What The Frontier, Spirit Airlines Merger Deal Really Means

Frontier and Spirit Airlines have merged to create the fifth largest airline in the U.S. in a $2.9 billion cash-and-stock deal valued at $6.6 billion when accounting for debt and liabilities.

The deal gives Frontier a 51.5% stake, with Spirit holding the remaining 48.5% of the airline. The transaction between the two airlines is expected to close in the second half of 2022.

The name of the new airline has yet to be announced, as well as the management team and where the company's headquarters will be located.

The two companies said the new airline will provide “ultra-low fares” to more travelers with destinations across the U.S., Latin America and the Caribbean. It will offer more than 1,000 daily flights to over 145 locations in 19 countries.

The two airlines have more than 350 aircraft on order and have plans to add new routes to underserved communities. Combined, the airlines have one of the largest fleets of A320neo aircraft in the nation.

In addition, the airlines said the joint venture will expand frequent flyer programs and membership offerings.

Through the merger, the airlines are in a better position to “compete more aggressively” against the “Big Four” U.S. airlines – Delta, American, United and Southwest - with a stronger financial position. The merger is expected to deliver $1 billion in consumer savings a year.

“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,” Ted Christie, president and CEO of Spirit, said in a statement.

In 2019, Frontier and Spirit had a combined market share of 5.4%, while the “Big Four” had a market share of 73.9% of revenue passenger miles, according to CNBC.

By 2026, the new airline expects to add 10,000 direct jobs and thousands of positions with its business partners. Frontier and Spirit also anticipate that all current employees will stay on at the combined airline with better career opportunities and more stability.

Shareholders of Spirit and Frontier are expected to benefit as the combined company would have annual revenue of about $5.3 billion based on 2021 results. One-time costs of $400 million will be realized, and a cash balance of about $2.4 billion will be on the books by the end of 2021 on a combined basis, the companies said.