Podcast: Analyzing The Allegiant-Sun Country Merger Proposal

Is the Allegiant-Sun Country merger a good match, and will it get regulatory approval? Aviation Week editors discuss.

Subscribe Now

Don't miss a single episode. Subscribe to Aviation Week's Window Seat Podcast in Apple Podcasts, Spotify or wherever you get podcasts.

Discover all of our podcasts on our at aviationweek.com/podcasts.

AI-Generated Transcript

Karen Walker: Hello everyone, and thank you for joining us for Window Seat, our Aviation Week air transport podcast. I'm ATW and Aviation Week Network Air Transport Editor-in-Chief Karen Walker, and I'm delighted to welcome you on board. Now, this week, I'm very happy to be joined by three of my editor colleagues, and they are Routes Editor-in-Chief David Casey, ATW and Routes Senior Editor Aaron Carp, and Aviation Week Senior Editor Americas Christine Boynton. So, what we'll be discussing today is the big news of this week, which is the proposed merger of two of America's most innovative low-cost leisure airlines, and they are Las Vegas-based Allegiant and Minneapolis-based Sun Country. Now, those names may be unfamiliar to many outside of the United States, but Allegiant and Sun Country have devoted followings within the US low-cost market, and they are very well respected by their competitors, large and small. They have several things in common, not least their highly energetic and innovative leadership teams, and their non-conventional approaches toward running an airline.

I think it's fair to say they are each highly focused on markets that are less well-trodden. Indeed, Sun Country is the current holder of the ATW Airline Market Leader Award, precisely because of the way its team led by CEO Jude Bricker seeks and takes full advantage of markets and opportunities that it can largely keep to itself. That, despite sharing a Minneapolis home hub with Delta Air Lines, only someone like Jude Bricker, a former US Marine Corps officer, would not be daunted by that prospect. So here's a few key details of the merger proposal as it stands. Allegiant is the buyer planning to acquire Sun Country under a $1.5 billion deal, and then combine the two airlines under the Allegiant brand with its headquarters in Vegas, which is Allegiant's current home base. Allegiant says it expects the transaction to close in the second half of this year, 2026, and of course it will be subject to US antitrust clearance and shareholder approvals.

We'll talk a little bit more about that in a moment. Together, the two carriers would serve nearly 175 cities with more than 650 routes, predominantly in the US and the Caribbean. The combined carrier would operate about 195 aircraft, a mix of Airbus and Boeing narrow bodies. It would be run by Allegiant CEO Greg Anderson, Allegiant president and CFO Robert Neal, with Allegiant board chairman Maury Gallagher continuing that role over the new company, while Jude Bricker would join the board of directors. So with that said, Christine, you spoke, I believe, with Jude Bricker just yesterday, and they had an investor call on this. What were the key things that you heard from those conversations?

Christine Boynton: Sure. Yeah. So on the call, they walked through some of those key points you've already mentioned and dug into more of their rationale and timing behind the transaction. So on timing, Allegiant kind of described it as being the right moment at the right time. This past summer, they of course divested the Sunseeker resort business. They've been working through a technology modernization and working to restore peak utilization. So when they approached Sun Country in November, both parties were kind of ready to engage. And yesterday after the investor call, I did have the chance to speak with Sun Country CEO Jude Bricker, and I asked him why this was the right next step because as recently as August, Sun Country was exploring opportunities for organic growth, keeping an eye open for available assets and new markets, but growth has been slow for Sun Country. And Jude described it as a bit of a slog.

Pilot upgrades have been a constraint. Fleet has been a little bit of a constraint, even their network. So over the past couple of years, they've been evaluating opportunities, but in each case, chose to continue doing what they've been doing. But the combination with Allegiant addresses a few challenges. It adds geographic diversity to their network. They gain access to an order book of newer MAX aircraft, and they can achieve other scale benefits, including leverage with OEMs and a larger loyalty program. So ultimately, Jude described the combination as really being the right path forward for the long term. And I think that goes back to some of the overall market challenges we're seeing post-COVID and just the ability to gain that extra scale and size.

Karen Walker: So that's interesting. I mean, obviously both sides are going to play up at the moment the real positives, that's natural, but it does actually sound like there's some really good synergies here. And I think we should talk a little bit later also about the scope and scale, if you like, about what I mentioned growth and that Jude mentioned about the importance of growth, but it's been a bit of a slog. And in the US market at the moment, scale is everything. Size has become everything. You've got the big five majors and then sort of everybody else. So that's an interesting point behind this proposal. David, can I turn to you? Because talking of synergies, another interesting part of this is if you look at the networks of each of these airlines, we've seen other mergers proposed or went through or didn't, and you see a lot of overlap in many cases, but that's not the case here, is it?

