Frontier Airlines is making another attempt to merge with Spirit Airlines, following the latter's bankruptcy declaration late last year. In a deal structured around newly issued Frontier debt and common stock, Frontier Group Holdings Inc., the parent company of Frontier Airlines, announced its strategy this Wednesday. This move comes after Frontier's unsuccessful attempt in 2022 to merge with Spirit, when JetBlue outbid them. However, the JetBlue-Spirit merger was halted by a legal challenge that argued it would lead to increased fares for customers relying on budget-friendly options.
Facing a turbulent financial period, Spirit ended up filing for Chapter 11 bankruptcy protection in November. The airline has endured losses exceeding $2.5 billion since 2020 and is under pressure from impending debt payments amounting to over $1 billion due in the coming years. Spirit's Chapter 11 petition was a pivotal step for restructuring its agreements with bondholders.
The budget airline landscape has shifted significantly, with major U.S. airlines capturing some of Spirit's cost-sensitive customer base by implementing their own no-frills ticket options. Additionally, an influx of flight offerings in the U.S. leisure travel segment—Spirit's mainstay—led to subdued ticket prices over the summer. Despite these challenges, Frontier sees an opportunity to create a more robust budget airline capable of competing and expanding its market presence.
Bill Franke, Chairman of Frontier, elaborated on this vision stating, This proposal offers a significant opportunity, potentially providing more benefits than Spirit's standalone strategy. By establishing a more resilient low-cost carrier, we can effectively compete and enter new markets at scale. Expressing eagerness to move forward, Franke indicated Frontier's readiness to engage in discussions with Spirit and its financial stakeholders, confident that an agreement can be reached promptly.
Frontier has been in dialogue with Spirit's board, management, and representatives of Spirit's financial stakeholders since the proposal was tabled. Even so, in a recent regulatory filing, Spirit detailed that after reviewing Frontier's offer, it considered the proposal less attractive for its shareholders compared to its current restructuring plan. Consequently, without significant changes, Spirit intends to proceed with its strategy to transition out of bankruptcy protection.
On the financial front, Frontier Group's stock saw a slight climb, increasing over 2% before stock markets opened on Wednesday. This indicates cautious optimism from investors regarding the potential merger and the future dynamics of the budget airline sector.
As the budget airline industry battles economic challenges and intense competition, the Frontier-Spirit merger could redefine market dynamics, offering travelers more choices at low fares. However, the outcome hinges on further negotiations and the shifting landscape of the aviation industry.
