Spirit Airlines is in a rough financial spot, and recently there were reports of the company considering a Chapter 11 bankruptcy protection filing. While we’ll see how this plays out, there’s now an interesting update, as the airline has reportedly resumed merger talks with a rival.
In this post:
Could Frontier Airlines acquire Spirit Airlines?
The Wall Street Journal reports that Frontier Airlines and Spirit Airlines have revived merger talks, though are at an early stage, and may not come to fruition. If a deal were to happen, it would likely come as part of Spirit restructuring its debt and other liabilities in bankruptcy. No further details are known as of now.
As a reminder, in February 2022, Frontier announced plans to acquire Spirit, to create a national ultra low cost carrier. However, following that, JetBlue also expressed interest in acquiring Spirit — not to maintain the company’s business model, but rather to be able to grow, and become a competitor to the “big four” US carriers (American, Delta, Southwest, and United).
In July 2022, JetBlue announced plans to acquire Spirit in a $3.8 billion deal, as the company outbid Frontier. However, the Department of Justice under the Biden Administration decided to challenge this merger, arguing that it was bad for competition. A trial was held in late 2023, and in early 2024 it was announced that a judge ruled to block the merger.
This left Sprit in a crappy situation. The airline was quite profitable pre-pandemic, but then there were several post-pandemic realities that the airline had to deal with. These included a shift in travel demand (consumers increasingly wanting premium products and long haul travel), higher labor costs (which hit ultra low cost carriers especially hard), and not being able to supplement those increased costs with as much loyalty program revenue.
Furthermore, Spirit spent a couple of years focused on becoming an attractive merger target, rather than focusing on its core business, and trying to minimize losses.
I think there’s merit to such a combination
Both Frontier Airlines and Spirit Airlines have been struggling with profitability post-pandemic, for reasons stated above. However, unlike the executives at the legacy carriers, I don’t believe that the ultra low cost carrier business model is dead. I actually do think there’s something to be said for the two companies combining, and the synergies that creates, with having one huge national ultra low cost carrier.
In many ways, this comes down to the argument that was made in favor of the merger a few years back. The airlines have highly complementary fleets and route networks, and I think there’s no reason a national ultra low cost carrier couldn’t be successful.
I just think that both Frontier and Spirit have done a poor job with leaning into their core strengths, and especially in recent years, they’ve been all over the place. I think that many of the changes that Frontier has made in the past year (simplifying its fares, basing aircraft at specific airports, etc.) have had a positive impact, and if that could be scaled, it could be quite successful.
So we’ll see how this all plays out, but I firmly believe there’s upside if an ultra low cost carrier can be scaled. And even if you don’t actually want to fly with this combined airline, there’s no arguing that it’s some much needed competition to keep the legacy carriers in check.
I imagine that Frontier could get quite a deal here, and I do believe that the ultra low cost carriers are currently at rock bottom in the United States.
Bottom line
Frontier Airlines and Spirit Airlines have reportedly resumed merger talks, nearly three years after the airlines first announced a merger agreement. This comes as Spirit is on the verge of bankruptcy, given the rough several years that it has had.
I know many people are really down on ultra low cost carriers and their viability in the United States. I feel strongly that there’s still a place in the market for these airlines, and if anything, a properly scaled carrier is best positioned to compete. For the sake of the employees at both of these carriers, and for the sake of airfare in the United States remaining competitive, I’m rooting for some sort of a deal here.
What do you make of the prospect of Frontier & Spirit merging?
I feel that there just isn't much demand for ULCCs in the US anymore, and that's just the reality. The demand has shifted to Europe and there is more premium demand than ever before. ULCCs can't compete on that front. Period.
Also, ULCCs have a goal of attracting people who really want a cheap airfare. People who might have flown on ULCCs before the pandemic may not have the money to travel at all...
I feel that there just isn't much demand for ULCCs in the US anymore, and that's just the reality. The demand has shifted to Europe and there is more premium demand than ever before. ULCCs can't compete on that front. Period.
Also, ULCCs have a goal of attracting people who really want a cheap airfare. People who might have flown on ULCCs before the pandemic may not have the money to travel at all right now, given inflation.
Now, ULCCs are doing things like eliminating change fees and competing in premium domestic markets, which almost defeats their purpose. They also cant compete on price with legacy carriers. Would you rather fly with Frontier and get a tight seat with no Wifi or entertainment and have to pay extra for everything, or fly American with everything included?
It seems you are making the assumption that they will try to maintain the same business plan that they have been using up until now. That is not necessarily the case.
I believe that there actually is a market for the ULCCs although it may be that they will have to make some changes to the marketing plan that they've been using.
I believe that whoever runs this merged company will have to be truly innovative, but I believe it's possible for them to succeed.
