Frontier Airlines' parent company is buying Spirit Airlines in a $2.9 billion cash-and-stock deal that will allow the combined airline to be more competitive against its larger rivals.
Spirit shareholders will receive 1.9126 shares of Frontier plus $2.13 in cash for each existing Spirit share they own. This implies a value of $25.83 per Spirit share at Frontier’s closing stock price of $12.39 on Friday.
The deal is valued at $6.6 billion when accounting for the assumption of debt and operating lease liabilities.
"Together, Frontier and Spirit expect to change the industry for the benefit of consumers, bringing more ultra-low fares to more travelers in more destinations across the United States, Latin America and the Caribbean, including major cities as well as underserved communities," the companies said in a joint press release Monday. "The stronger financial profile of the combined company will empower it to accelerate investment in innovation and growth and compete even more aggressively, especially against the dominant “Big Four” airlines, among others."
The merger will create the fifth largest airline, surpassing airlines like JetBlue. Experts believe it will bring tough competition to everyone, especially in South Florida.
Henry Harteveldt of Atmosphere Research in San Francisco said air service is likely to expand.
"Obviously, Spirit and Frontier have extensive service into South Florida," Harteveldt said. "Combining the two means that South Florida would have a stronger low fare airline, offering one airline service to more cities."
The merger needs government approval, which could come later this year.
"You can joke about the airlines' brand reputation, but there is nothing funny about the power of this combined airline," Harteveldt said.
USA Today later reported Monday that Frontier briefly experienced a system outage that led to the cancellation of dozens of flights.
According to Flight Aware, Frontier had canceled 111 flights — about 22% of all of its flights scheduled for the day — as of early Monday afternoon.
"Unfortunately, we woke up to a system outage this morning," Frontier CEO Barry Biffle told USA Today. "The system is back up now and we are slowly restoring operations.'"
It's unclear if the outage was linked to the merger with Spirit.