What Impact Will Allegiant's Acquisition of Sun Country Have on Travelers?

Sunday evening’s announcement that Allegiant would acquire Sun Country Airlines in a $1.5 billion cash-and-stock deal was met with varied reactions. 

Each airline, operating slightly different versions of the Ultra-Low-Cost Carrier (ULCC) model, has its own, largely separate target market. Allegiant has built its brand on connecting small and medium-sized cities nonstop to large leisure markets like Las Vegas and Florida. Sun Country's network primarily serves Minneapolis-St. Paul, plus a smattering of other markets and whatever passengers it happens to connect via Minneapolis. 

What Happens Now?

With the number of airlines that have merged over the last two decades, the industry is used to the standard statements at this stage: the airlines will continue to operate separately until receiving regulatory approvals, then they will work to combine the two brands.

Both the Department of Justice (DOJ) and the Department of Transportation (DOT) will scrutinize the deal to ensure that the proposed combination doesn't violate any anti-trust laws, reduce consumer choice, or raise fares. This is exceptionally unlikely with these two carriers. Allegiant is the 9th-largest airline in the United States by passengers carried; Sun Country is 11^th. A combined airline wouldn't budge its position in the rankings, leaving it at half the size of the 8th-ranked Frontier Airlines, or just over 60%.

Another point of scrutiny for regulators is how many nonstop air markets the carriers overlap on, ostensibly because a merger would eliminate competition on those routes. Allegiant and Sun Country have almost no direct route overlap (they both operate a flight from Appleton, WI, to Fort Myers, FL during the winter season).

Both DOJ and DOT can elect to sue to stop a merger or issue a notice to carriers that they must make changes to satisfy anti-trust laws before they will approve a combination. Because there appear to be few anti-trust concerns in this case, approvals could come quickly, though it's ultimately up to each department to review the proposal. 

Unions for each company will also have to negotiate how they want to combine. The Teamsters Union represents pilots at Allegiant, while pilots at Sun Country are represented by the Airline Pilots Association (ALPA), which has negotiated a substantially more generous contract for its members. Moving forward, pilots will have to choose which union they wish to be represented by and negotiate how to combine the two seniority lists. Flight attendants for each carrier also belong to different unions: the Transport Workers Union (TWU) for Allegiant and the Teamsters for Sun Country. 

Flight attendants for both airlines have recently ratified new contracts, while pilot contract negotiations at both airlines are ongoing. Teamsters-represented pilots at Allegiant have become increasingly vocal about the pace of the talks, holding informational pickets late last year. 

Sun Country's ALPA chapter stated in response to the proposed acquisition: 

“ALPA has 90 years of experience negotiating mergers, large and small, between ALPA carriers and ALPA-to-non-ALPA carriers such as Allegiant. We will be reaching out to IBT leadership to begin collaborative efforts toward a fair and equitable integration of the pilot seniority lists. In addition, we will jointly develop a comprehensive Collective Bargaining Agreement that reflects the best interests of both groups.”

What Will a Combined Airline Look Like? 

The combined airline will offer more destinations. Allegiant currently flies only within the United States, while Sun Country provides flights to Mexico, Central America, and the Caribbean, primarily from Minneapolis and Dallas/Fort Worth. With existing international operations, including the necessary route authorities, landing rights, and endorsements on its operator's certificate, Sun Country brings Allegiant the value of international access. By combining certificates, Allegiant would have faster, easier options to expand international service acquired from Sun Country rather than building its own from scratch. 

The move could also change the character of each airline. Sun Country has long offered connecting flights, both on its own network and to the networks of select partner airlines, including China Airlines, Icelandair, EVA Air, Emirates, and Condor. Allegiant, by contrast, only sells nonstop flights and doesn't partner with other airlines, even for international flights. 

Allegiant could ultimately change its position on connecting flights, though it should be noted that offering connections and international service often adds operational complexities that can increase costs (and, consequently, fares). 

Aside from connections and international flying, the airlines are similar. Both charge for seat assignments, checked and carry-on bags, and changes to a ticket. One difference is that Sun Country still offers complimentary soft drinks, while alcoholic drinks and snacks are available for a charge. Allegiant charges for all beverages and snacks onboard. 

Sun Country Airlines plane arriving at Harry Reid International Airport. (Photo Credit: robin / Adobe Stock)

The Competitive Landscape

The acquisition proposal comes at a time when the continued viability of the ULCC model is being strongly questioned. Spirit Airlines, the country’s largest ULCC, is rapidly shrinking, cutting flights and jobs as it reorganizes in Chapter 11. There’s even talk of its own merger with Frontier Airlines, which has been facing turmoil, letting go of CEO Barry Biffle in late December amid a major brand overhaul to return the airline to consistent profitability. 

ULCCs have struggled post-pandemic, as the most price-sensitive consumers have dropped out of the market and the remaining travelers seek premium experiences. The nation's large network carriers have also rolled out restricted fares, offering pricing similar to ULCCs while providing the added benefits of their large frequent-flier programs, better onboard service, and global reach at the same price. 

Between ULCCs, however, there are two different operating philosophies. Larger airlines like Frontier and Spirit have bet on flying in large markets also served by large network airlines, hoping to skim off price-sensitive consumers during high-demand periods. This model relies on fuller flights and higher aircraft utilization, so if they can't fill aircraft or can't fly them as much, they lose money.

Sun Country and Allegiant both subscribe to a lower-utilization model, keeping operating costs lower and allowing them to avoid flying when leisure passenger demand craters, like on winter weekdays. This will enable them to focus on leisure flying in smaller markets, where traffic concentrates in specific cities around the weekend. They can operate profitably by scheduling more surgeries, only flying when they can be sure to fill enough seats.

The model hasn’t been without missteps. During informational picketing in November, the pilots’ union complained that Allegiant’s management had instead “continue[d] to pour millions of dollars into failed resorts, stadium deals, and entertainment ventures” while asking its pilots for contract concessions.

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