In the grand game of corporate profits, the latest strategy on the Street has been "merge or die." With a tough economic environment of rising costs, and the average consumer having less and less money in their pockets, the travel industry has been hit much harder than most.
That's why it comes as no surprise that ultra-low-cost carrier Frontier Airlines has submitted another bid for ultra-low-cost competitor, and recent bankruptcy filer, Spirit Airlines to form some sort of airline Megazord of mediocrity.
In the statement released on January 29, Frontier CEO Barry Biffle said "While we are pleased with the strong results Frontier has been able to deliver through the execution of our business strategy, we have long believed a combination with Sprit would allow us to unlock additional value creation opportunities. As a combined airline, we would be positioned to offer more options and deeper savings, as well as an enhanced travel experience with more reliable service." This actually tracks pretty well for a few reasons.
Frontier + Spirit = More Competition
Let's be honest: the airline game has not been fair for a very long time. We have existed in this bizarre late-stage capitalist society of the haves and the have nots, where the haves fly Delta with their credit card that costs $650 per year to keep in your wallet. They get the Sky Priority lanes and the two free checked bags before zipping through TSA PreCheck into the SkyClub for a mimosa before sitting in a $500 seat 32B on their way to Cancun. And you know what? It's working.
On Delta's last quarterly earnings call to shareholders, they reported record revenue of $5 billion in pre-tax income during full-year 2024, up over 9% from the year prior, with a December quarter operating revenue of $15.6 billion. This is thanks to a few reasons: raising prices for revenue generating passengers, and the continued devaluation of their airline miles program, SkyMiles, leading to more revenue generating passengers. They also heavily rely on their partnership with American Express, driving over $2 billion in remuneration, a 14% year-over-year increase. Effectively Delta is now a credit card company that sometimes flys airplanes. But why is this working?
Because the low-cost carriers are generally a shitty experience! Try flying Delta one way from Atlanta to Seattle, and then fly Frontier or Spirit from Seattle back to Atlanta. One of those legs is going to be a markedly better experience than the other for a few reasons, namely the ground experiences and then in-flight. This isn't even to mention that you might not make it home thanks to Frontier's industry-leading delayed flight rate of 30.71%, nearly double that of Delta.
Higher cost carrier like Delta, United and American have travelers by the balls because they know you're not going to defect to an ultra-low-cost carrier unless you absolutely have to, which is where this merger of Frontier and Spirit generally makes sense.
By merging two of the bigger ULC's, they are able to provide better experiences both in-flight and in the ground game. With more extensive route networks, more planes in inventory, more pilots on hand and greater cash flow as a result, they're able to step up the experience to make it feel more like you're traveling on vacation, and less like you're being hurried out of a prison cell once you land in Phoenix.
So at this point you may be asking the question: if a travel blogger can figure this out, then why did Frontier wait so long to pounce on what might be a gem of an opportunity? Well, let's talk about that - but you're not gonna like it.
A Friendlier Environment for Mega-Mergers
This attempted move comes three months after Spirit filed for bankruptcy and in the middle of their restructuring. More importantly, however, the move also comes seven days after a new Chair of the FTC is put into place as a part of the new Trump 2.0 administration.
In my previous blogging career, I wrote a lot about corporate finance and the merger and acquisition landscape. Having started the previous site in 2021, I could only write about a landscape policed by the then-FTC Chair Lina Khan, who was effectively the traffic cop for all proposed merger and acquisition activity from 2021-2025 under the Biden administration. She was so effective at her job that she was one of the few members of the government that had broad bipartisan support, but that only goes so far. She was the key figurehead of former President Biden's pro-consumer agenda, which was generally anti-monopoly and had an eye to attempted breakups, specifically in the Big Tech arena (though her purview extended to other industries to prevent anti-consumer merger behavior).
Now? Well, Khan is out and Andrew Ferguson is in, but the name at the top really doesn't matter. It's the Trump administration, and based on the first go-around, we know what's coming. Trump's first term was marked by deregulation, risk-on moves that promoted big business. We see this in the merger activity that occurred from 2017-2021, as well as favorable corporate tax policies and extreme deregulation across pretty much every industry.
In the world of Trump 2.0, the environment around corporate governance is projected to be even more favorable, which is why it would behoove Frontier to jump on this deal as soon as they can.
It's worth noting that, as of time of writing on January 29, Spirit has actually rejected Frontier's proposal. However, with Spirit being a public company that's been run into the ground and enraging a community of pissed-off shareholders, it's only a matter of time before they'll have to relent.
So what do you think about the merger of these two ULC's? Do you like this? Or are you opposed? Let me know in the comments below!
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