I think if Trump is elected president there will be another round of airline mergers. The most likely candidate would be Southwest. With an activist investment group taking over the board of directors it’s only a matter of time before they make a big move of some kind. JetBlue seems like the best candidate but I would not completely rule out a Delta/Southwest merger either, which would push JetBlue to American. You think it could...
I think if Trump is elected president there will be another round of airline mergers. The most likely candidate would be Southwest. With an activist investment group taking over the board of directors it’s only a matter of time before they make a big move of some kind. JetBlue seems like the best candidate but I would not completely rule out a Delta/Southwest merger either, which would push JetBlue to American. You think it could never happen but Paul Singer, the head of Elliott, is a major supporter of Trump and I don’t think his Administration would stand in Singer’s way. The only real obstacle Singer would face would be ALPA, they would definitely put up a fight.
Your comment made me laugh out loud.
Eliminating a carrier will not be a good thing for anyone. It's a guarantee that every up-front promise that will be made will be broke. There is not "merger". It's an elimination of one. They will double if not triple prices (they'll promise they won't but it's guaranteed that they will). They will downsize tremendously by cutting staff in the thousands. They will stop flying many routes and pull out of some airports all together....
Eliminating a carrier will not be a good thing for anyone. It's a guarantee that every up-front promise that will be made will be broke. There is not "merger". It's an elimination of one. They will double if not triple prices (they'll promise they won't but it's guaranteed that they will). They will downsize tremendously by cutting staff in the thousands. They will stop flying many routes and pull out of some airports all together. They'll promise that they won't do these things, but they will. Once one of the carriers were eliminated there will be NO low fare competition left. How can that be good for anyone other than stockholders? (It's not!)
If this would go through (big “if”), you have to wonder where this leaves JetBlue. The smallest of all the airlines with no obvious ways to acquire to expand. Avelo? Breeze? These are niche carriers and won’t give JetBlue the network boost it needs. And I don’t think they have time to grow it organically.
What If Scenario:
B6 has hunkered down along the east coast (BOS & JFK), Florida (FLL), & San Juan (SJU). Each of these would be well served by a feeder airline like Silver (3M) for yeoman duty where a A320 or A220 would be uneconomical.
As an example, Silver would address the Bahamas from FLL. Silver could also pick up duty to the islands around San Juan. Same with the smaller towns within...
What If Scenario:
B6 has hunkered down along the east coast (BOS & JFK), Florida (FLL), & San Juan (SJU). Each of these would be well served by a feeder airline like Silver (3M) for yeoman duty where a A320 or A220 would be uneconomical.
As an example, Silver would address the Bahamas from FLL. Silver could also pick up duty to the islands around San Juan. Same with the smaller towns within 150 miles of BOS or JFK.
At one time, AA had a regional out of San Juan so it could control a large chunk of the Caribbean.
A regional (JBExpress) would allow B6 to fortify its focus airports and ride out any immediate shake out in the North American market.
Just a thought….
A merger would be a mistake. Like all the legacy airline mergers post 2000, best to let Spirit go in a managed bankruptcy, shed it's expensive contracts, and Frontier can buy the remnants from bond holders.
I would think that would cost them more than if they merged. Other airlines want NK’s planes and pilots so if F9 can get them via merger, they should.
Spirit has always felt like a great option on routes that are not well served by price competition. Their planes seem new and well maintained and services like food and entertainment are unbundled, which is less a failure on their part (like domestic meals in regional first) than an ability to opt out of paying for something I don’t care to use. Perhaps this is wrong, but Frontier has always seemed to me (at similar...
Spirit has always felt like a great option on routes that are not well served by price competition. Their planes seem new and well maintained and services like food and entertainment are unbundled, which is less a failure on their part (like domestic meals in regional first) than an ability to opt out of paying for something I don’t care to use. Perhaps this is wrong, but Frontier has always seemed to me (at similar prices) like an airline that is on the verge of maintenance collapse and is monetizing as many red-staters as possible. Many people would say they don’t want either vibe, but in my mind the stereotype was always that someone might get into a fight at the Spirit gate over a delay and someone would be shoeless and in a tank top and very sunburned at the Frontier gate, possibly wearing MAGA gear. I’m sad the merger with JetBlue was blocked because I would have ridden on that combined carrier, and imagine that I will skip over the combination with Frontier sight unseen, as I do now. No clue if this is a common customer opinion or not. I simply can’t picture signing up for a transcon frontier flight.
Versus all the blue hair Harris supporters I see melting down at airports on Youtube. I can see you flying Spirit.
Well that’s a very sane response.
One of the airlines is hopeless unprofitable and the other unprofitable probably on an annual basis. While it might give them hope it's like thinking two drunks together can combine into one sober person.
Clearly the ULCC business model isn't viable long term. Both airlines are trying to alter their business model and time will tell if they can. But the days of $29 fares and then hoping to gouge some unsuspecting, clueless soul at...
