Allegiant Travel has announced its acquisition of fellow budget airline Sun Country in a substantial cash and stock deal valued at $1.5 billion, including debt obligations. The agreement aims to fortify the competitive edge of both airlines in the leisure travel market, particularly as budget carriers in the U.S. grapple with rising costs in the wake of the pandemic and an influx of domestic flights.
Allegiant CEO Greg Anderson expressed optimism about the strategic partnership, stating, “Our two complementary airlines will create the leading, more competitive, leisure-focused airline in the U.S.” He pointed out that smaller airlines like Allegiant and Sun Country face significant competition from larger carriers such as Delta, American, United, and Southwest, which collectively hold about 70% of the U.S. domestic market share.
Both Allegiant, based in Las Vegas, and Minneapolis-based Sun Country focus on providing budget-friendly travel options for cost-conscious consumers. Additionally, Sun Country engages in charter services and has contracts with Amazon, an element that Anderson highlighted as crucial for the merger’s viability. Discussions regarding the partnership included dialogues with Amazon’s leadership.
The arrangement offers an implied value of $18.89 per share for Sun Country, representing a nearly 20% premium over its last closing price of $15.77. Following the merger, Allegiant shareholders will hold approximately 67% of the newly formed entity, while Sun Country investors will maintain around 33% of the shares. The deal will also incorporate $400 million in Sun Country’s net debt.
As the merger proposal will require regulatory approval, it will serve as a litmus test for the current administration’s stance on airline consolidations. Anderson expressed confidence in obtaining the necessary clearance, noting that the two companies have minimal overlap in their networks. The firms anticipate the merger could be finalized in the latter half of the year.
The acquisition discussion began in late fall 2022, with Anderson slated to take the helm as CEO of the combined airline. Jude Bricker, currently CEO of Sun Country and a former COO of Allegiant, will join the Allegiant board following the merger.
Recent history has seen the Biden administration take a critical stance on airline mergers, demonstrated by its challenge to JetBlue’s acquisition of Spirit Airlines, which faced judicial blockage on antitrust grounds. In contrast, the administration approved Alaska Airlines’ acquisition of Hawaiian Airlines, indicating a complex regulatory landscape for airline mergers.
Allegiant and Sun Country executives have scheduled a special conference call to provide further insights into the merger details.
