January 6, 2016 / 12:10 AM / 2 years ago

Spirit Airlines appoints new CEO, seen as M&A harbinger

3 Min Read

A Spirit Airlines airplane sits at a gate at the O'Hare Airport in Chicago, Illinois October 2, 2014.Jim Young

(Reuters) - Spirit Airlines Inc (SAVE.O) on Tuesday named board member Robert Fornaro as chief executive officer in a move analysts say may nudge it towards a merger with Frontier Airlines and improve its results after a year of unit revenue decline.

Fornaro headed AirTran Holdings Inc for nearly four years until Southwest Airlines Co (LUV.N) bought it in 2011. Analysts say his record of dealmaking may in the long run seal a merger of Spirit and Frontier, which have a common low-cost model and plane types.

Shares of Spirit were up nearly 6 percent at the close of trading.

The U.S. carrier has grown rapidly in the past five years by marketing ultra-low fares with heavy restrictions. Recent moves by larger Delta Air Lines Inc (DAL.N) and American Airlines Group Inc (AAL.O) to match those prices have hurt its unit revenue and slashed 46 percent from its stock in 2015.

Fornaro replaces Spirit's decade-long leader, Ben Baldanza, who will assist with the transition, the company said in a news release. The reason Baldanza left was not immediately clear.

A tie-up of Spirit and Frontier would give the carriers scale to "compete better against larger airlines by leveraging cost efficiencies," Wolfe Research analyst Hunter Keay said in a note Tuesday.

Baldanza has said Spirit did not need a merger to grow, according to the note. The managing partner of Frontier's owner Indigo Partners, Bill Franke, has said he expects low-cost airlines in the United States to consolidate.

Indigo sold its stake in Spirit before buying Frontier in 2013.

A decline in fuel prices last year allowed larger carriers, which have high costs associated with long-haul flying and premium-cabin travel, to profitably chop their fares in line with Spirit's.

Price battlegrounds, combined with Spirit's around 30-percent growth in flight capacity, pushed the carrier's operating revenue per seat down 17.5 percent in the third quarter. Spirit has said the decline would continue in the fourth quarter and into 2016.

"Spirit's focus will remain delivering a customer-friendly product and providing the lowest total price to the places we fly," Fornaro said in the news release.

In the near term, Fornaro may help boost Spirit's employee morale and brand, which has gained notoriety for its edginess and for customers' occasional misunderstanding of their fares' restrictions, industry consultant Robert Mann said.

"He has a history of constructive relationships on the property and with his suppliers," Mann said.

Reporting by Jeffrey Dastin in New York; Editing by Lisa Von Ahn and Alan Crosby

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