Monday Insight – February 14, 2022

Yes! More Combinations Coming…
But Not Where Consumers Will See It

Frontier/Spirit Merger – Not Much To See
And Not Much Consumer Fallout, Either.

The expected din from the usual suspects in the consumerist world hasn’t seemed to manifest in regard to the combination of Frontier and Spirit.

Maybe they’re too busy swooning over the syrupy stuff coming over the television about the wonders of the Olympics, sponsored by the folks who brought us the Covid virus. Maybe they really do understand that for the consumer, this is less of a merger than a large-scale codeshare – one that will deliver almost no downsides competitively.

Not likely. But we can hope.

As we covered in last week’s Touch & Go, this is a combined entity that, far from trying to consolidate, it’s adding whole fleets of new airplanes to expand. Like, another 600 or so, assuming some retirements.

It’s best summed up by our friend Bill Swelbar, who sort of takes it all with a yawn. Move along, folks. Not much to see here.

More Airline Mergers On Tap?. Like so much aviation planning today, there’s a lot of 1980s thinking that has no bearing on current air transportation realities.

One is the assumption that once two carriers merge, the rest of the industry will be pressured competitively to do the same. This is supposedly what took place in Ancient Times, a.k.a. the 1980s.

But that was then, this is now. There aren’t many players left that would see huge market advantages by combining. Alaska has been a merger target since the 1970s, but the oneworld membership changes its position. American could make a play, but they probably understand that it would start WW-III at the DOJ.

JetBlue and… whoever? Southwest and,,, whoever? Not a lot of airline players left.

But, Watch The Lift Provider Sector. One part of the air transportation infrastructure that almost certainly will see some re-structuring is the misnamed “regional airline” sector… the lessors of small lift to major airline systems.

Despite the name, they are neither “regional” nor in the business of being independent airline brands. They are suppliers. Important suppliers, but in a shrinking part of the airline industry.

Combinations in this area are likely as the airline industry needs fewer and fewer 50-seat jets. But this would have all the consumer impact of, say AirLease merging with ILFC . (To the average consumer, that’s “who?” merging with “who?”)

They are essentially in the same business, except the “regional airline” product is in declining demand. There would be zero consumer impact.

The hard fact is that the claims that “regional airlines” serve XXX percent of airports or carry XXX percent of airline passengers are simply misleading. This implies that we still have an independent geographic-focused airline industry sector that is 25 years buried. Just as with 777s and A320s they lease from outsiders, it is the major carriers that are deciding where these assets are used.

Conclusion. Frontier/Spirit is a corporate connection transaction. One that will have near zero dampening effect on the growth of the ULCC sector.

Or on consumer prices.