The “pioneer of ultra-low-cost air travel” has invested in budget carriers from Eastern Europe to South America. Now a proposed merger between Frontier and Spirit Airlines could see him take the fight to the likes of Delta and Southwest.
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n February 7, as the Omicron variant of Covid-19 washed over the United States, the low-cost carriers Frontier and Spirit—the 7th and 8th largest airlines in the country by revenues in 2021—announced a merger. Denver-based Frontier would purchase its Florida-based rival in a $2.9 billion cash-and-stock deal, creating a new budget behemoth that could take on the so-called “Big Four” comprising American, Delta, Southwest and United.
Now, that deal could be derailed. On April 5, JetBlue—the 6th-largest airline in the U.S. by revenues and market capitalization, behind the Big Four and Alaska—made an all-cash, $3.6 billion unsolicited takeover bid for Spirit. The offer was $700 million larger than Frontier’s, sending Spirit’s shares 22% higher at the market close. In a statement, Spirit said that its board of directors would "work with its financial and legal advisors to evaluate JetBlue's proposal and pursue the course of action it determines to be in the best interests of Spirit and its stockholders."
The architect behind the proposed Frontier-Spirit merger was Frontier’s 84-year-old chairman Bill Franke, who also led Spirit from 2006 to 2013, when he left to join Frontier. Known as the “pioneer of ultra-low-cost air travel,” Franke has spent the last three decades running and investing in budget airlines. He’s the owner of Phoenix-based air transport private equity firm Indigo Partners, which he founded in 2002 and through which he owns stakes in Frontier as well as European carrier Wizz Air, Canadian airline Lynx Air and South American outfits JetSMART and Volaris.
One year after taking Frontier public on the Nasdaq, and two months after announcing the merger with Spirit, Franke is now making his debut on the Forbes World’s Billionaires list. He’s worth an estimated $2.4 billion. Most of his fortune comes from his 40% stake in Frontier and nearly $1.4 billion in investments through Indigo. Franke declined an interview request for this story.
"Looking at the investments that he's made, he's really been a pioneer for this ultra-low-cost industry," says Andrew Didora, a senior research analyst at Bank of America who covers airlines. "Not only with his investments in Spirit and Frontier here in the U.S., but [also] over in Europe and down in South America."
Franke’s path to the three-comma-club wasn’t easy. Born in Bryan, Texas in 1937, he took his first trip on an airplane at age 11 in 1948, when his family moved to Asunción, Paraguay, for his father's job at the State Department's USAID program. Unlike the short hops of today, the trip on a Douglas DC-4 turboprop took four stops in Mexico, Panama, Peru and Bolivia before arriving in Paraguay—a formative experience for Franke at the time.
“You had to fly up over the Andes out of Lima and the plane wasn’t pressurized, so we were given the oxygen tubes, which for a kid—I was about eleven—was pretty exciting stuff,” Franke told the Stanford Lawyer magazine in a 2019 interview.
Home-schooled by his mother, Franke learned Spanish and moved to Sao Paulo, Brazil at age 15 to live with his great-uncle and study at an American high school. In 1956, he returned to the U.S. to study at Stanford, where he graduated with a bachelor’s in history and then obtained a law degree in 1961. (He had also been accepted to Yale, but chose to go West thanks to a coin toss with two high school buddies.) After three years of active duty in the Army, where he served in Panama and South America and even flew on Air Force One, Franke moved to Spokane, Washington to practice law at a small firm with nine lawyers.
He moved to Phoenix in 1969 to manage mergers and acquisitions for a forest products company called Southwest Forest Industries, after being tipped off about the job by the father of a law school friend who worked there. He quickly rose to the role of CEO, growing the publicly traded firm from $69 million in revenues when he first joined to $632 million in 1986, just before he negotiated a $445 million merger with Chicago-based Stone Container Corp. in January 1987.