David Casey: Absolutely not. No. I think the network logic here is unusually clean, particularly in US merger cases. I think in most airline mergers, we see the starting point being overlap where the airlines compete, which routes may have to disappear, how much capacity has to be pulled out to satisfy regulators. But I think the opposite is true, as you say. So Allegiant and Sun Country have almost zero route overlap. I was looking at the schedules and there's only one seasonal route between Appleton in Wisconsin and Southwest Florida International Airport where the two actually go head-to-head and compete. And I think when you look at how the two networks are built, the reason for this merger does become clear. I think Allegiant's network is centered on small mid-size origin markets that are either completely unserved or underserved by other airlines. They're like Chicago Rockford in Illinois, or Gulf Shores in Alabama.

An Allegiant model, it tends to fly less than daily, highly seasonal routes to leisure destinations, and it does so profitably because it's not necessarily chasing frequency, connectivity, or corporate demand. Now, if you look at Sun Country's network, by contrast, it is concentrated around a large metropolitan hub, and that's supplemented by seasonal leisure flying, charter routes, and some of those established international networks to Mexico and Central America and the Caribbean, as you said. And I think for Allegiant, that's a key gain. So it isn't necessarily buying overlapping routes or market share. It's buying access and it's buying access to a major market that it hasn't meaningfully operated in before. It's buying access to international leisure destinations as well that it hasn't built itself. And I think because those two models don't collide, I think they'll sit alongside each other quite neatly, and it should give the combined airline a relatively clear path, I think, to integration and potentially to DOJ clearance, which I'm sure we're going to discuss.

Just for Sun Country, I think as Christine said, Jude Bricker alluded to the fact that growth has been a bit of a slog. And I think the airline has been profitable and disciplined, but it has been constrained by fleet availability and by being geographically concentrated in Minneapolis. So Allegiant helps to fix that. It buys that natural reach. It's got those multiple operating bases and it's the scale that would take Sun Country years to build organically. So I think the two have very complementary networks and they don't necessarily undermine each other. So I think it is a strong proposition for both sides.

Karen Walker: Right. As you say, it's a sort of unusual situation in the US. Everybody seems to be overlapping everybody everywhere else, so this is unusual. But the really important part of this, as I mentioned earlier, of course, this will need antitrust approval from the government and that lack of overlap of two low-cost carriers could be an important factor here. As we all know, when Spirit and JetBlue tried to merge, actually that deal got blocked by the US government, but of course that was a different environment. That was under the Biden administration. Aaron, what do you think are the chances of this getting government approval?

Aaron Karp: Well, we should know that this will be the first airline merger that the Trump Department of Justice will examine. And I think that means there's a bit of unpredictability involved in it. I think that the best thing to do is look at the previous two mergers that the Justice Department, this was under the Biden administration, examined, one which was blocked, one which was approved. The JetBlue Spirit merger was blocked because it was viewed as eliminating a low-cost carrier from the market being Spirit. And the mindset was, and that this isn't really working out with where Spirit is, but the mindset is that Spirit would remain a low-cost carrier and keep that element in the market. When we look at the Hawaiian Alaska Airlines merger that was approved by the Biden Justice Department, that was seen as that the carriers were, nothing was being taken away from the market.

They were combining the long-haul international that Hawaiian flew was being added onto what Alaska was doing. We just saw Alaska said they're investing $600 million into Hawaiian's operation. So really there was nothing being taken away from the market, and I think that's why it went through. I think this is more similar to that merger than the JetBlue Spirit merger, in that nothing's really leaving the market. That right now, they're the 12th and ninth largest US airlines, Allegiant ninth, Sun Country's 12th, and then Allegiant will still be ninth after the merger. And so that's not going to change. As David said, they operate 560 combined routes, only two overlap, and those are two very small market routes. And I think it just isn't something that's going to change the dynamics of the market. It changes how Allegiant and Sun Country will be operating, and they'll bring something somewhat new they believe to the market, but the overall market really won't change.

What Sun Country's business model of charters, cargo, and their passenger service focused on sun routes looks like it will remain. Allegiant said they're committed to all of that. And Allegiant, of course, their model of flying to smaller markets, connecting people from smaller markets to leisure markets looks like it's going to remain. And both carriers really describe themselves as flexible capacity leisure carriers in that neither operates daily service. They both really focus on when the demand is highest, and they're both totally focused on leisure travelers. And so these are two carriers that are sort of low utilization in how they operate their aircraft, focused on leisure carriers. And I think there are so many similarities and there's no minus to the market. So I think on the merits, you would think this would go through, but as I said, the Trump Justice Department will be looking at this.

