A Frontier-Spirit Deal Won't Evade Antitrust Radar
A merger between two carriers in an industry that received tens of billions of dollars of government aid during the pandemic is certain to draw regulatory scrutiny.
Discount airlines are too visible for the competition authorities to ignore.
Photographer: Brandon Bell/Getty Images
Frontier Airlines Inc. and Spirit Airlines Inc. are planning to combine to create a low-cost “disruptive airline” that will deliver an estimated $1 billion of annual savings to consumers. Shares of the other large U.S. airlines — the very carriers that such new competition would presumably disrupt — are rallying on the news. Something is wrong with this picture.
Frontier Group Holdings Inc., the parent of Frontier Airlines, is offering a mix of stock and cash to Spirit holders that’s valued at $25.83 based on last week’s closing prices. That implies a transaction value of about $6.6 billion including the assumption of debt and about a 19% takeover premium. The deal makes plenty of sense for the companies. William Franke, Frontier’s chairman and the managing partner of its largest shareholder, private equity firm Indigo Partners, previously served as the head of Spirit’s board and played a key role in turning the airline around. The two carriers primarily target leisure travelers. That market has rebounded swiftly in the U.S., but competition is fierce as legacy carriers rejigger their networks to capture more of the demand and new entrants take advantage of cheaper aircraft prices. A larger airline may also be better able to compete for talent in a tight labor market, Bloomberg Intelligence analysts Francois Duflot and George Ferguson note.