Frontier Airlines and its private-equity backing Indigo Partners wants to go public. The planned IPO was expected in Q2 ’17 (a date already missed when the most recent delay came about) and now looks to be delayed until late Q3 or even Q4. A few weeks ago the delay was mostly attributed to United Airlines’ aggressive stance on Frontier’s planned expansion, particularly in Denver. But rumor mills being what they are, I cannot help but wonder if there is another angle possibly in play, one that would likely be WAY better for many travelers.
Some folks in the industry are now suggesting that JetBlue has been poking around, possibly even making an offer for Frontier. I have no confirmation, of course, and expect that the standard “we do not comment on speculation” reply would be given but it is an interesting theory to consider.
The fleet synergies are easy to see. Both airlines run A320 family jets. The fleets are relatively young and the order books are healthy. That part is simple.
And the idea that JetBlue would like to grow with a significant bump is not all that hard to see given its participation in the frenzy for Virgin America. Arguably that was a better combination than Alaska Airlines winning the bidding war but the price got way too high in the end for that to make sense (I also think that Alaska overpaid).
Such a merger would require a massive change in the Frontier operating model and probably relocating many of the planes to JetBlue hubs. But it would also give JetBlue a hub in Denver if it wants that option and the ability to somewhat quickly and easily pick another city or two and set up significant operations without much trouble. JetBlue still refers to its hubs as “Focus City” operations rather than hub airports. That makes some sense when considering how low the volume of connecting traffic is on the carrier. JetBlue will sell connecting itineraries but the vast majority of passengers are flying nonstop services.
That is very similar to Frontier’s model today, with the main difference being the inflight service model. JetBlue offers a high-touch experience with lots of free goodies (legroom, snacks, drinks, wifi, etc.) while Frontier charges for just about everything other than the lavs. Integration costs to convert that would be significant but not impossible to overcome.
Of course, building out such operations is a risky move but JetBlue needs to grow to remain competitive especially now that the combined Alaska/Virgin is a larger operation. And if you believe that a transition to hub-and-spoke is necessary (Hi, legacy carriers!) then the scale of operations must grow to fill all those planes coming and going from the hubs.
Another consideration, one I think was undervalued in the Alaska/Virgin deal, is the ability to “acquire” more pilots through such transactions. The US airline industry faces a dramatic and growing shortage of qualified commercial airline pilots. Larger operations can (theoretically) optimize scheduling and planning of crew, making it marginally easier to handle the shortage. Not a huge factor, but one worth paying attention to.
All of this comes back to the IPO delay. Negotiations around such a transaction would be a very smart reason to delay the public offering. Once that happens the process for a buyout is significantly more complicated. But I have no idea if that’s what happened here.
I don’t particularly expect that the deal will happen and I have no idea if they really even tried. But it is an interesting union to think about.
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