NEW YORK — Budget airlines are often at the forefront of customer dissatisfaction, as indicated by government reports. This raises the question: if a low-cost carrier were to cease operations, would travelers notice the absence? U.S. regulators are considering this important question after Frontier Airlines announced its intention to acquire Spirit Airlines, which filed for bankruptcy protection late last year.
Immediately after Frontier’s announcement, Spirit expressed its disinterest in the acquisition. Moreover, a previous attempt at a merger between the two airlines in 2022 did not materialize. Nonetheless, Frontier remains persistent and seems unwilling to accept Spirit’s rejection. Other low-cost airlines are on firmer financial ground compared to Spirit. However, they too have struggled to bounce back from the impact of the COVID-19 pandemic, lagging behind traditional full-service airlines in recovery.
Industry analysts are optimistic that Frontier and other ultra-low-cost airlines will step in to maintain competitive pressures, thus preventing a significant rise in ticket prices. Notably, major U.S. carriers have started attracting budget-conscious travelers by introducing their own economical fare options. On Wednesday, Frontier Group Holdings Inc., the parent company of Frontier Airlines, detailed that its proposed acquisition would involve issuing new debt and common stock.
Frontier’s previous merger attempt with Spirit was thwarted in 2022 when it lost out to JetBlue in a bidding war. However, the Justice Department intervened, attempting to block the $3.8 billion JetBlue acquisition on the grounds that it would inflate fares for Spirit’s price-sensitive customers. A federal judge ruled in favor of the Justice Department in January, leading to JetBlue and Spirit terminating their merger plans shortly thereafter.
The financial troubles for Spirit have been severe, as the airline filed for Chapter 11 bankruptcy protection in November. Despite restructuring terms with bondholders, Spirit has reported losses exceeding $2.5 billion since early 2020 and faces upcoming debt liabilities surpassing $1 billion due in 2025 and 2026.
In light of Spirit’s difficulties, larger airlines have managed to attract some of its value-oriented customers through their own stripped-down ticket offerings. Additionally, fares for leisure travel in the U.S., which is a key segment for Spirit, have seen a decline over the summer due to an increase in available flights.
Still, Frontier remains hopeful about moving forward with the acquisition. “This proposal represents a unique opportunity that will deliver greater benefits than Spirit’s plan by creating a more robust low-cost airline that can effectively compete and expand into new markets,” stated Frontier Chair Bill Franke. He emphasized the airline’s readiness to engage further with Spirit and its financial partners, expressing optimism for reaching an agreement.
In its regulatory disclosure, Spirit mentioned that it had received Frontier’s proposal earlier this month. After careful deliberation, Spirit concluded that this offer would not be as advantageous for its shareholders compared to its own strategic plans and intends to proceed with its bankruptcy exit plans unless new significant developments arise. Following this news, shares of Frontier Group experienced a 6% increase on Wednesday.