Frontier Airlines is again trying to join forces with Spirit Airlines, three years after the companies failed to complete a proposed merger.
On Wednesday, Frontier said it was willing to pay $2.1 billion in stock and cash for Spirit, a deal that would unite the nation’s two largest budget carriers and could reshape competition in the heavily consolidated U.S. airline industry. But Spirit said it had rejected the offer, which was far less than the $2.9 billion merger that the airlines had agreed to in early 2022, while saying it would welcome further negotiations with Frontier.
Spirit walked away from the earlier Frontier deal in favor of a higher counteroffer from JetBlue Airways, which the Justice Department successfully blocked in federal court last year. After a string of setbacks, including a failure to renegotiate its debt, Spirit filed for bankruptcy in November.
Frontier, which made its latest offer to Spirit and its creditors on Jan. 7, promoted a merger as beneficial both to the companies and to consumers.
“As a combined airline, we would be positioned to offer more options and deeper savings, as well as an enhanced travel experience with more reliable service,” Barry Biffle, Frontier’s chief executive, said in a statement on Wednesday.
In a securities filing, Spirit said it told Frontier on Tuesday that it would stick with its plan to restructure its finances in bankruptcy court, but that it remained open to future offers.
Spirit’s chief executive, Ted Christie, and chairman, Mac Gardner, said in a letter to Frontier executives that the latest offer was too low. They also said that there was substantial risk associated with the deal and that Spirit’s creditors were unwilling to invest $350 million — a condition Frontier placed on its offer.
In the letter, the Spirit executives acknowledged the appeal of such a deal, but said the current offer was “both inadequate and unactionable.” They added that Spirit “would be happy to consider” other offers.
The U.S. airline industry has undergone substantial consolidation in recent decades, with the nation’s four largest carriers now controlling more than two-thirds of the domestic market. Those airlines have been notably successful in recent years, as the public emerged from the pandemic eager to travel, including buying more business and first-class tickets.
But budget airlines like Spirit and Frontier have had a more difficult time, in part because there is significant competition on many of their most popular routes. Both airlines have tried to adapt, including by selling packages to appeal to travelers willing to spend more than travelers looking for the lowest fares.
If they combined, the two low-fare carriers would become the fifth-largest airline in the United States, leapfrogging Alaska Airlines, which completed an acquisition of Hawaiian Airlines in September. Together, Spirit and Frontier control about 8.5 percent of domestic air travel, behind United Airlines’s 15.9 percent, according to federal data. Southwest Airlines, American Airlines and Delta Air Lines each control more than 17 percent.
Airline analysts say that Spirit and Frontier complement each other well. A merger of the two, which industry experts refer to as ultra low-cost carriers, has long been the subject of speculation.
The airlines offer a combined 1,400 daily flights serving destinations in the United States, the Caribbean and Latin America, but overlap only on about 18 percent of their routes, according to Cirium, an aviation data firm. Spirit flies more to international destinations, with about 2.5 times as many flights abroad as Frontier. Both exclusively use the Airbus A320 family of planes.
Frontier said that an aviation consulting firm it had hired to analyze the deal concluded that combining the two airlines could raise their total revenue by at least $500 million a year and reduce costs by at least $100 million annually.
Even if Spirit were to agree, antitrust regulators would have to sign off on the deal. The Biden administration was aggressive in challenging corporate deals in courts, including blocking a partnership between American Airlines and JetBlue and JetBlue’s plan to buy Spirit. But antitrust experts expect the Trump administration to be much more receptive to such deals.
In a statement on Wednesday, William A. Franke, the chairman of Frontier’s board, said buying Spirit would create “a stronger low fare airline with the long-term viability to compete more effectively and enter new markets at scale.”
Mr. Franke is the founder of Indigo Partners, a private equity firm that invests in budget airlines around the world and has ties to both Spirit and Frontier.
Indigo held a controlling interest in Spirit from 2006 to 2013, when it bought a stake in Frontier. Under Indigo’s ownership, Spirit went public in 2011, and Frontier went public in 2021. Mr. Biffle, Frontier’s chief executive, was a top Spirit executive from 2005 to 2013.
A bankruptcy court hearing on Spirit’s reorganization plan is scheduled for Feb. 13.
