

  • Consumers win With More Ultra-Low Fares to More Places, as the combined airline is expected to:
    • Deliver $1 billion in annual consumer savings
    • Offer greater than 1,000 daily flights to over 145 destinations in 19 countries across complementary networks
    • Expand with greater 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 flier and membership offerings
  • Team members win with expanded opportunities and increased stability, as the combined airline entity expects:
    • To add 10,000 direct jobs — as well as thousands of additional jobs at business partners of the company — by 2026
    • To give all current team members an opportunity to be a part of the combined airline entity, given its growth
    • Team members to have better career opportunities and more stability as part of the most competitive ultra-low fare airline in the United States
    • Greater stability for 15,000 professionals
  • Sustainability wins with the “greenest” airline in the United States
    • The combined airline will offer sustainable and affordable travel with the youngest, most modern, and fuel-efficient fleet of airplanes in the United States — featuring the largest fleet of Airbus A320neo family aircraft of any airline in the country
    • The combined airline is expected to achieve greater than 105 seat miles per gallon by 2025
  • Shareholders win with superior value creation, as the combination of Frontier Airlines and Spirit Airlines is expected to deliver enhanced value to shareholders of both companies, as once Frontier Airlines and Spirit Airlines are combined, the company expects to:
    • Have annual revenues of approximately $5.3 billion based on 2021 results
    • Deliver annual run-rate operating synergies of $500 million once full integration is completed, which will be primarily driven by scale efficiencies and procurement savings across the enterprise with approximately $400 million in one-time costs
    • Have a strengthened financial profile, with a cash balance of approximately $2.4 billion as of the end of 2021 on a combined basis — pro forma unrestricted cash balance includes unrestricted cash, cash equivalents, and short-term investments and excludes transaction-related costs

As a combined airline entity, Frontier Airlines and Spirit Airlines expect to change the commercial aviation industry for the benefit of consumers by 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 American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines — among others.

Final Boarding Call

Spirit Airlines
Photograph ©2018 by Brian Cohen.

Press releases and official announcements from companies which are involved in a merger or acquisition almost never discuss the disadvantages of what they are doing, as all that really matters is profitability and anything associated with that.

Some route overlaps do occur between Frontier Airlines and Spirit Airlines. Will those overlaps mean more frequencies in schedules — or an opportunity to cut costs by consolidating or eliminating some of the supposedly duplicitous flights?

Less competition usually means higher costs for customers. Will the combined entity of Frontier Airlines and Spirit Airlines — which has yet to be officially named at the time this article was written — be an exception?

Also, what will the frequent flier loyalty program ultimately look like with the combined airline? A frequent flier loyalty program is a tool which is used by an airline to market to — and, ultimately, successfully sway — a potentially profitable customer to give his or her business to that airline instead of its competitors. Will there be less of an incentive for the frequent flier loyalty program of the combined airline to offer enticing benefits?

The answers to all of these questions and more will be forthcoming as the merger between the two airlines progresses…

All photographs ©2018 and ©2021 by Brian Cohen.

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