Frontier and Spirit Are Trying To Merge Again

It’s back on: Frontier and Spirit are trying to merge for the second time. The union between the ultra-low-cost airlines that was scuttled 2 years ago is being discussed again between the two carriers.

Frontier is exploring a new bid for Spirit, the Wall Street Journal reported, as the latter faces a financial crisis and risks missing bond payments.

The talks are at an early stage, and there is no guarantee of an actual deal, the WSJ said. And if a deal does take place, it would likely happen after Spirit enters bankruptcy, according to sources familiar with the matter.

Let’s look at what we know, and what we would want to know, about the possible Frontier-Spirit merger.

Frontier-Spirit: The Fifth-Biggest U.S. Airline

The union of Frontier and Spirit would create a giant: the fifth biggest airline in the U.S. by passengers carried. A merged Frontier-Spirit would be behind only American Airlines, Delta Air Lines, Southwest Airlines, and United Airlines. However, it would rank ahead of the merged Alaska Airlines and Hawaiian Airlines.

The 2 ultra-low-cost carriers (ULCCs) almost became 1 in 2022, when Spirit shareholders approved a bid from Frontier to buy the airline at a valuation of $2.9 billion. JetBlue, which was also looking to grow to better fight the much bigger legacy carriers, swooped in with an offer that valued Spirit at 30% more. The Frontier merger did not happen, as shareholders went for the JetBlue offer instead.

Neither did the merger with JetBlue, for that matter. The Justice Department sued to block the merger on the grounds that, if JetBlue bought Spirit and charged its own higher prices, consumers would be harmed. Earlier this year, a federal judge agreed and blocked the deal, saying that it would hurt flyers who rely on Spirit’s low fares.

It’s less likely that federal regulators would see a Frontier-Spirit merger as negatively. Both are ULCCs, offering a bare-bones experience for lower prices than legacy airlines. It’s harder to argue that their merger would result in higher prices.

Spirit Is in Trouble

While those legacy carriers have largely been profitable after the pandemic, the ULCCs have not.

Both Spirit and Frontier are dealing with a downturn in the ultra-low-fares model they had successfully followed until the COVID-19 pandemic disrupted air travel. Neither airline has made a profit since 2020, although revenue and passenger numbers have been climbing steadily after the pandemic.

But Spirit is in worse straits than Frontier.

According to the Wall Street Journal story, Spirit has until late December to refinance $1.1 billion of bonds. If it does not, it may lose its ability to process credit card transactions next year — the death knell for any airline, low-cost or not.

What Would Happen to Loyalty Programs and Big Front Seats?

Airline mergers typically result in 2 brands becoming one. See Alaska-Virgin America, United-Continental, Delta-Northwest, and many more.

Rarely, the merged entities remain separate brands, which will be the case with the upcoming union between Alaska Airlines and Hawaiian Airlines.

Since the ultra-low-cost model relies on economies of scale, it may be more likely that there will be only 1 brand resulting from a Frontier-Spirit merger, including a unified passenger experience. That raises the question of what would happen to the feature that makes Spirit stand out among its low-fare peers, the Big Front Seat.

While Spirit does not have first class, it has those larger seats at the front of the plane, offering a lot more legroom with the same bare-bones experience. Frontier has no comparable product. Would a merged airline keep the Big Front Seat or axe it in favor of 1-size-fits-all like European low-fares giant Ryanair?

And would the 2 loyalty programs, Free Spirit and Frontier Miles, be rolled into 1, like Alaska and Hawaiian say they will eventually do with theirs?

Final Thoughts

Spirit Airlines is in serious financial trouble. It has until the end of the year to refinance more than $1 billion in bonds or it may cease to be a viable airline.

That deadline may give urgency to merger talks with Frontier, the rival that tried to buy Spirit in 2022 before the merger proposal collapsed. Now, Frontier is back at it, and if it succeeds in buying Spirit it will create the fifth largest airline in the U.S.

There would be a new low-fares giant in the market, competing with the legacy carriers as a much bigger player — a development that may result in price battles benefiting flyers.