One of the airlines is hopeless unprofitable and the other unprofitable probably on an annual basis. While it might give them hope it's like thinking two drunks together can combine into one sober person.
Clearly the ULCC business model isn't viable long term. Both airlines are trying to alter their business model and time will tell if they can. But the days of $29 fares and then hoping to gouge some unsuspecting, clueless soul at the airport for unexpected (and in some cases expected and known) fees to make a profitable operation seems to be coming to end, at least on a large scale. The combined airline might need to cut routes and return some planes and find niches it can work. Remember Southwest's rise to power in the beginning was about finding smaller and in some cases underutilized airports to stay out of the sites of the legacies.
F9 and NK have talked about a merger for years and would have pulled it off 2 years ago if B6 didn't interfere, hurting everyone else in the process - and itself the most.
NK will likely do a pre-packaged chapter 11 unless creditors agree to do what F9 needs to make NK work long-term.
The question is how F9 and NK integrate themselves - full merger or two separate brands - but there...
F9 and NK have talked about a merger for years and would have pulled it off 2 years ago if B6 didn't interfere, hurting everyone else in the process - and itself the most.
NK will likely do a pre-packaged chapter 11 unless creditors agree to do what F9 needs to make NK work long-term.
The question is how F9 and NK integrate themselves - full merger or two separate brands - but there is still enough overlap that both airlines will benefit as will everyone else in the industry via lower capacity and better pricing.
ironically, UA execs have talked for years about killing the ULCC sector and yet the ULCC sector is on the ropes because of their own actions or the collective competition with the big 4 and other carriers. AA and DL have the most network overlap with F9 and NK while WN potentially has the greatest potential benefit.
the real loser will be B6 that has no merger partners and will be further isolated as a niche player facing increasingly intense competition.
M&E always destroy value and lead to monopoly! Bad news for consumers!
Oops M&A!!!
I'd substitute the word "often" for "always" in your sentence there. Because, ultimately, this will not be an example of what you're saying; Spirit can either be acquired or it will not survive at all. That's what is at stake in this case. And had the Biden administration not been so closedmindedly ideological, JetBlue wouldn't be on the verge of bankruptcy either.
the DOJ blocking the Jetblue takeover = they will undoubtedly block the Frontier takeover. of course, there’s an election in two weeks and things can change, but i wouldn’t bet on this strategy
Game Plan:
- Spirit declares chapter 11 temporarily holding off creditors
- Frontier is declared as Debtor-in-Position with an infusion of cash to hold over Spirit
- Spirit performs triage on its balance sheet concerning leases on planes & gate; and also long term debt
- Spirit operations, flight crews, loyalty program, and jets transition to Frontier with a tight implementation date
The above is the path followed by TWA after...
Game Plan:
- Spirit declares chapter 11 temporarily holding off creditors
- Frontier is declared as Debtor-in-Position with an infusion of cash to hold over Spirit
- Spirit performs triage on its balance sheet concerning leases on planes & gate; and also long term debt
- Spirit operations, flight crews, loyalty program, and jets transition to Frontier with a tight implementation date
The above is the path followed by TWA after it declared bankruptcy for the third time (Chapter 33) and subsequently absorbed by AA.
This would allow Frontier to pick up only the assets it wants and not be saddled with all the Spirit employees, which Frontier would need to fire and give severance.
@Exit ... I think that the generally agreed strategy bu the blogger crowd, likely Wall Street as well. I think that approach would also hold-off DOJ action against an acquisition.
Not sure if I'd use TW/AA as the best example, though. All of TW's assets/STL hub disappeared, leaving me to wonder what AA actually got from the acquisition?
Finally, it would appear that the combined networks could be rationalized, especially on the East Coast and...
@Exit ... I think that the generally agreed strategy bu the blogger crowd, likely Wall Street as well. I think that approach would also hold-off DOJ action against an acquisition.
Not sure if I'd use TW/AA as the best example, though. All of TW's assets/STL hub disappeared, leaving me to wonder what AA actually got from the acquisition?
Finally, it would appear that the combined networks could be rationalized, especially on the East Coast and Caribbean. I don't have the data, but some potential "ULCC" markets don't even have any or optimized service by either, which makes me wonder why: SAT, PIT, MKE, for example.
Have a good day!
AA has a mixed record when acquiring other airlines. It failed to capitalize on a California position when it acquired Reno Air.
As for TWA, AA used it as leverage against O’Hare and forced the airport to make needed capital improvements on runways and terminals. Once AA got its pledges from ORD, St Louis withered away.
I think a merger makes sense. But does the DOJ? That would be the major hurdle after debt restructuring.
I'm not sure if the combined company post merger survives either.
I agree this merger makes sense. IMO, I never thought the NK-B6 merger was a good one.