Frontier and Spirit agree to a $6.6B merger, but regulators and travelers may not be on board

Flight costs $80… but the overweight luggage costs $180, and we hope you packed a sandwich. Budget airlines like Spirit and Frontier are (in)famous for low prices, zero frills, and pricey add-ons. They rebounded from the pandemic quicker than legacy airlines because their primary customers — thrifty vacationers — returned to airports before business travelers. Now America’s two budget behemoths are tying the knot: Frontier and Spirit agreed to a $6.6B merger, creating what would be the fifth-largest US airline: #FrontSpirit (real name TBD). Yesterday Frontier’s stock rose 3% and Spirit’s soared 17%.

• Big plans: The companies said the merger would result in more cheap flights in underserved areas, 10K new jobs by 2026, and no layoffs.
• Bad PR: Yesterday morning Frontier canceled 20% of its flights because of tech issues — not a good look when you’re marketing more flights.

Battling the Big Four… by adding one more. The Frontier-Spirit deal is the latest in a long line of airline mergers: American, Delta, United, and Southwest were formed from 10 airlines and make up 80% of US air traffic. #FrontSpirit would command only 10% market share, but it could face a tough path forward:

• President Biden wants to boost airline competitions to ensure inexpensive, transparent travel. Although the merged companies would compete with big airlines, analysts say it’ll squeeze out smaller budget airlines like Breeze and Avelo.
• Last year the DOJ blocked a partnership between American Airlines and JetBlue, even though it wasn’t even a merger. The last US airline merger was Alaska and Virgin’s combination in 2016.

THE TAKEAWAY

Takeoff can be tricky when regulators want you grounded… Frontier and Spirit insist that their merger will benefit customers by providing low-cost flights in more cities. But while the deal may have taken off without trouble during past presidencies, analysts say Biden’s “big is bad” approach could complicate the deal. Plus, Frontier and Spirit have the industry's worst customer-satisfaction ratings, and the new airline could face competition for cost-conscious flyers from the likes of American, which is expanding its budget flights.