Frontier Airlines is making yet another attempt to acquire Spirit Airlines, marking the latest development in their long-standing saga over potential consolidation. Just six months after Spirit Airlines filed for bankruptcy protection and struggling to survive since the pandemic, Frontier has proposed what it values at approximately $2.2 billion, hoping this third bid would finally be the charm for them.
According to reports, Spirit rejected Frontier's latest offer as being inadequate and called the terms "unacceptable and unactionable." Despite the dismissal, Frontier remains optimistic and insists it can offer more value than Spirit's standalone plan. The parent company of Frontier Airlines, Frontier Group Holdings Inc., submitted its proposal earlier this month, combining newly issued debt and common stock, with new hopes to convince Spirit's bondholders of the offer's viability.
Bill Franke, Chairman of Frontier Airlines, stated, "This proposal reflects a compelling opportunity... to compete more effectively and enter new markets at scale." He underlined the importance of merging with Spirit to create a stronger low-cost airline.
Spirit Airlines, which has reported losses exceeding $2.5 billion since the onset of the COVID-19 pandemic, is attempting to restructure and exit bankruptcy protections. Spirit has previously engaged with Frontier and reflected on the potential benefits of combining forces but thought the recent offer didn’t meet the mark. The airline noted, "We continue to pursue our restructuring plan through bankruptcy but would be happy to reconsider if the terms make sense."
The offer outlines the possibility of restructuring without the financial burden estimated to come from continuing as independent firms. Both Frontier and Spirit argue they could benefit from economies of scale and stronger market positioning should the merger succeed.
Regulatory Hurdles
These developments arrive after JetBlue Airways' planned acquisition of Spirit was blocked on antitrust grounds last year. With regulatory scrutiny expected to remain high on mergers and acquisitions within the airline sector, the feasibility of Frontier's bid remains uncertain.
Some industry observers speculate the U.S. regulators will carefully evaluate the potential impact of any merger on low-cost airline options available to consumers. Spirit is currently recovering from its criticized financial strategies, which relied heavily on budget and no-frills services. It holds significant market share among budget-conscious travelers, but its ability to sustain operations independently is increasingly being questioned as competition from larger airlines increases.
On the other hand, Frontier is confident about its revamped operations and attempts to present itself as the one capable of addressing rising competition by offering expanded services at low fares. It believes the merger could not only expand motive routes but also offer loyalty and flexibility for both companies’ customer bases.
Industry analysts have pointed out the need for the budget airline sector to adapt as consumer preferences shift. Both Frontier and Spirit have been modifying their business models, incorporating premium features for passengers seeking higher-end options.
Investors are watching closely, as shares of Frontier Group rose by 6% following the news of the bid—a clear indication of Wall Street's perception of potential upside from this merger effort.
Despite the low reception from Spirit, Frontier continues to believe it can work with the airliner through its financial stakeholders, claiming there is still room for negotiation to find common ground between both companies.
Both companies face substantial challenges, with Spirit needing to recover from hefty pandemic losses and Frontier intent on solidifying its position among low-cost carriers. The next couple of months will be decisive for both parties as they navigate their individual market challenges and deliberations.
For now, as both airlines position themselves within the competitive airline industry, whether this latest chapter between Frontier's acquisition pursuits and Spirit's strategy will culminate successfully remains to be seen.