Interesting. That is the word that comes to mind when considering the Frontier–Spirit deal. While still waiting for government approval, it presents as quite interesting. That is because while not surprising it isn’t simple either. In fact, there are actually three major elements to it and how they all unfold will determine if this merger is viewed as a successful one.
First and foremost, this is a financial deal. A PE firm is now the owner of America’s fifth largest airline. Travelers should care about that because an element of financial engineering is in play. The PE firm believes there is going to be value in combining these two airlines, especially as it relates to reducing costs.
The second element is that these are two mid-market companies and like many other businesses in this size category, they have struggled to claim a leadership status in the public sphere. Whether this is due to branding challenges, actual traveler experiences, or just the result of being smaller than the big guys in the sky, it does exist. Therefore, putting them together does not guarantee the combined entity will resonate with total confidence. But the Frontier-Spirit acquisition does provide a chance for the new two-airline branded company to alter perceptions and become a formidable player. This is likely what the PE firm is counting on when they officially introduce the new brand to consumers.
The third element of this proposed M&A is a direction with optimism that is right for the times. The new combined airline is poised to be in a spot where they can experience high growth, primarily by dominating the leisure market. The pandemic dramatically reduced, and for some, has completely eliminated business travel. And with so many available virtual options it is unlikely it will ever return to pre-pandemic levels. Meanwhile, the leisure and recreation travel market has already started up again. The newly merged airline is well positioned, with the opportunity to expand operations in places like Denver and Miami, offering more international options for leisure travelers seeking flights to Canada and the Caribbean. This will create growth for new, not legacy markets, which will be important because they don’t have to compete for the New York to Los Angeles routes or regional shuttle flights.
How the two-company integration and branding is handled is very important. Will the new carrier feature both names or rebrand with a new one? Like other M&As, everyone involved is hoping that if the integration is done right, the new combined airline can re-market itself and walk away with more pros than cons on the perception scale. But this will take more than hope. It will require an all-hands-on-deck strategic roll-out with language and visuals to generate freshness, excitement and confidence.
As if to prove the old adage that the deal is not done until the ink on the contract is dry, JetBlue recently threw its influence into the proposed deal by offering to purchase Spirit out from under Frontier for $3.6 billion. While Spirit ultimately rejected the JetBlue offer citing doubts that regulators would bless the marriage given JetBlue’s current partnership with heavyweight carrier American, I would say JetBlue’s interest only substantiates the value of adding more gates in leisure-travel markets and the importance of adding staff and aircraft. The skeptic could say JetBlue wanted to make sure Frontier has a competitive environment and must pay top dollar for Spirit.
If the Frontier-Spirit deal holds, receives government approval, and generates interest amongst a flying public that continues to work from home and travel for fun, this deal could be the disruptive force hoped for by the PE owners. If positioned properly with success in these areas, the Frontier-Spirit merger might very well become one of the top 3 airlines for the travel/leisure market. Interesting indeed.