Frontier-Spirit Air deal expands Franke’s sphere in discounting

Bloomberg

Frontier Group Holdings Inc.’s planned $2.9 billion purchase of Spirit Airlines Inc., positions Bill Franke, the self-proclaimed father of ultradiscounting, to expand his global network of carriers that offer bargain-basement fares while maintaining a laser focus on low costs.
The deal comes as the industry’s recovery from the Covid-19 pandemic leans on domestic markets and leisure travelers —the bread-and-butter of ultra-low-cost airlines. Big carriers are moving more heavily onto that turf as business and overseas travel remain tepid.
That’s a familiar competitive situation for Franke, the managing partner of private equity firm Indigo Partners, and the Frontier-Spirit merger should add some muscle to help withstand the challenge. The combined carrier— the name hasn’t been decided —will pass JetBlue Airways Corp. and Alaska Air Group Inc. to become the fifth-largest US airline by capacity. It would also pass JetBlue in market value but still trail Alaska.
“This is a sign of fierce rivalry in the US domestic and short-haul international markets,” Bloomberg Intelligence analyst Francois Duflot said in a note to subscribers. “With over 280 Airbus aircraft in service and 350-plus ordered, this combo leapfrogs Alaska and JetBlue and can develop new networks.”
Under the deal, Spirit investors would receive 1.9126 in Frontier stock and $2.13 in cash for each Spirit share, according to a statement. The deal implies a value of $25.83 a share for Spirit, 19% above its closing price on Feb. 4. Assumption of net debt and operating lease liabilities push the total value to $6.6 billion. Frontier holders would own 51.5% of the combined company and name seven of the twelve
directors.
“Consumers throughout the course of the most recent surge, they’ve shown to be much more spring-loaded and resilient,” Spirit Chief Executive Officer Ted Christie said in an interview. “They’re already coming back and getting ready for spring and summer of this year.”
Spirit jumped 16% to $25.27 at 1:34 p.m. in New York after advancing 17%, the biggest intraday gain since November 2020. Frontier rose 2.8% to $12.74.
Franke, who is chairman of Frontier, has his DNA in both sides of the agreement. About 15 years ago, he led Spirit’s conversion to become an ultradiscounter. And in 2013, he used proceeds from selling Indigo’s 17% stake in Spirit to purchase Frontier out of bankruptcy and converted that carrier to the ultra-low-cost model.