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The man who turned Spirit Airlines Inc. SAVE -0.38% into one of the industry's stingiest but most profitable carriers agreed in principle to buy Denver-based Frontier Airlines, a transaction that likely signals the expansion of the ultralow-cost sector of the U.S. airline industry, according to a person familiar with the deal.
Indigo Partners LLC, the investment firm of Bill Franke, agreed late Monday to purchase Frontier from Republic Airways Holdings Inc. RJET -5.37% in a deal largely based on the assumption of debt, the person said. The agreement was being reviewed by lawyers overnight and was expected to be announced early Tuesday, the person said. The exact terms were unclear.
The sale appeared in jeopardy in recent days because of slow negotiations with Frontier's pilots and flight attendants. But hours before the expiration of Indigo's period of exclusive negotiations to buy Frontier, the two sides agreed to a deal in principle that is subject to a number of conditions, including a labor agreement with the pilots, the person said.
The groups representing the attendants and pilots in those negotiations with Indigo didn't respond to requests for comment.
Allegiant Travel Co. ALGT -0.68% have used the ultralow-cost model to become two of the fastest-growing and highest-margin carriers in the industry.
Frontier, the 10th-largest airline in the U.S. by seats, is roughly the size of Spirit. Each has just more than 50 aircraft and about 1 million seats for sale in October, or approximately 1.5% of the U.S. domestic market, according to Innovata LLC, an airline data provider.
United Continental Holdings Inc.UAL -0.65% and Southwest Airlines Co. LUV -0.55%
Savanthi Syth, an airline analyst for Raymond James Financial Inc., RJF -0.69% said the new Frontier would likely turn its focus away from Denver. "I don't think he'll be able to do it as hub and spoke out of Denver," she said. "So that'll be positive for United and Southwest."
The advent of a third ultralow-cost carrier in the U.S. signals the further segmentation of the U.S. airline industry into three tiers, she said. Full-service carriers like United and Delta Air Lines Inc. DAL +0.08% cater to business travelers and frequent fliers. Discounters like Southwest and JetBlue Airways Corp. offer a quality product for a reasonable price. And Spirit and Allegiant look to stimulate traffic with bare-bones service and the lowest fares.
"These are people who don't need the frills and don't mind flying at odd times of the day," she said. "And there appears to be a significant enough market that Spirit and Frontier can share."
The man who turned Spirit Airlines Inc. SAVE -0.38% into one of the industry's stingiest but most profitable carriers agreed in principle to buy Denver-based Frontier Airlines, a transaction that likely signals the expansion of the ultralow-cost sector of the U.S. airline industry, according to a person familiar with the deal.
Indigo Partners LLC, the investment firm of Bill Franke, agreed late Monday to purchase Frontier from Republic Airways Holdings Inc. RJET -5.37% in a deal largely based on the assumption of debt, the person said. The agreement was being reviewed by lawyers overnight and was expected to be announced early Tuesday, the person said. The exact terms were unclear.
The sale appeared in jeopardy in recent days because of slow negotiations with Frontier's pilots and flight attendants. But hours before the expiration of Indigo's period of exclusive negotiations to buy Frontier, the two sides agreed to a deal in principle that is subject to a number of conditions, including a labor agreement with the pilots, the person said.
The groups representing the attendants and pilots in those negotiations with Indigo didn't respond to requests for comment.
Allegiant Travel Co. ALGT -0.68% have used the ultralow-cost model to become two of the fastest-growing and highest-margin carriers in the industry.
Frontier, the 10th-largest airline in the U.S. by seats, is roughly the size of Spirit. Each has just more than 50 aircraft and about 1 million seats for sale in October, or approximately 1.5% of the U.S. domestic market, according to Innovata LLC, an airline data provider.
United Continental Holdings Inc.UAL -0.65% and Southwest Airlines Co. LUV -0.55%
Savanthi Syth, an airline analyst for Raymond James Financial Inc., RJF -0.69% said the new Frontier would likely turn its focus away from Denver. "I don't think he'll be able to do it as hub and spoke out of Denver," she said. "So that'll be positive for United and Southwest."
The advent of a third ultralow-cost carrier in the U.S. signals the further segmentation of the U.S. airline industry into three tiers, she said. Full-service carriers like United and Delta Air Lines Inc. DAL +0.08% cater to business travelers and frequent fliers. Discounters like Southwest and JetBlue Airways Corp. offer a quality product for a reasonable price. And Spirit and Allegiant look to stimulate traffic with bare-bones service and the lowest fares.
"These are people who don't need the frills and don't mind flying at odd times of the day," she said. "And there appears to be a significant enough market that Spirit and Frontier can share."