The Man Who Transformed Flying Finally Gets His Spirit-Frontier Deal - WSJ
The Man Who Transformed Flying Finally Gets His Spirit-Frontier Deal - WSJ
William Franke, Frontier’s chairman, helped popularize the ultra-low-cost airline model in the U.S. and around the world
The Frontier-Spirit merger would cap decades of deal making for William Franke.
PHOTO:?SATISH KUMAR SUBRAMANI/REUTERS
By?Alison Sider
Feb. 9, 2022 11:50 am ET
Nearly a decade ago, William Franke, then the chairman of Spirit Airlines Inc., proposed that Spirit join his investment firm in a deal to buy?Frontier Airlines.?ULCC?5.20%
On Monday, Frontier—where Mr. Franke is now chairman—announced?a $2.9 billion deal to buy Spirit.
The merger, if it is approved by regulators, would create a discount behemoth and cap decades of deal making for the 84-year-old, a period during which Mr. Franke has helped reshape airlines around the world and nudged several toward a new way of doing business.
“I see opportunity here to expand the model dramatically in the United States,” Mr. Franke said in an interview this week.
Mr. Franke, an early investor in Ireland’s?Ryanair Holdings?PLC, helped popularize the ultra-low-cost airline model in the U.S. and around the world. His private-equity firm, Indigo Partners LLC, has over the years invested in discount carriers in places like Singapore, Hungary and Mexico.
Mr. Franke’s firm invested in Spirit in 2006. He and then-Chief Executive Ben Baldanza stripped out costs and added new fees. The moves helped transform the small, struggling airline into one of the industry’s?fastest-growing carriers.
When Spirit opted not to take a small stake in Frontier in 2013, Mr. Franke resigned and Indigo sold its position in Spirit. Later that year,?his investment firm bought Frontier—which had been losing money—from Republic Airways Holdings and began transforming Frontier just as Indigo had remade Spirit a few years earlier. Mr. Franke and CEO Barry Biffle, a former Spirit executive, gutted Frontier’s costs while expanding into dozens of new airports and enlarging the airline’s fleet. Last year the airline went public in an initial public offering that raised more than $570 million.
“He came to Denver with a plan,” said David Siegel, a longtime airline executive who was Frontier’s CEO when Mr. Franke arrived.
Mr. Franke’s investment firm bought Frontier in 2013 and helped turn the company around.
Mr. Franke was “maniacally focused on low costs,” Mr. Siegel said. “He plays chess, not checkers, and he plays a really long game.”
Frontier shareholders will own 51.5% of the combined airline under the proposed merger announced this week. In a call with analysts Monday, Mr. Franke acknowledged his long history with both airlines.
“I think it’s safe to say that no one knows them better than I do,” he said.
Together with?Allegiant Travel?Co.?, Spirit and Frontier make up a fast-growing niche of airlines that have bet there remains an untapped market for travelers who care more about cheap flights than niceties. They offer rock-bottom fares but charge passengers fees for amenities that used to be included in the price of a ticket—things like advanced seat assignments, use of overhead bin space for carry-on items, and soda.
“Underpinning all of this is efficiency and driving efficiency in all aspects of the business,” Mr. Franke said. “That enables you to have fares that are 30%, 40% below the competition in any given market…which is the key to the success of the model.”
Mr. Franke’s quest for efficiency has extended to the jet market. In 2017, Indigo negotiated a deal for 430?Airbus?jets across its group of airlines in the single biggest commercial-aircraft deal in history. The group-negotiating tactic allowed Mr. Franke to secure better pricing and terms from Airbus and allowed his carriers to grab sought-after early delivery slots.
Last year, Mr. Franke played the same hand a second time, when a consortium of Indigo-backed airlines placed another big order for a further 255 new narrow-body jets from the European plane maker.
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High fees, packed planes with extra rows of seats jammed in, poor customer service, and unreliable schedules are also part of Mr. Franke’s legacy, said Joe Brancatelli, editor of JoeSentMe.com, a business travel site.
“He is seminal to what airlines are now. You have to give him that,” Mr. Brancatelli said. “Everything that’s wrong with air travel—everything that people hate about air travel—is Bill Franke’s fault.”
Mr. Franke, through a spokesman, said people with the means are free to buy first-class tickets and pay for the extras they want. But for the rest, Mr. Franke said, “Hey, if I’m responsible for making air travel affordable and accessible to millions of people around the world, I’ll take that hit.”
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Mr. Franke didn’t start his career in airlines. After serving as the CEO of Southwest Forest Industries, a Phoenix-based paper products company, he started an investment firm and served on several corporate boards, becoming well-known as a turnaround expert for overseeing the restructuring of Circle K Corp., a bankrupt convenience-store chain.
In 1992, Arizona Gov. Fife Symington turned to Mr. Franke to help raise funds for America West, a Phoenix-based airline that had been in bankruptcy for over a year.
Mr. Franke brought America West out of bankruptcy reorganization in 1994 with backing from financier David Bonderman. Mr. Franke became America West’s chairman and eventually its CEO, helping to slash costs and stabilize the airline’s finances. He hired Doug Parker and Scott Kirby —now the top executives at?American Airlines Group?Inc.?and United Airlines Holdings Inc.
The move toward budget travel began after deregulation allowed airlines to set their own fares in 1978.?Southwest Airlines?Co.?, a discount pioneer, was a hit with price-minded passengers and spawned legions of imitators trying to emulate its low-cost, no-frills formula.
Spirit and Frontier have argued that a merger would give them the heft they need to challenge larger carriers in the U.S.
PHOTO:?JOHN MARSHALL MANTEL/ZUMA PRESS
Over the years, low-cost airlines lost much of their price advantage, providing an opening to a new crop of carriers with a more extreme commitment to lean operations and low fares.
The rise of the new breed of ultra-discounters and their incursion into major airlines’ hubs forced legacy carriers to find ways to match bargain-basement fares, in some cases adopting some of the same practices.?Delta Air Lines?Inc.,?United Airlines and American Airlines all offer some form of “basic economy”—a bare-bones fare aimed at competing with offerings from carriers like Spirit and Frontier.
Travelers have become more accustomed to paying only for the services they use and layering on fees. Mr. Biffle, the Frontier CEO under Mr. Franke, said in an interview this week that ultra-low-cost carriers still stack up favorably against legacy airlines.
“We don’t get the complaints we used to get 10-plus years ago,” Mr. Biffle said. “People are well aware of the model.”
“You have a lot of young consumers—this is the model they’ve grown up with,” said Jay Sorensen, president of airline consulting firm IdeaWorksCompany.
Still, the merger must pass muster with regulators who have become increasingly skeptical of further consolidation in the airline industry and who will evaluate whether the merger will mean fewer choices and higher fares for consumers.
Spirit and Frontier have argued that combining will give them the heft they need to challenge larger carriers that dominate the U.S. market—an argument that some industry analysts say could sway regulators.
“You’re dealing with four major airlines that control 80% of the U.S. domestic market,” Mr. Franke said. “So I think this merger will offer the consumer and the employees opportunity and security.”
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