Airlines

Spirit and Frontier are merging into a massive discount airline. Here's what that means for travelers

Key Points
  • Frontier and Spirit, the country's two largest discount airlines, announced a $6.6 billion merger.
  • The airlines overlap on 500 out of 2,800 routes.
  • Analysts say consumers shouldn't expect fares to surge.

In this article

VIDEO1:5001:50
Frontier, Spirit Airlines complete $6.6 billion merger to become fifth-largest U.S. airline

Spirit Airlines and Frontier Airlines expanded aggressively over the last decade offering travelers no-frills service in exchange for ultralow airfares.

Their executives vow to keep it that way, even if the carriers complete their $6.6 billion merger, which would turn them into a discount behemoth and the country's fifth-largest airline. Frontier will have a controlling stake.

"Our business model is built on low fares — that stimulates travel," Frontier CEO Barry Biffle said in an interview. "We're going to give people even more low fares."

Antitrust hurdles

The combined airlines' ability to keep fares low will be key to regulators' approval of the deal. President Joe Biden last year made boosting competition a priority. His Justice Department has already sued American Airlines and JetBlue Airways over their partnership in the Northeast, alleging it reduces competition and could drive up prices.

Passengers wait in line at the Spirit Airlines check-in counter at Orlando International Airport.
Paul Hennessy | LightRocket | Getty Images

The airlines denied that and have said the alliance was drawn up so they could better compete with United Airlines and Delta Air Lines in big, congested airports in the New York area and Boston.

The Frontier-Spirit deal would mean a bigger competitor for other carriers, but also one airline fewer for travelers to choose from.

"We believe the merits of the deal — everyone wins," Biffle said. "We think we should get a warm reception because the administration has been looking for ways to increase competition and we think this is the answer."

Without those key approvals, nothing is changing for customers just yet. The airlines expect the deal to close in the second half of the year. They haven't decided on a new name or headquarters. Integrating an airline could take years.

While they both fly narrow-body Airbus jets, executives haven't said whether they'll change their distinct Airbus liveries: Spirit's bright-yellow planes and Frontier's planes that feature paintings of wildlife on their tails.

Pressure on rivals

If they raised fares after the merger, that could drive customers to look for cheaper tickets on other carriers, including other ultralow-cost airlines, which would be counterproductive, analysts said. 

Samuel Engel, senior vice president at consulting firm ICF, said the benefit to travelers would come not just from lower fares from the combined airline but from how rival airlines respond to their newest competitor.

Fare wars have broken out in the past when those airlines expanded in major carriers' hubs. Spirit and Frontier have expanded flying capacity more than 467% since 2017, compared with the national average of 355%, according to aviation data and consulting firm Cirium.

The two carriers overlap on about 520 of more than 2,800 routes, Cirium data shows.

Cost control

One thing that could drive up fares for customers, and not just for these airlines, is rising costs. Higher fuel and labor costs have jumped as airlines increase their schedules. A lack of available employees, such as pilots, has forced airlines to scale back their growth plans.

"It's not like you're going to see Spirit and Frontier go from offering $49 fares to $149 fares," said Henry Harteveldt, a former airline executive and founder of travel consulting firm Atmosphere Research Group. "The challenge is how do they continue to offer these low fares" as costs continue to climb, he said.

Those costs eventually get passed along to travelers.

But combining could help the two airlines expand. "They would not, actually, be able to grow unless they merged," said Cowen & Co. analyst Helane Becker. "There's only a finite amount of gate space available, a finite amount of infrastructure at airports around the country, and a finite amount of pilots."

The larger fleet will give the company a better chance to improve their reliability and recover from potentially costly disruptions such as storms easier, said Jonathan Root, senior vice president at Moody's Investors Service. A meltdown last summer cost Spirit around $50 million.

Segmenting in the skies

The deal also shows the changing way we fly. Major carriers including Delta, American and United over the past decade introduced their own no-frills tickets called basic economy. Those often strip out perks that used to come free, such as seat selection, for the lowest fare.

While ultralow-cost airlines have grown, some carriers are chasing the other end of the market. Delta calls itself the "premium airline of choice" and on an earnings call last month said revenue from premium products, from business class to extra-legroom seats, recovered faster than standard coach.

United, meanwhile, is revamping onboard services for its narrow-body planes including big overhead bins and new seatback entertainment systems, a bid for higher-paying customers such as business travelers.

VIDEO8:0308:03
Watch CNBC's full interview with Frontier CEO Biffle, Spirit CEO Christie on merger

— CNBC's Kevin Stankiewicz contributed to this article.