Frontier-Spirit merger promises better deals and service; critics aren't so sure
Updated February 7, 2022 at 7:24 PM ET
Two U.S. airlines known for their cheap fares have announced they're planning to merge to create what they call the country's "most competitive ultra-low fare" airline.
Frontier Airlines and Spirit Airlines said in a joint press release Monday that the companies' boards of directors had unanimously approved the $6.6 billion transaction and expect it to close in the second half of this year.
Officials at the two discount carriers say that by combining, they'll be able to offer travelers even better deals and more reliable service, with about 1,000 daily flights to nearly 150 destinations in 19 countries. It is also expected to directly add 10,000 jobs by 2026, the companies said.
"We're a perfect fit — our businesses share similar values, including our longstanding commitment to affordable travel," said Mac Gardner, chairman of Spirit's board of directors. "At the same time, we have complementary footprints and fleets, including one of the youngest and greenest fleets worldwide."
"This transaction is centered around creating an aggressive ultra-low fare competitor to serve our guests even better, expand career opportunities for our team members and increase competitive pressure, resulting in more consumer-friendly fares for the flying public," said Spirit President and CEO Ted Christie in a statement.
"Everybody wins through this transaction" said Frontier CEO Barry Biffle in an interview on CNBC Monday morning. "Consumers are going to win with a billion dollars in savings, our shareholders win with $500 million in synergies, and our team members win with 10,000 more direct jobs in the next couple years."
But some consumer advocates aren't so sure that travelers will have more choices and cheaper fares as a result of the merger.
"That's what they always say," says William J. McGee, Consumer Reports' adviser on airline issues. "That's what merging airlines have always claimed. And as we've seen, consolidation has not been good for consumers and it's only reduced their choices."
McGee says past airline mergers have often resulted in fewer flights to some cities, higher fares and fees, and poorer customer service. And while he credits these two airlines in particular for their ultra low fares, McGee points out they have among the industry's highest numbers of customer service complaints.
"For example, Frontier generated more complaints in the first year of COVID, over refunds on a per-passenger basis than any airline in the United States," McGee told NPR. "And Spirit, of course, invented what the airline industry calls ancillary revenue. That is what we call nickel and diming with fees. They invented it in the United States. So every time you pay baggage fees, you can thank Spirit for that."
"So on the one hand, they bring lower fares. But on the other hand, these two carriers are very problematic from a customer service standpoint," McGee added
As for the claim that the merger between the two discount carriers will create 10,000 new jobs?
"I'll put it this way — there has never been a merger or an acquisition of an airline in the United States that has not led to layoffs," said McGee. "There is always, always fallout on the labor side. Always."
The proposed merger must be approved by the Justice Department, which under the Biden Administration, has taken a tough stance against some recent corporate consolidations, so it is expected to closely scrutinize the deal. Last year, the DOJ filed an antitrust lawsuit against a proposed partnership between JetBlue and American Airlines.
The merger comes at a challenging time for the airline industry. Earnings had been rebounding since taking a major hit earlier in the pandemic, but the recent omicron wave again reduced travel demand, while increasing airlines' costs, leaving the companies deeper in the red, Reuters reported. The surge of infections driven by the infectious variant also caused scores of airline employees to call out of work, resulting in delays and canceled flights across the U.S.
Frontier is offering nearly $3 billion in cash and stock for Spirit, and when accounting for debt and other liabilities, the total of the deal is estimated to be worth $6.6 billion.
Under the terms of the deal, Frontier shareholders would own about 51.5% of the joint company and Spirit shareholders would own 48.5%. It would become the fifth-largest airline in the country, according to CNBC.
A version of this story originally appeared in the Morning Edition live blog.
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