That Frontier Spirit

U.S. Airline Consolidation Marches on With Proposed ULCC Merger

Pushing Back: Inside The Issue

One of the most popular airline-industry parlor games (yes, we've heard there are such things) is which two airlines would be the next dominoes to fall in U.S. airline consolidation. It's been a long parlor game; the last merger was the Alaska Airlines-Virgin America deal in 2016. Speculation has run rife, but Frontier-Spirit long has been a popular guess. The deal, in many ways, makes a lot of sense: Both airlines come from the Indigo Group's ultra-low-cost carrier (ULCC) incubator and share the same DNA; and their route networks and fleets are complementary. The real guessing game now is whether the Biden administration's Justice Department will approve the deal. Although the consensus opinion is that any deal involving the Big Four — American, Delta, Southwest, and United — would be dead on arrival, opinions are mixed about how the Justice Department will view a ULCC merger. Executives from the two ULCCs tout strong leisure demand and their ability to lower fares as reasons the deal should proceed.

Regardless, the deal signals that the ULCC market in the U.S., which is underdeveloped compared with the markets in Latin America and Europe, is on the move. A combined Frontier-Spirit would be a force the Big Four will have to reckon with, even if it would control less than 10 percent of the market. But the new airline (name to be decided) will vault ahead of Alaska and JetBlue, not to mention smaller carriers like Sun Country, Allegiant, among others, and the new entrants, like Avelo and Breeze.

Meanwhile, Panama's Copa did what few carriers anywhere in the world did by reporting fourth-quarter profits. It now predicts a return to its pre-pandemic capacity by the middle of this year, fueled by strong leisure demand. Lessors report that airlines are clamoring for new aircraft. The freight boom continues with no end in sight. And Stockholm continues to attract new air service. We also noticed that Hungary's Wizz Air quietly applied for a permit to fly to the U.S., and pilots unions promptly objected. Stay tuned on that story.

And in what now is a weekly occurrence, another long-serving U.S. CEO is stepping down. Maurice Gallagher, who invested in and then transformed Allegiant Air into one of the world's most profitable airlines, is retiring after almost 20 years at the helm.

The Airline Weekly Lounge Podcast

Big news in the U.S. ultra-low-cost-carrier market this week, as Spirit and Frontier announced their plans to merge. Meanwhile, Allegiant’s long-serving CEO Maury Gallagher, who helmed one of the most profitable airlines in the world, announced his retirement. In this week's episode, Madhu Unnikrishnan and Edward “Ned” Russell. discuss the hurdles ahead for the merger, why Gallagher’s retirement is significant, as well as why India’s IndiGo is not concerned about a revitalized Air India. A full archive of the 'Lounge is available here.

Verbulence

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