December 1, 2022

EUNews24

Latest Breaking News, European Affairs

Frontier And Spirit Are Flying Into The Wind

0 0
3 min read
USA
0 0
Read Time:2 Minute, 29 Second

NEW YORK, Feb 8 (Reuters Breakingviews) – It’s an immutable law of passenger air travel that somebody always ends up at the back. Spirit Airlines (SAVE.N) and its rival Frontier think they’ve found another way, through a $5 billion deal announced on Monday that they claim will deliver huge benefits for passengers, workers and shareholders. Their task is to convince merger-averse regulators, and investors whose initial reaction suggests the plan is pie in the sky..

Merging the two airlines to make America’s fifth largest would require antitrust acrobatics at the best of times, but that’s especially true now. Under President Joe Biden, the U.S. Department of Justice is taking a skeptical view of corporate consolidation in general, and has already sued to block an alliance – not even a real merger – between American Airlines (AAL.O) and JetBlue Airways .

Despite that, what Frontier and Spirit are proposing has appealing logic. The idea is to run their networks together more smartly, and offer new lower-priced alternatives to routes offered by bigger, pricier rivals like American, Delta Air Lines (DAL.N), United Airlines and Southwest Airlines (LUV.N). They tout analysis suggesting consumers would be $1 billion better off. Investors would too, they claim, to the tune of $400 million a year in profit resulting from extra revenue.

The countercase is that a merger between the two airlines, who compete fiercely with each other, could reduce their competitive urges, and ease the pressure on the big airlines too. Broadly speaking, the two airlines’ networks are fairly distinct, but there could be local issues in leisure hubs like Las Vegas and Orlando. There’s also the risk that customers don’t switch so easily. Price matters, but so does service. A plan to save $100 million a year in costs, without sacrificing customers’ comfort, is generous for airlines whose expenses per mile are already around half those of American.

Investors seem slow to price in the benefits. The combined companies’ market capitalizations rose less than $500 million in the hours after the deal was announced. The big four airlines market values, meanwhile, were up by more than $2 billion just in regular trading. Spirit and Frontier now have to convince regulators and investors not just that their new contraption can fly, but that it also won’t create tailwinds for their bigger rivals.

– Spirit Airlines said on Feb. 7 that it had agreed to merge with rival U.S. airline Frontier in a cash and stock deal that would, the companies said, create the “greenest” fleet in the country.

– The two budget airlines had a combined market capitalization of $5 billion using closing prices on Feb. 4. Frontier shareholders would own 51.5% of the new company, and Spirit investors would have the rest.

– Once combined, the airlines estimate they would save an annual $500 million through reduced operating costs and more efficient utilization of aircraft, and would “deliver $1 billion in annual consumer savings.”.

Happy
Happy
0 %
Sad
Sad
0 %
Excited
Excited
0 %
Sleepy
Sleepy
0 %
Angry
Angry
0 %
Surprise
Surprise
0 %

Advertisements