Inflation Dampens The Spirit-Frontier Merger

Spirit and Frontier Airlines announced a $6.6 billion merger on Monday. The merger of these two low-budget carriers would create the fifth largest airline in the United States. The stocks of both airlines rallied upon the announcement, and Spirit’s CEO, Ted Christie, argued that the merger would “push for lower fares” for flyers in the U.S. However, though the proposed merger is being pitched as a win-win, the Biden administration may not be convinced.

Biden and his administration are currently under great pressure to fight inflation in efforts to appease anxious voters. One measure the administration is currently taking to fight inflation is scrutinizing all M&A transactions that cross their desks. The administration feels that “big is bad” when it comes to companies, according to Savanthi Syth, an airline analyst at investment bank Raymond James. In other words, the administration likely does not agree that a Spirit-Frontier merger would necessarily drive down airline ticket prices, given that the administration supports the idea that competition between companies – not their joining forces – is what keeps consumer prices low.

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This past September, the Justice Department blocked an effort by American Airlines and JetBlue to join forces in their Boston and New York City operations. Also, last month, the US Federal Trade Commission blocked Lockheed Martin’s attempted $4.4 billion purchase of Aerojet, a company that develops missile propulsion systems. And just last week, the meat and poultry industry came under scrutiny by the Justice Department and the Department of Agriculture, as both departments reported concerns of violation of competition laws.

So, will the Spirit-Frontier deal go through? Judging by the aforementioned blocked M&A efforts, as well as the recent calling off of Softbank’s sale of British chip designer ARM to Nvidia due to regulatory issues, the outlook does not look great. In 2021, global M&A activity came in at $5.9 trillion, marking it one of the strongest periods since 1980. While this may have been good for companies’ bottom lines, the Biden administration doesn’t believe it was best for the consumer, and the consumer’s purchasing power is what matters most to this administration right now.