Spirit and Frontier merger is about the search for high-hanging fruit

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On June 23, 1928, Pan American Airways merged with another small and very long-named airline, Atlantic, Gulf, and Caribbean Airways. The merger of the two airlines in a fledgling industry set the stage for decades of commercial aviation growth and initiated the deep tradition of airline mergers.

Still true today, the idea of bringing the two airlines together reduces cost, increases scale, and most importantly, provides a powerful competitive response to the competing offerings. For Pan Am, this meant competing against the rapidly expanding German-Colombian SCADTA – an airline that would also be involved in a merger in 1940 to form an airline known today as Avianca.

That tradition continues in its latest form with the proposed combination of Spirit Airlines and Frontier Airlines. Two leaders in the ultra-low-cost carrier (ULCC) segment, the merger of the two airlines will result in the fifth largest airline in the United States and one of the largest LCCs on the planet.

In the context of historical mergers, the yet-unnamed combination of Frontier and Spirit is likely to bring similar benefits with lower costs, larger scale, and greater brand reach. Yet, the competitive landscape remains the key advantage for both, largely due to the elimination of their top competitors – each other.

Related: The pandemic could soon mean a shortage of new airplanes, too

Even amid the benefits of bringing two large airlines together and ultimately eliminating a competitor, challenges persist. Airlines remain massive, yet finely-tuned machines connecting thousands of passengers in a precise manner. Bringing two similar, yet still different airlines together still brings risk of unexpectedly higher costs and operational disruption.

In this TAC Analysis, we look at both the benefits and the risks of the proposed merger between Spirit and Frontier. We look beyond the traditional metrics to the futures of the airlines, both together and separate, as well as how the combination of the two ultra-low-cost airlines changes the competitive landscape for the remaining U.S. carriers.

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