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Indigo's Franke sees U.S. budget airline consolidation | Reuters

Indigo's Franke sees U.S. budget airline consolidation

(Reuters) - One of the most influential investors in low-cost airlines, Bill Franke, on Monday raised the prospect of consolidation among U.S. budget carriers, echoing a shake-out among traditional network airlines.

"If you want to see how the international aviation landscape is going to evolve, just look to the United States, where consolidation has left just four major legacy carriers to compete with the low-cost airlines that serve the rest of the market," said Franke, managing partner of Phoenix-based private equity firm Indigo Partners.

"As an aside, don’t we all wonder just how long it will take before the three to five lower-cost airlines in the States will consolidate?" he added in a speech at the Airline Economics conference in Dublin.

Franke made his name as a champion of unbundled or "a la carte" fares in ultra-low-cost airlines, where passengers are offered cheap base prices plus a battery of extra charges.

The former chairman of America West founded Indigo Partners, which controls Hungary's Wizzair and part of Mexico's Volaris and recently acquired Frontier Airlines. It has exited Spirit Airlines and Tiger Airways.

Franke challenged the low-cost credentials of industry pioneer Southwest Airlines, saying it had struggled to curb costs as it competes for the same passengers as American Airlines, Delta Air Lines and United Continental Holdings.

A second group of "lower-cost carriers" such as Virgin America and JetBlue has been pushed towards the legacy airline type of operations to attract passengers, he said.

"As we see it, that leaves the market under-served by the Ultra-Low Cost model, which explains why we are in the business of moving Frontier in that direction."

That part of the market is currently dominated in the United States by Spirit Airlines and Allegiant.

Franke said the same ultra-lean airline product would work for emerging markets where a growing middle class is taking to the skies but without the income to afford full-fare tickets.

But he was lukewarm about an increasing number of airlines dabbling in low-cost travel over long distances.

"From where we stand, the future rests with low-cost short-haul carriers or a measured product with a lower fare for the longer haul," Franke said.

(Reporting by Tim Hepher and Victoria Bryan; Editing by James Regan and Mark Potter)

badflaps

Talk about a guy with a dog in the fight.......

MtnPeakCruiser

I rather read Bill Franke's thoughts about the US airline industry than have to digest any more garbage from the, want-to-be insider, Mike Boyd.

Lobaeux

I don't think he's too far off the mark here. Consolidation has been a constant for legacies, no reason to think the LCC/ULCCs aren't next.

I don't necessarily agree with the thought of a Spirit-Frontier merger, I don't think it offers anything to either side. A merger between a legacy and a LCC/ULCC is probably a little more realistic.

AtlCSIP

I think there is still enough untapped growth in the ULCC market that consolidation is still a few years off.

Moonbeam

I am not sure what either airline has to offer anyone. Gates? Slots? Airplanes? A large market share in a region? They really offer no value like an Alaska or JetBlue would. Everything Bill Franke does is in stages. I think this is just the beginnings of building up the Wall Street hype for a sooner then planned IPO.

ShyGuy

It offers quite a few things. Both are ULCC carriers and Franke in Indigo owned Spirit before it IPOed. Now indigo owns Frontier. It will probably IPO first and then the case can be made for a Fromtier/Spirit tie up. What's to say the end fleet plan of 130ish planes has to be all organic growth? Frontier and Spirit combined would be 100 planes off the bat with similar fleets but different engines. Combined I can see them being the ULCC work horse of the industry. In the same way I think jetBlue and Virgin will happen down the road. Same good product and service and at the end of the day probably necessary to compete with 4 legacy airlines. Right now it's a mess until AA/US get all sorted out and even UA/CAL has issues. Just wait until all 4 legacy airlines are done with their integration issues and operate like mean machines. Consolidation on the LCC level will be inevitable. Spirit, Frontier, Virgin, Jetblue, Alaska, Hawaiian, Allegiant.

As for your comments on a legacy and a LCC tie up, it seems that the DOT won't allow it. They didn't even want US/AA to merge unless serious concessions were made. They can easily argue that a legacy taking in a LCC is cuting out the LCC arena which means less competition and more power for the 4 legacy airlines. Not sure if the DOT would be ok with that.

Barley

A Spirit/Frontier merger would make a lot of sense. The engine differences would be a short term issue as they could simply allow the leases on the F9 planes to expire. And I don't believe it's been announced yet, but I bet you anything the Frontier A321 order is coming with IAE engines.

It'd be nearly doubling market share overnight and allowing a strong enough fleet to begin more daily service to underserved markets instead of this 2-4 times/week stuff.

In any event, it could be any carrier or none at all. Let the wild speculations continue...

JoeyMeatballs

I better upgrade before this ****show gets underway

ShyGuy

No guarantee you get to keep your seat. Depends how it goes in arbitration.