Frontier Airlines and Sprit Airlines intend to merge, creating a new 5th largest airline in the US. The deal would value the combined companies at $6.6 billion with a fleet of 283 aircraft today. Within five years, however, the combined fleet would be just under 500 aircraft, with both airlines planning huge growth.
This merger is completely different than than any other merger in the past in the US. It’s not about reducing competition and raising fares. This is about getting more low fares to more people in more places.– Frontier CEO Barry Biffle
The combination presents some obvious synergies across the route networks. Spirit is stronger in the East as well as in the Caribbean and Latin America. Frontier is stronger in the west and in more smaller markets across the country.
Frontier also had grand plans to shift into more Caribbean markets and grow that organically, with Orlando becoming its most active hub. Obviously, a merger with Spirit shifts some of that potential.
The airlines also are suggesting the combined operation will not reduce competition or drop frequencies in the overlapping markets. Never mind that no other airline merger has delivered on similar promises made over the past many decades.
Mixed bag of product
While both airlines operate very much in the ULCC model of bundling and ancillary fees, they chose somewhat different paths through that concept.
Spirit had the leftover first class seats from its pivot. They became the basis for the Big Front Seat option that has proven a huge revenue generator for the company and helped differentiate the on-board offerings. Frontier’s approach to on-board premium comes only through extra legroom seating, though rumors of a BFS concept have swirled from time to time.
Spirit’s scheduling, particularly in some of the larger markets, looks a lot more like a business traveler option. Spirit’s revamped loyalty program offers very real benefits that could appeal to small business travelers or those paying out of pocket for work trip. Spirit is also well into a deployment of in-flight wifi on board (though still a couple years behind where it wanted to be on that front).
So the comment during the investor briefing that the company’s core focus is on “leisure markets and serving the leisure guest” is somewhat challenging. But the combined operation still sees plenty of room to grow in the leisure market, and hopes operational efficiencies will yield the cost savings without hitting employment numbers.
Loyalty & Subscriptions
Both airlines recently made changes to their loyalty program structure. Both also run subscription programs where customers can buy in on an annual basis for discounts on fees or fares throughout the year. Those programs are helpful to revenue as independent operations, but don’t really matter for the merger.
Consumers are going to have access to benefits and features of both combined programs with more places to fly and more places to earn and burn earn, which is obviously more appealing. But we have not assigned a huge amount [of revenue or cost synergy to these].
10,000* New Jobs
The companies talked up 10,000 new jobs in the announcement and several more times during the investor briefing call. They made sure to point out that most of the positions would be well-paid (for whatever definition of that works, I suppose) and that most would be represented by a labor union. That is clearly an effort to deflect regulatory concerns under the current administration.
At the same time, however, the companies did not notify unions of the merger until this morning. Coordinating that integration and ensuring employee support can often be a deal-breaker. Or at least a major headache (e.g America West/US Airways).
Also unclear is just how many of the new jobs come from the merger, as compared to just the regular growth the two airlines planned independently. After all, both previously suggested a need for thousands of new employees in the near term, just to keep their network growth plans online.
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