Spirit Airlines has a ‘very clear choice’ in merger deal, Frontier Airlines CEO says

Frontier Airlines CEO Barry Biffle joins Yahoo Finance Live to discuss the possibility of a Spirit Airlines merger, the impact of the pilot shortage on the airline industry, travel disruptions, and the outlook for travel demand.

Video transcript

- All right, the battle for Spirit Airlines is picking up speed, as Frontier and JetBlue both raised their offers. Institutional Shareholder Services has now urged Spirit shareholders to vote in favor of the Frontier merger. Joining us now to discuss is frontier airlines CEO Barry Biffle. Barry, good to see you again.

Look, the last we heard from JetBlue here is that they are saying there's been some mischaracterizations around this deal, and they view your deal as inferior. I understand that would be JetBlue's position. But still, help us understand what they might be talking about, and walk us through your deal where it stands now.

BARRY BIFFLE: Thanks for having us on. Look, I don't know what they're talking about. I mean, they've done plenty of mischaracterizations and so forth themselves. All I know is that we're really pleased to see ISS come in and recommend our deal for shareholders on the eve of the last news doing it as well.

We've increased our cash consideration to $450 million just from the shareholders. We're also paying $240 million up front, after they vote this in on Thursday. And we've increased the reverse termination fee to $350 million, so a lot of protections from a cash consideration perspective for the shareholders.

But most importantly is that the Spirit shareholders will get a significant upside. And they'll share in that benefit, because we're not capping them out at today's low market. They'll have the potential to get to $50 to $60 per share. And I think when you compare that to JetBlue, it's very simple.

We are going to lower fares with our combination. And JetBlue would actually raise fares, which means that all you're going to get paid is the reverse termination fee in the JetBlue case. So you're comparing $50 to $60 to $3 in an RTF, so it's a very clear choice-- clear choice for shareholders this week. And we look forward to having the vote.

- This comes at a time where consumers are really getting hit with higher fares right now, everything from higher wages to fuel costs. That's being funneled through into their ticket prices. And so how would a combination like this, do you believe, also alleviate some of the pressures that consumers are seeing, if it will at all?

BARRY BIFFLE: Well, that's why this is so important. I mean, we're talking about inflation every day. And both Spirit and Frontier, we're both low-cost carriers that provide real competition. And so by combining, it enables us to lower fares even further. And it provides the ability to have more low fares to more people in more places.

And so at a time when we're seeing just record prices of everything you buy, I think keeping airfares very low is really important. And I think when you compare and contrast that to the JetBlue option, you're talking about a family of four shelling out another $400 for airfares if that was to go through. And so that's why it means the difference-- possibly, they couldn't even afford to go. So that's why our merger is so important at a time like this, when inflation is going up. It's going to lower fares for consumers even more.

- Hey, Barry, it's Julie here. I want to ask you, perhaps, a more touchy-feely question, if you will. And that has to do with the rhetoric that has come on your part, on JetBlue's part. You guys have been fighting pretty fiercely in the press over this whole situation.

How do you feel about that, for lack of a better question? And whichever way this goes, I mean, you guys are both out there in the same industry. How do you move forward with this sort of acrimonious fight that you guys have been having?

BARRY BIFFLE: Well, I think it's real simple. I mean, JetBlue is a high-cost carrier. They don't have the size and scale that the big four do, but they're in their category of high fares.

And so they didn't love us to begin with. I think that's one of the reasons why they've been facing this deal. It's to try to derail it so that they don't have greater competition from low-cost carriers like us.

But look, I doubt I'm on their Christmas card list this year. But the fact is, hopefully, we'll be on plenty of consumers' Christmas card list, because we're going to do great things for consumers. And ultimately, we'll do great things for shareholders, as well.

- Barry, just-- let's just stay on that, because after this deal-- let's say it goes through, and you acquire Spirit. I mean, you have to look as JetBlue-- at JetBlue as a wounded-- a wounded competitor, no?

BARRY BIFFLE: Look, I don't know that I look at them as a wounded competitor. They're a good airline, and they have-- they have a kind of their niche. But I think what's most important, and what's exciting about our deals is we provide real competition for the big four, which people have been complaining about even before the current inflationary environment. And so now, with the inflation environment-- inflationary environment that we have today, it's even more important to have a real nationwide low fare carrier to be successful, like the Frontier-Spirit combination would be.

- Barry, what happens if this doesn't work for you guys? What happens if you don't win Spirit? Do you-- are there other options for acquisitions out there for you guys? What's the strategy?

BARRY BIFFLE: Well, look, I mean, we're really excited about this deal. We're excited about this vote. And let's get through that in the next couple of days. If we don't get through it, I guess call me on Friday.

- We will.

- What about, you know, ahead of the closing of the deal and even thereafter? We've seen some of the other airlines-- United, particularly-- looking to beef up the pay and compensation packages for pilots, noting how important pilots in this broader shortage are for making these operations run. For Frontier, how do you think about that right now? Do you have any plans to kind of beef up some of those pay packages and compensation for pilots in the face of this shortage, either before or after the deal?

BARRY BIFFLE: We're very fortunate today. We actually have a surplus of pilots at this moment, more than we actually need for our current operations. And a lot of that has to do with a couple of things. One, pay is important, but so is lifestyle and your career progression.

And what happens in Frontier, because of our growth rate, a pilot comes to Frontier, and they're going to upgrade from first officer to captain within four years. And that's the biggest raise you get when you-- when you are a pilot. And so even though our pay rates are slightly lower than they might find, at maybe United, some of the other big airlines, you actually end up making a lot more money, because you move to the captain rates so much sooner. And that money come sooner in your life and in your lifetime, as well.

So we feel very good about it. And pilots are really smart. They can actually figure this out. And further, because of the growth rate, their lifestyle further improves, because you're going to get weekends and maybe holidays off decades before you could at some of the big airlines.

So look, we're going to make sure that we're competitive, and we have a good benefits package. And we'll continue to watch this. But there is somewhat of a shortage today, across the industry and even globally. But the good news is, is that high prices, if you will, will solve that.

And the high wages that you can get and earn at Frontier and many other airlines is great career. And that's attracting more people today than we've ever seen. So there's plenty of people coming in the pipeline, but it's just going to take a couple of years for them to get into the workforce.

- Barry, because of the labor shortages in the airline industry, we've seen a dramatic increase in cancellations, through, really, across the industry. Should consumers and travelers, should they just expect cancellations like this to persist for the foreseeable future?

BARRY BIFFLE: Well, look, I think across the industry, there has been an elevated amount of cancellations. We've really studied it, and we're fortunate. I mean, team Frontier-- so proud of our folks-- in the last six weeks, in the lead up into, you know, 4th of July and the summer season, we're actually in third place in completion, meaning least canceled flights. And so we're really proud of what we've accomplished.

But we actually are still lower, when we look year to date versus 2019. And the biggest culprit for that is actually, unfortunately, air traffic control. And there's a variety of factors for that. And there's more space launches. There has been military activity.

And we understand there's some staffing challenges there, as well. But I know the FAA is working on it, and it's a big priority. And the second biggest thing that hits us is on supply chain, with parts and so forth moving around, but not anywhere near what they are trying to control. I do know that there are some airlines that actually have real direct staffing problems, but we're not one of those.

- And the TSA just saying that it screened the most people yesterday as it has since February 11, 2020, so people are definitely back out there. Barry Biffle, great to get some time with you this morning. We'll check in with you later this week, depending on the outcome of that vote. Frontier airline CEO, thanks so much Barry. Appreciate it.

BARRY BIFFLE: Thanks for having us on.

- Let's get a quick check on markets here.