On the day that Frontier Airlines announced its intent to merge with its fellow discount air carrier Spirit Airlines, the acquiring carrier suffered an ill-timed IT problem that briefly grounded its jets. So Monday presented a golden opportunity to the many bloggers who obsess about the airline industry and its complex web of points and incentives.
“Frontier And Spirit Plan To Merge And Create An Even Larger Terrible Airline,” wrote Cleveland blogger Dan Eleff, owner of the widely followed Dan’s Deals site. Eleff long has advised his readers to avoid Spirit and Frontier, part of the airline sector known as ultralow-cost carriers, on the grounds that customer service is bare-bones, the seats lack leg room, upcharging is pervasive and travelers can find themselves seriously stuck when things go wrong.
But for many people, an affordable ticket can mean the difference between taking a trip and not having the money to do so. And experience shows that when an ultralow-cost carrier is in the market, not only does it offer cheap fares, but average fares on all airlines tend to drop. You only need compare fares with the dominant O’Hare International Airport carriers American and United airlines when Spirit or Frontier competes here. The competition is good for Chicago consumers.
If the Frontier and Spirit merger goes through as the parties wish, the resultant airline will be the fifth largest in the country. The deal is valued at $6.6 billion, with Frontier getting a 51.5% controlling stake in the new combo. Spirit CEO Ted Christie told analysts the merger would “better serve guests, expand career opportunities for our team members and create value for our shareholders.”
That, of course, is what CEOs always say when they are in the business of reducing competition. And few observers of the airline industry would argue that all mergers of the last 15 years have been good for travelers. Delta’s merger with Northwest, United’s with Continental and American’s with US Airways all resulted in reduced choices for consumers, hurting cities like Pittsburgh (which mostly lost their hub status) and stranding some communities altogether.
None of those mergers got the level of federal scrutiny they deserved, at least in retrospect. One or two of them probably should not have been allowed at all.
On that same note, we think the Justice Department was right to sue this fall to block the so-called Northeast Alliance between American and JetBlue, which the feds said would “harm air travelers across the country by significantly diminishing JetBlue’s incentive to compete with American elsewhere, further consolidating an already highly concentrated industry.” Exactly right, even if American claimed benefits for its passengers.
But the Frontier-Spirit case is different. The gap between the top four airlines (which, with their commuter affiliates, control some 80% of domestic air travel) and No. 5 is huge. Moreover, those four leaders always try to avoid competing on price.
Take the case at Midway Airport. For years, the city has touted the airport as a low-cost alternative to O’Hare. But while the dominant carrier at Midway, Southwest Airlines, has a long and distinguished history as a low-cost airline, it ceased to be one several years ago. All you have to do is check the Southwest fares in relation to the legacy carriers at O’Hare (where Southwest also now flies). Rarely is Southwest the cheapest: Just check its current fares for spring break travel to Florida. And yet the perception remains.
The problem for Midway travelers is that Southwest is so dominant there, it feels like it owns the airport.
But Frontier is returning to Midway this spring. Starting April 28, it will offer nonstop flights to eight destinations, including Denver, Dallas, Phoenix, Las Vegas, Tampa and Atlanta, with fares starting at $29. Southwest will have to match at least some of those fares. Midway travelers should see the benefits of the new competition.
Southwest is the much bigger airline, of course, and that is the crux of the argument for the merger. Spirit and Frontier are too far behind their fellow airlines when it comes to the economics of scale that reduce costs and that all airlines seek. They need to grow so that the ultralow-cost carriers can be more effective competitors with the majors.
By turning the so-called Big Four into the Big Five, competition will actually grow. Spirit already helps with prices at O’Hare, but if the merger goes through, it might well also do the same at Midway.
It’s certainly true that in the few city-pairings where Frontier and Spirit already compete the benefits won’t be as obvious. But that’s a relatively small number of routes.
We think the Justice Department should always pay attention to this industry where consolidating seems to be what CEOs think about the moment their eyes open on their pillows. And we’re all in favor of boosting travelers’ rights when things go wrong. Europeans have far better protections.
We also appreciate the benefits of being the hometown airline of United and such a major part of American’s plans. Few business travelers are likely to abandon their favorite of the two for Frontier Spirit, or whatever the new airline decides to call itself.
But business travel is facing a long road back. Leisure travel already is roaring. Allowing this merger, perhaps with a few caveats that could boost either JetBlue or Allegiant (a small player at Midway) will be beneficial for travelers across the nation. It’s good to keep the big dogs on their toes.