And I think it's fair to say the Trump Justice Department is fairly unpredictable in what it does and what it becomes interested in. And if something becomes sort of a political hot potato, who knows? But on the merits it would go through, I think, just with the caveat that we don't know how the Trump Justice Department is going to approach an airline merger.

Karen Walker: Okay. Yeah. So on paper, it looks like it should work from a regulatory perspective. And you've got to believe that both the leadership teams at both airlines and their lawyers have looked into this aspect of it very, very closely. Indeed, the last thing they want to do is spend a lot of time and money pursuing a legal situation that they think is dicey. So I'm guessing that they're very confident too. And the other thought that I had, I don't know if Christine, maybe you have thought on this. What I was also thinking when I heard about the proposal is that going back to that size and scale issue and growth issue, but left alone, either of these airlines will probably be subject to a takeover from one of the large carriers. So it's probably, from a regulatory perspective, better for them to sort of say, look, by us coming together, we still remain an independent low-cost leisure airline with low fares.

What do you think, Christine?

Christine Boynton: Yeah, I think that's right. I think they both have, and they've spoken a lot about the complementary strategies. They both have very unique models and they've both been successful. Allegiant in its last quarter, I believe that was its 13th consecutive profitable quarter. So yeah, I think this deal has a very good chance of going through.

Karen Walker: That is interesting. Another interesting part of all of this is the union side, particularly the pilot union side. Pilot unions in the US are very powerful. And in this case, the two airlines are aligned with different unions. Aaron, can you just talk a little bit about that and the significance of that?

Aaron Karp: Yes. Well, both carriers are currently in contract negotiations with their pilot unions. Allegiant, in fact, is in mediation through the National Mediation Board. Sun Country has 700 pilots and they're represented by ALPA. Allegiant has 1,400 pilots and they're represented by the International Brotherhood of Teamsters. ALPA's response was very positive yesterday. Captain Sam Larson, who's the chair of the Sun Country Pilots Union. So we will be reaching out to the Teamsters leadership to be in collaborative efforts toward a fair and equitable integration of the pilot seniority list. We will jointly develop a comprehensive collective bargaining agreement that reflects the best interest of both carriers and we'll be leveraging the strengths of both pilot groups. So that sounds very positive. You often have unions coming out very cautious the day of a merger announcement. This was saying, I read that as we're ready to go, we're ready to combine.

The key here, as I said, is Allegiant is now in mediation. And so they've had some trouble coming to an agreement, but I think they're not going to want the pilot's contract negotiations to tank this merger. And so I think it really gives incentive to Allegiant to settle even if the terms are not as favorable as they previously wanted, because they want to get that over with. And I think Sun Country will want to get its negotiation over with and get to a point where they can have a dual negotiation. So of course there will be the issue of whether ALPA or Teamsters ultimately represents the pilots, but based on what was said yesterday, particularly by ALPA, I think it looks like the pilots are not going to oppose this. And one thing Jude Bricker said is that if you were becoming a pilot at Sun Country, it's a smaller airline.

And so you may be a little wary of sort of the long-term future, but Allegiant is so big and provides such scale that it would provide, and this combination would provide such scale, that it provides more opportunities for pilots and more stability for pilots. So I think that's one reason that ALPA seems very positive about this.

Karen Walker: Right. So again, another talking point that I'm sure the leadership has already had behind the scenes with those unions. And again, it seems like everybody feels comfortable that we can go ahead with this. One other thing, Aaron, if I could just ask you, on the fleet side, Allegiant has both Airbus and Boeing narrow bodies. Sun Country has Boeing narrow bodies. Do you see any issues there?

Aaron Karp: Well, in terms of the fleet, Sun Country has 43 737-800s and 3 737-900 ERs. They also operate 17 737-800 freighters that they don't own. Those are owned by Amazon, but they operate those on behalf of Amazon. Allegiant has 27 A319s, 79 A320s, 16 737 MAX 8-200s. And they also have 23 MAX 8s and 11 MAX 8-200s on order plus 80 options. And Greg Anderson has previously said that the MAXes will operate 50% of the airline's capacity by 2028. So I think that there's a thought here that this is going to be a 737-heavy carrier and that the fleets are pretty complementary. Allegiant talked about yesterday how one thing that gave them comfort is that Sun Country has no aircraft on orders. They don't have to worry about what are we going to do with those planes coming in. They have their MAXes on order. That's going to be the aircraft that I think is the centerpiece of their fleet going forward.

The only thing I think we should mention is that Sun Country has sort of prided itself on having a cabin that's a little more comfortable than say the Allegiant or the Spirit or Frontier cabin. And so in terms of seats and how the cabins are designed, there may be a little conflict there, but I think that would be easily resolved. So the airlines see their fleets as very complementary and with the 737 MAX to really be the focal point and because Sun Country operates all 737 aircraft, there seems to be a belief that these will be complementary and easy for pilots to go back and forth, for example.