“I realized I liked business more than practicing law,” he told Mayo Clinic Magazine in 2019.
But Franke didn’t want to move to Chicago, so he quit to start his own investment firm and served on the board of Valley National Bank, which was the largest bank in Arizona at the time. After a year spent bringing in a new management team to turn the bank around, he was hired as the chairman of convenience store chain Circle K, which he helped through a bankruptcy restructuring process.
“I had a theory that the low-cost, low-fare model had a lot of applicability outside the United States in emerging markets.”
Those successes earned Franke the moniker “Mr. Fixit.” They also led directly to his first foray in the airline industry in 1992, when he received a call from Arizona’s then-Governor Fife Symington, who asked him to help the ailing America West Airlines. Based in Phoenix, America West was bankrupt and facing liquidation, with more than 6,000 jobs at risk.
"I was a passenger and a customer, but I didn't know much about it," Franke said at a student town hall at Northern Arizona University in 2012. "I agreed to be involved for six months. It became clear that the management team and I were not on the same page."
After a series of confrontations with the board that made the front page of the Wall Street Journal, Franke fired the board and took over as CEO in January 1993. America West became profitable again in August that year and exited bankruptcy in 1994. Franke also learned best practices from two leaders in the low-frills airline space—Southwest and Irish carrier Ryanair—picking up advice from Southwest CEO and cofounder Herb Kelleher and investing in Ryanair before its 1997 IPO. (Kelleher, a fellow airline billionaire, died in 2019 at age 87.)
"Bill came in and he turned America West around," says Helane Becker, a managing director at Cowen who covers the airline sector. “It ultimately merged with U.S. Airways [in 2005] and it was on fairly solid financial ground."
By 2001, Franke was enamored with the airline business but was looking for a new challenge. He left America West and founded Indigo Partners in Phoenix in 2002 as an investment fund focused on airlines. The idea was to apply the low-fare model that was so successful at Southwest to the growing middle classes in countries outside the U.S.
"I had a theory that the low-cost, low-fare model had a lot of applicability outside the United States in emerging markets," he said at the Northern Arizona town hall. "As people needed to get off a bus and on an airplane, they needed to find a product that matched up with their income level."
Franke’s first wins came far from the Americas. Indigo’s first investment was in Budapest-based Wizz Air, which flew largely in Eastern Europe. His next bet was in Southeast Asia, where he partnered with Singapore’s state investment company Temasek Holdings to launch Tiger Airways. “Everybody thought I was nuts because nobody’s ever made any money with airlines,” Franke told the Stanford Lawyer.
In 2006, he turned his attention to the U.S. when he acquired Spirit. The airline was a “mess” at the time, according to Franke, who set about changing the company's strategy to fit his ultra-low-cost model and eventually took it public on the New York Stock Exchange in 2011. "Spirit had been around for a long time, and it was just a family-run airline and never really grew,” says Becker. “He turned the airline around and then he sold his interest in Spirit to get involved with Frontier.”
His successful stint at Spirit led him back westwards, to Frontier, as well as to South America, where he invested in Mexican airline Volaris in 2010 and launched Chilean carrier JetSMART in 2017. At the Dubai Air Show in November 2017, Franke and Indigo made history by announcing a record-breaking $49.5 billion deal to purchase 430 Airbus planes, which would be divided up among Frontier, Volaris, Wizz Air and JetSmart.
"He's been able to create opportunities and see where there are opportunities for ultra-low-cost airlines to grow. That's what he does successfully," said Becker.
Scraping The Skies
A post-merger Frontier-Spirit airline would be the 7th-largest in the U.S. based on combined 2021 revenues of $5.3 billion, just behind Alaska and JetBlue.
Franke’s wealth also allowed him to engage in philanthropy, both at his alma mater and in Arizona and Montana, where he owns homes. In 2007, he gave $25 million to Northern Arizona University's College of Business, the largest gift in the institution's history. He followed that up with a $24 million gift to the University of Montana in 2017—also the largest donation in the college's history—and by donating $25 million apiece to Stanford Law and to the Mayo Clinic's medical school in Scottsdale, Arizona in 2018.
