The surprise departure of ultra low-cost carrier Spirit Airlines chief executive Ben Baldanza follows a year where the airline's stock lost its shine, as investors worry that Spirit's once-revered moat is rapidly being encroached upon by its rivals.

The replacement of Baldanza with 35-year airline veteran Robert Fornaro refuels speculation that Spirit is setting up for a merger with Frontier - a possibility that both carriers have so far denied.

Analysts believe that a merger makes sense, despite what both airlines have said about having no plans to work together.

"Spirit and Frontier are actually competing with each other at the edges," airline analyst and consultant Robert Mann tells Flightglobal. A merger with Frontier would allow Spirit to pivot, given that it has grown to an airline with a sizable number of aircraft that it cannot easily pull from markets, notes Mann.

Interestingly, Fornaro has plenty of airline merger experience to draw upon if he needs to. The former president and chief executive of AirTran helped to integrate that carrier into Southwest Airlines when the two merged in 2011. He also played a role in overseeing the absorption of capacity into US Airways' network after it acquired Piedmont Airlines in 1989. Fornaro was then US Airways' senior vice-president for planning.

Mirarmar, Florida-based Spirit declines to make Fornaro available for an interview immediately, saying that its new chief executive is settling into the new role.

The overlap between Spirit and Frontier's networks

Frontier Spirit network overlap

Innovata FlightMaps Analytics

Speculation of a merger between Spirit and Frontier is not new, given the numerous similarities between the two airlines. Frontier, a former Republic Airways Holdings subsidiary, has kept busy in recent years transitioning into an ultra low-cost carrier much like Spirit. Frontier president Barry Biffle was Baldanza's right-hand man at Spirit, where he worked for eight years. Both carriers operate the Airbus A320 family, and Frontier owner Indigo Partners used to be a Spirit shareholder.

Wolfe Research analysts note in a 5 January report that a "Frontier merger always made sense", as the equity research firm upgraded Spirit's stock to outperform on the potential of a merger. "The DNA of these two companies is nearly identical given both were reborn under the same private equity sponsor, Indigo Partners."

A Frontier spokesman declines to comment on a potential merger with Spirit.

Spirit operates 79 A320 family aircraft, and has another 92 on order, Flightglobal's Fleets Analyzer shows. Frontier operates 61 of the same type and has 98 on order.

Baldanza said in September that "further consolidation is not unrealistic down the road" in the US airline industry but has repeatedly said Spirit sees no need to merge with another airline. Frontier's Biffle had previously reiterated that the airline has spent "zero effort" in any merger talks with Spirit.

A merger with Frontier would result in a formidable low-cost carrier that Mann believes would be able to compete more effectively with major US carriers. "That is the effect of a price disciplining carrier that Southwest no longer is," he says.

A proposed consolidation between Frontier and Spirit could also sit well with US regulators wary of the dominance by major US carriers, notes Mann.


Calling Fornaro a "well-respected airline executive", CRT Capital analysts say in a research note on 5 January: "Bob's extensive background in market planning is a perfect fit for SAVE at this stage in its growth cycle."

Spirit's stock rose almost 6% on 5 January to close at $41.50 following the announcement of Fornaro's appointment, after tumbling in the recent year from a 52-week high of $83.45.

Mann believes that Fornaro will likely pull back on Spirit's penchant for competing against mainline carriers on routes out of their hubs - a tactic that has proven detrimental to Spirit's returns during the past year.

Bolstered by strong balance sheets and healthy financial results for the first time in years, US mainline carriers have increasingly grown more aggressive in competing against discounters like Spirit and have caught up to price conscious travellers. Delta Air Lines now offers a basic economy fare option, American Airlines plans to introduce a similar offering this year and United Airlines has said it is studying such a move as well.

"The dynamic has changed completely and I'm not sure the board [of Spirit] may have continued to be comfortable with how things were going," says Mann. "Before that, you have to find new customers to replace those who are disappointed. That's fine as long as you are going at a reasonable pace and your network competitors are ignoring you... But now you have a very different situation... they are going to come after you with full hammer and tongs."

Indeed, Baldanza himself acknowledged the aggressive competitive environment in what would turn out to be his final quarterly earnings call with the airline on 27 October. Saying that the airline was obviously frustrated, he said: "We continue to see very low prices from our competitors including legacies."

In the third quarter, Spirit's unit revenue fell more than 17% while yields tumbled more than 15%. Baldanza said then that about 60% of the unit revenue decline was due to price compression in the market.

Dallas - where both American and Southwest Airlines are based - was particularly problematic for Spirit. But Baldanza then declined to heed analysts' calls to reconsider the airline's network there, saying: "We are building network for the long term... It doesn't make sense to pull out a big chunk of the operations and put it somewhere else."

Wolfe Research analysts believe that in the near term, Fornaro will focus on rebuilding investors' confidence in Spirit's business model.

"That may require some more investment in the product or perhaps some network rejiggering," they add.


Baldanza leaves Spirit after 11 years - of which 10 were spent at the helm. During that time, he transformed the airline from a loss-making company into a profit machine, leading the carrier through its initial public offering in 2011 and producing profits that stoked the envy of other carriers as the industry struggled with periods of high fuel prices and an economic recession.

But not everyone was quite as charmed by Spirit's success. Its ultra low-cost model - in which it charges passengers for everything from a bottle of water to a seat assignment - has irked travellers who do not expect the fees.

The outspoken Baldanza has been unapologetic about the Spirit way, and his brash approach has led observers to wonder if the airline could have done more to soothe passengers' fury.

Baldanza told Flightglobal in an interview in 2012: "Non-refundable means non-refundable... Consumers who fly multiple airlines are conditioned that if you scream and yell you will get what you want. At Spirit, that doesn't happen - and that bothers people."

But in recent years, Spirit has appeared to acknowledge that angry customer feedback is more bad than good for the airline. It has rolled out a couple of advertising campaigns in what the airline called an effort to "educate" customers on its unbundled product - what it refers to as the "bare fare".

Consumers appear to be unswayed. Latest available data from the US Department of Transportation shows that the regulator received 176 complaints about Spirit in October 2015, putting it in third place behind much bigger carriers American and United. This was more than double the 86 complaints the DOT received on Spirit in the same month in 2014.

Mann believes that the appointment of Fornaro could result in a more "constructive relationship" with customers, labour groups and suppliers. "That's just kind of a sea change from what's been evident at Spirit today," he says. "It sets the tone that we don't have to be in people's faces to be successful."

Source: Cirium Dashboard