Karen Walker: So another synergy really there. I just want to quickly pick up on a point here. I may just misheard you, Aaron, but on the MAX, did you say that Allegiant plans that to be the major aircraft, if you like, of the fleet? I think it's by 2028. Is that ...

Aaron Karp: Yes. What Greg Anderson has said is that half of the capacity will be flown by MAX aircraft by 2028. And he has said, and Jude Bricker reiterated yesterday that the MAX really gives them flexibility to go into different markets. It gives them flexibility from Minneapolis. And so they're really positive on the MAXes, the ones they have now in the orders coming in and they will still operate the A320s, but those will be over time phased out. And I think this is really going to be a 737-heavy carrier.

Karen Walker: Right. Christine, there's another aspect to ... There's many interesting aspects to both of these airlines, but again, just turn to Sun Country, they've got this deal with Amazon essentially delivering packages for them. It's been a very successful deal for them, and it's enabled them to essentially turn the passenger down cycle parts with a leisure and seasons, et cetera, into steadying the financial aspect and keeping the money coming in, keeping the revenue coming in. Has any mention been made about where they see the Amazon deal in all of this?

Christine Boynton: Yes, absolutely. There are two interesting points actually. And cargo, as you say, has played an increasingly important role for their revenue mix since 2020. They spent a large part of the year ramping up their cargo flying for Amazon, and they ended with 20 freighters. Now, that relationship is actually set to expand further in 2026 to 22 freighters flying for Amazon. And Amazon added those two in the knowledge that the transaction was happening. Bricker noted in the call yesterday. But another benefit of the combination he mentioned when we spoke was the access they'll gain to Allegiant's existing 22 bases that will support an ongoing initiative that Sun Country has to better reposition their crew for that cargo flying, which of course frees pilot capacity for other growth.

Karen Walker: Interesting. David, can I come back to you? Both of these airlines regularly attend the Routes events that you're participating around the world, and their leadership is very supportive of those. So we hear quite a lot from their leaders on what these two airlines are doing. What do you think if, let's say this deal does go through and it does go through this year, like I say, everything we've heard about so far seems to be pointing that way. If it goes through, what do you think it means particularly for Spirit Airlines, Frontier, even JetBlue, but even for the five big airlines of the US?

David Casey: Well, if the deal closes, I don't think it immediately changes the competitive hierarchy by size. I think Aaron said that Allegiant currently the ninth largest by airline seats and would remain the ninth largest post-merger, but I think it does change the competitive dynamics, particularly for ULCCs like Spirit and Frontier. I think the key shift isn't just about scale. I think it gives Allegiant added resilience as well. If you look at Spirit and Frontier, they've traditionally operated an ultra-low-cost playbook, high aircraft utilization, dense schedules, heavy reliance on passenger revenues. And we've seen that model struggle in recent years with cost inflation, labor pressures, volatile demand. And I think both Allegiant and Sun Country have taken quite a different path. They've stayed disciplined, they've accepted lower utilization, they've leaned into seasonality, and they've diversified the revenue streams through charter flying, and as we've just heard in Sun Country's case through the Amazon cargo deal.

So I think post-merger Allegiant becomes a more difficult competitor, becomes even more diversified. It can be selective about where and when it flies. And I think that puts more pressure on the likes of Spirit and Frontier whose models depend on flying every day in that high utilization. So it'd be interesting to see what happens. I think one of the challenges that Allegiant will face will be in Minneapolis and more specifically how Delta chooses to respond once that deal closes. So it'd be interesting to see what happens there.

Karen Walker: I agree with you on that Minneapolis Delta point. Again, Delta, another very, very smart airline, and I'm sure that they're looking at this very closely and what the potential opportunities are. Christine, can I give the last word to you? You've been following the Spirit story very closely. So did you have any initial thoughts when this deal was announced as to, oh, is this more to fear for Spirit?

Christine Boynton: Well, I do think David summed it up pretty nicely. I think it will change the competitive dynamics. I also, I think it's going to be really interesting to watch because this merger is really about growth in addition to resilience. So I think as we see where that growth, how and where it unfolds, we'll have a better handle on impacts to other players. But as David said, I do think we'll see a shift in the competitive dynamics among ultra-low-cost, low-cost and smaller players in the domestic landscape.

Karen Walker: Thank you. David, Aaron, Christine, thank you all so much for taking part in this conversation. I'm sure this is something we're all going to be following very closely through this year at the very least. Thank you also to our producer, Corey Hitt, and of course, a huge thank you to our listeners. Make sure you don't miss us each week by subscribing to Window Seat on Apple Podcasts or wherever you like to listen. This is Karen Walker disembarking from Window Seat.