Frontier Airlines and Spirit Airlines announced earlier today plans to merge and create the largest ultra-low-cost carrier (ULCC) in the US. While the two airlines have not revealed which brand will survive, where the headquarters will be, or who the final CEO will be, the carriers have started to reveal the strategy and plan moving forward and what the combined airline will look like. In short, growth is at the front of the strategy and will likely be a significant part of the argument the airlines make to the US government for merger approval.

Frontier and Spirit have fleet growth in the plans

The two airlines are charting growth, with a combined order book of over 350 aircraft. The airlines released the following chart depicting future aircraft deliveries.

Screen Shot 2022-02-07 at 9.49.49 AM
Frontier and Spirit released plans to reach a fleet of nearly 500 aircraft by the end of 2026. Photo: Frontier & Spirit Joint Presentation

By the end of 2026, the combined airline expects to fly 493 aircraft. The large majority of this will be brand new Airbus A320neo family aircraft. Both Frontier and Spirit fly Airbus narrowbody aircraft, giving a fleet-related synergy with the merger. By 2026, the combined airline fleet will increase by roughly 75%. The two airlines have indicated they are looking to use this fleet to expand ultra-low-cost offerings across the US and provide an effective ULCC challenge to the big four US airlines.

At the end of 2022, the two airlines, combined, expect neo planes to make up 51% of the fleet. By 2026, that number is expected to hit 79%, giving the airlines a combined average fleet age benefit as well as a tailwind on fuel efficiency, which should also help unlock more flying.

Frontier Airlines Airbus A320-351N N366FR
Kingston adds to Frontier's four-weekly Miami-Montego Bay service. Not surprisingly, Kingston will operate on the days that Montego Bay doesn't. Photo: Vincenzo Pace | Simple Flying.

Two strategies thus far

Spirit and Frontier have two different strategies. The former operates most of its flights with daily or more services, stimulating demand with low fares and, most of the time, going head-to-head against other major airlines. The latter prefers to operate peak-day flying, with just a few frequencies per week, connecting many smaller communities across the US to major leisure destinations.

The two airlines are also broadly complementary. Frontier has heavy exposure in the Western United States, where it has established roots. In contrast, Spirit has oriented most of its network around the Eastern United States, with some inroads into the west. There are some routes where both airlines compete directly against each other, though that is a relatively small part of both carriers' networks.

However, Florida is a market where the two airlines have the largest degree of overlap. Miami and Orlando are two big markets of overlap, but the two airlines have indicated they are considering schedule depth as part of the combined plans.

Screen Shot 2022-02-07 at 10.08.26 AM
Both Frontier and Spirit are looking at goals of depth in their networks. Photo: Frontier & Spirit Joint Investor Presentation

Often overlooked is aircraft utilization. The combined airlines are expecting to look at ways to increase existing aircraft utilization to add more growth. Ted Christie, Spirit's CEO, stated the following in a presentation to investors:

"On the complementary network side, what we're really doing is, we believe, as the company's combined is finding ways to create utilization on the existing fleet, which is going to drive tremendous benefit on the P&L, and, more importantly, drive a lot of benefit to consumers."

This covers things like scheduling an aircraft to fly more hours in the day, adding new short-haul markets at the end and start of the day to keep aircraft schedules filled, and adding more frequencies on existing routes. After the merger closes, the network team will work through those, but the two airlines broadly want to find ways to be relevant to more consumers and grow their market share, which they believe will benefit the bottom line.

Spirit Airlines Airbus A320-232 N602NK
Photo: Vincenzo Pace | Simple Flying

Some hurdles left

There are some hurdles the airlines have to go through. The biggest is regulatory approval. Barry Biffle, Frontier's CEO, stated the following in the presentation regarding regulatory approval:

"We've reached out to the Administration, and we're really excited about telling them our story. I mean, this merger is completely different than any other merger in the past in the US. This is not about reducing competition and raising fares. This is about getting more low fares to more people in more places, and we're excited to tell our story to them and I think it'd be well received."

Frontier Airlines Airbus A320-251N N330FR (1)
Photo: Vincenzo Pace | Simple Flying

The Biden Administration has taken a stand on competition in the airline industry. To that extent, it is even pursuing a lawsuit against the American-JetBlue Northeast Alliance, which the Department of Transportation (DOT) had already approved. It remains unclear what the Administration's stance is on the Frontier-Spirit merger, but it will certainly take time to review it and decide what it wants to see happen. Much of the timing and decision on this remains out of the control of the airlines.

Then, there are other challenges in a merger. This includes merging IT infrastructure, setting up a new headquarters, figuring out management teams, streamlining processes, and working with labor unions. According to executives from both airlines, unions were notified on Monday, and there will need to be some negotiations.

There are plenty of questions unanswered about the merger. However, the two airlines are planning to close the deal by the end of the year, which is an ambitious timeline, but so far, the airlines are expressing confidence in their ability to succeed.