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Frontier bids USD2.9B for rival budget airline Spirit

AP – Frontier Airlines and Spirit Airlines are proposing to combine in a USD2.9 billion deal that would create a larger discount airline to compete against the nation’s dominant carriers and, they said, promote lower fares.

Both are ultra-low-cost carriers that tempt travellers with rock-bottom prices for no-frills service but often generate more than their share of consumer complaints.

The deal is likely to get a close examination from antitrust regulators in the Biden Administration, which has signalled a tougher line against big corporate mergers.

Consumer advocates criticised the Obama administration for allowing a string of major-airline mergers that greatly consolidated power in the industry.

However, the Frontier-Spirit combination would rank only fifth among United States (US) airlines in passenger-carrying capacity and seventh in revenue. Frontier and Spirit are pitching their merger as a counterbalance to American, Delta, United and Southwest, which together control about 80 per cent of the US air travel market.

“The Biden administration has made it very clear over the last year that they would like to promote competition in the airline space, and this is really an answer to returning balance from a competitive perspective to the big four,” Frontier CEO Barry Biffle said in an interview.

Airline analyst Savanthi Syth for Raymond James & Associates said that because of the relatively small size of Frontier and Spirit, she wouldn’t expect antitrust issues “in a normal environment… but given the Biden Administration’s ‘big is bad’ approach we would expect some objection”.

The Biden administration sued last September to block a partnership between American Airlines and JetBlue in the Northeast, saiding it would reduce competition and drive up prices. The case is pending.

Spirit Airlines planes on an airport tarmac. PHOTO: AFP

In antitrust circles, airlines are “certainly an industry where there is a perception that a bunch of mergers got through that maybe should not have”, said University of Michigan law professor and antitrust expert Daniel Crane. With the Justice Department already challenging the American-JetBlue deal, “there is a real focus on being more aggressive on mergers”, he said.

Airlines are struggling to recover as the pandemic stretches into a third year. Frontier and Spirit both reported on Monday that they suffered fourth-quarter losses — USD87.2 million for Spirit, USD53 million for Frontier. Both also posted full-year losses for 2021.

The airlines claim that if they are allowed to merge it will create many new routes that aren’t currently served by ultra-low-cost carriers, resulting in USD1 billion a year in savings for consumers.

They also said the combined company will grow and create 10,000 new jobs by 2026.

Ultra-low cost airlines have shaken the airline industry in recent years, using their lower cost structure -including less-senior workers – to take customers away from entrenched carriers and lure people who balk at paying major-airline fares.

Frontier and Spirit said their costs are up to 40 per cent lower on a per-mile basis, which will discourage bigger airlines from matching their prices.

The budget airlines, however, lack advantages of the giant carriers. They don’t fly long international routes, they have smaller frequent-flyer programmes, and they tend to operate fewer flights per route, which leaves fewer options to re-book passengers if a flight is cancelled or delayed.

Frontier and Spirit frequently have among the highest complaint rates in the industry – they ranked last and next to last in the latest monthly figures from the Transportation Department. Many of those complaints are for cancelled or delayed flights.

The airlines said that by combining, they will create a more reliable airline with fewer flight disruptions.

While the airlines were saiding that, the Federal Aviation Administration ordered the grounding of all Frontier flights nationwide because of “automation issues”.

By midday, Frontier had cancelled more than 110 flights, or more than 20 per cent of its schedule, and delayed a similar number.

Frontier spokeswoman Jennifer De La Cruz said the problem was a technology-related issue that was fixed.

She said the airline was working to restore its flight schedule for the rest of the day.

Between them, Frontier and Spirit have about 280 planes and more than 350 on order.

Spirit CEO Ted Christie said the combined airline would add new routes across the US and in Latin America and the Caribbean.

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