When Frontier Airlines and Spirit Airlines announced their proposed merger on Monday in a $6.6 billion cash and stock deal, it seemed as though the hard part was over.
Not so fast.
The merger still faces a giant hurdle - regulatory approval from the federal government - and there are compelling arguments for and against making the Frontier-Spirit collaboration the fifth-largest domestic airline in the country.
There are two pressing issues the carriers must overcome, one that is airline-specific and one that is big business-related.
The Department of Justice is currently investigating the Northeast Alliance between American Airlines and JetBlue Airways. American and JetBlue agreed to sell each other's flights out of their New York and Boston hubs, allowing passengers to accumulate frequent flier miles on both airlines entering into a formal merger. The DOJ, in collaboration with six states, said the alliance constitutes a partnership that would drive up market prices and give the two airlines an unfair advantage.
That could make for an uncomfortable precedent.
"In a normal environment we would not expect any regulatory hurdles, but given the Biden Administration's 'big is bad' approach that has led to DOJ lawsuit against what appears to be a pro-competition Northeast Alliance by American and JetBlue, we would expect some objection," Savanthi Syth, an airline analyst at Raymond James, wrote in a memo Monday according to the government watchdog publication The Hill.
And there's the second issue - the Biden Administration is not keen on corporate consolidation and mega-mergers.
While both Frontier and Spirit are promising the merger will save them a combined $1 billion and add 10,000 jobs by 2026, some are skeptical.
"What we've seen with most mergers is that corporate executives tout lower fares for customers, then fail to deliver on those promises and all of the other promises they make," Robyn Shapiro, a spokesperson for the anti-monopoly American Economic Liberties Project, told The Hill.
While the DOJ and The White House declined comment, President Biden made his feelings clear yet again last week in a speech following the release of the January jobs report.
"Capitalism without competition is not capitalism, it's exploitation," he said. "So I'm going to continue to do everything in my power to work with Congress to make our capitalist system work better, to provide more competition and lower prices for American consumers."
Frontier CEO Barry Biffle did address the topic during a conference call on Monday following the merger announcement.
"We've reached out to the administration, and we're really excited about telling our story. This merger is completely different than any other merger in the past in the U.S. This is not about reducing competition and raising fares, this is about getting more low fares to more people in more places," Biffle said.
And there are many who agree with him.
"You've got two ultra-low-cost carriers with a common fleet without a lot of competitive city pair overlap," Kenneth Quinn, a partner at Clyde & Co. analysts, told Reuters News Service.
"In the airline industry, scale matters and this acquisition will most likely result in significant cost savings for the combined airline - this savings will be amplified by the similarities of the fleet and configuration," Christopher Anderson, a professor of operations, technology and information management at Cornell University, told The Hill. "Consumers will benefit from more breadth of the combined itineraries and most likely lower fares through the cost savings and system synergies."
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