In 2020, three years after the Dubai mega-deal, the Covid-19 pandemic dealt a devastating blow to the airline industry. Frontier’s revenues fell by 50% to $1.25 billion in 2020. But the budget airline was better-placed to withstand the pain than its larger competitors. Both Frontier and Spirit lease a large number of their aircraft—which costs about the same as purchasing planes outright—meaning that they can more easily return the aircraft when they don't need them.
In April 2021, as millions of Americans got vaccinated against Covid-19 and flight bookings for the summer months surged, Frontier Airlines went public on the Nasdaq, raising $570 million. The airline had previously filed for an IPO in 2017 before quietly abandoning those plans in July 2020. But the emergence of the Delta variant and later Omicron put an end to the idea that the pandemic was over, and Frontier shares ended the year 28% below the IPO price.
Still, the U.S. leisure market has recovered much faster than business travel or international trips: domestic flights are now close to pre-pandemic levels, according to Bank of America's Didora. And with bookings predicted to soar once again in the spring and summer, airlines have also bumped ticket prices 5-10% above what they were in 2019, providing extra cash as they deal with high fuel costs.
All signs point to a rosy future for a combined Frontier-Spirit airline—as long as JetBlue’s offer is rejected and the merger is approved by regulators, which is expected by early 2023 at the latest. The new entity would have a market capitalization of nearly $5 billion, placing it ahead of JetBlue and Allegiant but behind the Big Four and Alaska Airlines. (On the other hand, a combined JetBlue-Spirit airline would have a market cap of $6.9 billion, close to the same size as Alaska, the 5th-largest airline in the country.)
A Frontier-Spirit merger is also expected to bring lower prices and more routes for consumers across the U.S., uniting Frontier's focus on the West with Spirit's destinations in the East. "It combined two relatively small players in the industry into an airline that's going to be bigger than JetBlue in terms of actual flights,” says Didora. “It made another big player in the industry.”
In a statement provided to Forbes, a spokesperson for Frontier said that a JetBlue acquisition “would lead to more expensive travel for consumers,” in part due to the similar destinations served by the two carriers. “In particular, the significant East Coast overlap between JetBlue and Spirit would reduce competition and limit options for consumers,” the statement said.
In its own statement announcing the bid, JetBlue said its proposal would position a JetBlue-Spirit combination "as a customer-centric, low-fare alternative to the dominant 'Big Four' airlines." JetBlue has a partnership with one of those Big Four, American Airlines, called the Northeast Alliance, with an expanded flight schedule from Boston and New York and reciprocal status perks. Both airlines were sued over the alliance by the Department of Justice in September in a civil antitrust complaint alleging that the partnership would eliminate competition in Northeast cities and "diminish JetBlue's incentive to compete with American elsewhere." In a statement responding to the DOJ lawsuit, JetBlue CEO Robin Hayes called the alliance "not at all like a merger with American," while American Airlines CEO Doug Parker said the alliance is "not a merger" and that both American and JetBlue would remain independent airlines.
The JetBlue deal for Spirit “faces an uphill regulatory review,” according to Becker. “It’s possible that Frontier comes back with another bid, although [JetBlue’s] bid may be superior,” she said in a research note published on April 6. “We’re not sure the bid is sufficient to be ‘unstoppable.’”
Franke declined to comment on the JetBlue offer, but he called the Frontier-Spirit merger a “transformative moment in the airline industry” in a February 7 conference call. It’s also likely to boost his own bottom line, if he can beat back JetBlue and challenge the dominance of the Big Four.
"[His leadership] just continues to drive home the growth and the competitive position that ultra-low-cost carriers have garnered over the years,” Didora adds. “I don't think this deal comes about without Bill Franke.”
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