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Spirit Airlines (SAVE) Inks Merger Deal With Frontier Airlines
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Shares of Spirit Airlines (SAVE - Free Report) surged 17.2% at the close of business on Feb 7 as news of its merger with Frontier Group Holdings (ULCC - Free Report) , the parent company of Frontier Airlines, hit headlines. The $2.9-billion ($6.6 billion when the assumption of net debt and operating lease liabilities are considered) deal vows to enhance competition and create the fifth-largest U.S. airline, offering ultra-low fares for travel. Both Spirit Airlines and Frontier carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The deal between the two discount carriers comes at a time when the airline industry is reeling under the effects of the coronavirus pandemic. With domestic air-travel demand and leisure travel steadily improving, the budget carriers are better placed on the recovery path compared with the bigger carriers, which are being challenged by slow business travel recovery. Fresh travel restrictions as a result of Omicron are also denting international travel demand.
Similar to the challenges being faced by American Airlines (AAL - Free Report) and JetBlue Airways (JBLU - Free Report) over their proposed (operating) partnership, Spirit Airlines and Frontier might have difficulties in obtaining regulatory approvals.
Last year, the Department of Justice filed an antitrust lawsuit against American Airlines and JetBlue, alleging that their partnership is likely to reduce competition and jack up air fares. Nevertheless, the two airlines have continued their expansion initiatives under the Northeast Alliance (“NEA”).
Last December, American Airlines, carrying a Zacks Rank #4 (Sell), announced plans to expand its global footprint in 2022 under the NEA with new nonstop service between New York’s John F. Kennedy International Airport (JFK) and Doha, Qatar’s Hamad International Airport.
Under the NEA, JetBlue, carrying a Zacks Rank #4, will introduce new services to Vancouver, Canada from both New York-JFK and Boston in 2022. The carrier will also increase frequencies on several of its routes from New York-JFK, including Cancun, Mexico; Guayaquil, Ecuador; Raleigh–Durham, NC; and Minneapolis–St. Paul, MN.
Coming back to Spirit Airlines’ merger deal with Frontier Airlines, the combined airline will expand its network across the United States, Latin America and the Caribbean, offering more than 1,000 daily flights to over 145 destinations.
The combined entity is expected to generate annual revenues of approximately $5.3 billion (based on 2021 results). Once fully integrated, Frontier and Spirit Airlines are expected to deliver annual run-rate operating synergies of $500 million.
Per the terms of the merger agreement, Spirit Airlines’ shareholders will receive $25.83 per share, a premium of about 19% on the closing price of Feb 4. SAVE will own approximately 48.5% of the combined airline, while the remaining will be owned by ULCC.
Subject to customary closing conditions, the merger is expected to close in the second half of 2022.
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Spirit Airlines (SAVE) Inks Merger Deal With Frontier Airlines
Shares of Spirit Airlines (SAVE - Free Report) surged 17.2% at the close of business on Feb 7 as news of its merger with Frontier Group Holdings (ULCC - Free Report) , the parent company of Frontier Airlines, hit headlines. The $2.9-billion ($6.6 billion when the assumption of net debt and operating lease liabilities are considered) deal vows to enhance competition and create the fifth-largest U.S. airline, offering ultra-low fares for travel. Both Spirit Airlines and Frontier carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The deal between the two discount carriers comes at a time when the airline industry is reeling under the effects of the coronavirus pandemic. With domestic air-travel demand and leisure travel steadily improving, the budget carriers are better placed on the recovery path compared with the bigger carriers, which are being challenged by slow business travel recovery. Fresh travel restrictions as a result of Omicron are also denting international travel demand.
Similar to the challenges being faced by American Airlines (AAL - Free Report) and JetBlue Airways (JBLU - Free Report) over their proposed (operating) partnership, Spirit Airlines and Frontier might have difficulties in obtaining regulatory approvals.
Spirit Airlines, Inc. Price
Spirit Airlines, Inc. price | Spirit Airlines, Inc. Quote
Last year, the Department of Justice filed an antitrust lawsuit against American Airlines and JetBlue, alleging that their partnership is likely to reduce competition and jack up air fares. Nevertheless, the two airlines have continued their expansion initiatives under the Northeast Alliance (“NEA”).
Last December, American Airlines, carrying a Zacks Rank #4 (Sell), announced plans to expand its global footprint in 2022 under the NEA with new nonstop service between New York’s John F. Kennedy International Airport (JFK) and Doha, Qatar’s Hamad International Airport.
Under the NEA, JetBlue, carrying a Zacks Rank #4, will introduce new services to Vancouver, Canada from both New York-JFK and Boston in 2022. The carrier will also increase frequencies on several of its routes from New York-JFK, including Cancun, Mexico; Guayaquil, Ecuador; Raleigh–Durham, NC; and Minneapolis–St. Paul, MN.
Coming back to Spirit Airlines’ merger deal with Frontier Airlines, the combined airline will expand its network across the United States, Latin America and the Caribbean, offering more than 1,000 daily flights to over 145 destinations.
The combined entity is expected to generate annual revenues of approximately $5.3 billion (based on 2021 results). Once fully integrated, Frontier and Spirit Airlines are expected to deliver annual run-rate operating synergies of $500 million.
Per the terms of the merger agreement, Spirit Airlines’ shareholders will receive $25.83 per share, a premium of about 19% on the closing price of Feb 4. SAVE will own approximately 48.5% of the combined airline, while the remaining will be owned by ULCC.
Subject to customary closing conditions, the merger is expected to close in the second half of 2022.