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 announced in early 2022, while saying it would welcome further negotiations.
Spirit walked away from the 2022 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 the newer 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 further talks.
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.
“Spirit’s response to the offer looks like a rejection but actually is an invitation to negotiate,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business. “Mentioning that you see the logic of a deal is a clear signal that you would like to talk.”
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 those looking for the lowest fares.
If the airlines combined, the low-fare carriers would become the fifth-largest airline in the United States, leapfrogging Alaska Airlines, which acquired Hawaiian Airlines in September. Together, Spirit and Frontier control about 8.5 percent of domestic air travel, behind United Airlines, which has 15.9 percent, according to federal data. Southwest Airlines, American Airlines and Delta Air Lines each control more than 17 percent.
Analysts say that Spirit and Frontier complement each other, and a merger of the two has long been the subject of industry speculation.
“A merger between Frontier and Spirit is a very logical one,” said Henry Harteveldt, founder of Atmosphere Research Group, a travel analysis firm. “The two have similar business models, don’t have an excessive number of overlapping nonstop routes, and have increasingly similar product offerings.”
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. 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 revenue by at least $500 million and reduce costs by at least $100 million a year.
Antitrust regulators would have to sign off on any deal. The Biden administration challenged many corporate deals in courts, including blocking a partnership between American Airlines and JetBlue. But legal 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 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.
