Allegiant announced a deal to buy Sun Country for $1.5 billion, including $400 million in net debt. Against Sun Country’s $207 million adjusted EBITDA, tat values them at a 7.2x multiple before synergies.
- Sun Country shareholders will receive 0.1557 shares of Allegiant and $4.10 cash for each of their shares, a 19.8% premium over Sun Country’s Friday closing price and an 18.8% premium over the 30-day volume-weighted average price.
- Allegiant shareholders will own 67% of the combined company, while Sun Country shareholders will hold 33%.
The pair claims the deal will yield $140 million in annual synergies by year 3, and that it will be earnings-accretive in the first year. This mostly comes from selling across each others’ route networks.
The deal is expected to close in the second half of the year, subject to antitrust clearance, regulatory approvals, and both shareholder votes. It will yield:
- 22 million annual customers, nearly 175 cities, 650+ routes.
- 195 aircraft at close, with 30 on order and 80 options.
- And Allegiant can finally go international.
While the airline’s headquarters will be in Las Vegas, they promise to maintain a “significant presence” in Minneapolis–St. Paul.
While my impression was that Sun Country had higher labor costs than Allegiant, actually looking at the numbers in SEC filings tells me that labor unit costs are actually pretty much identical for the two.
- Sun Country 2024 salaries/wages/benefits were $326.8 million on 8.072 billion available seat miles for 4.05 cents per ASM.
- Allegiant 2024 salaries/benefits were 4.06 cents per ASM.
Allegiant is the surviving managements, but its board expands to 11 with Sun Country CEO (and former Allegiant President) Jude Bricker along with 2 additional Sun Country directors joining. It’s not clear to me how long that lasts beyond integration.
Why This Deal Makes Sense
Sun Country is anchored to Minneapolis for scheduled flights and runs charter and Amazon cargo. Allegiant flies small-city-to-leisure destinations. Together they can improve aircraft utilization and reduce seasonality.
Allegiant already started bringing 737 MAXs into the fleet, so buying a Boeing narrowbody carrier isn’t a problem and even creates a path to longer-run fleet simplification (even if they keep Airbus for a long time). The two airlines are sub-scale. There really could be opportunities for synergies. And this opens the path to international for Allegiant.
Why This Deal Is Risky
They’re promising synergies that are primarily revenue-based (‘more options across a combined network’). Mergers are complex and costly. Even with similar labor costs overall, integrating work groups is hard and will drive costs up.
Fleet complexity between the two doesn’t go away quickly. They’re doubling down on “diversified fleet” of Airbus and Boeing, which essentially means separate pilot groups, training pipelines and maintenance ecosystems for a long time. But integrating pilot seniority lists will entitle pilots to move across equipment if they wish, and that entails training costs too.
It’s Been Rumored Forever, Now It’s Almost Real
Jude Bricker selling Sun Country to his former employer is the most obvious move in the airline industry. There’s a certain logic to it. These are two low cost leisure airlines that haven’t struggled as mightily as Frontier or especially Spirit. And this lets them grow. They could easily lose focus, become overwhelmed by the complexity of integrating the airlines, and lose control of costs. But there’s upside, the carriers are well-run, and there’s a good chance they can make this work.
There’s probably not a lot to get excited about here, Sun Country is an important counterweight to Delta in Minneapolis and Allegiant is important if you want to fly from Mesa, Ariza to Pasco, Washington at 4 p.m. on a Thursday.
While I don’t travel on Sun Country a lot, it was surely handy from time to time when you find a direct flight at the right time for many of my personal trips in the past at an affordable rate. A trip to Alaska and a last minute one way trip from St Louis comes to mind.
While they promise to keep the schedule from MSP going for now, I’m sure the focus on the market will fade, and we do need they counterweight to Delta here even if it’s at a much smaller scale.
Huh, these two get so little attention (Spirit and Frontier are much larger LCCs), but they’ve each been around for a while, unlike the more recent startups (Avelo, Breeze, etc.) I’ve taken Allegiant before, but it’s been years (lots of unique city pairings); they’re at EWR today; never tried Sun Country; they supposedly fly from EWR/JFK-MSP. Few people ever review these airlines. Matt at LALF reviewed Sun Country First Class in 2017. I don’t think he’s even done Allegiant. Bah.
+5 Mainline Carriers
+2 ULCCarriers
+1 Auxiliary Composite Everything Carrier …
Does this finally make the “Big Four” or “Big Six” into the competitive and “Stable 7” of a mature and semi competitive Deregulated Airline Industry?
Let’s wait and see where this goes in a few years is all I say (;
With Spirit’s pull down in LAS, this makes sense. They will be positioned to do some pushback against what will be an energized ULCC in the post-Spirit would.
I wonder how Sun Country’s cargo work for Amazon will fit in, perhaps somehow being involved with Alaska’s acquisition of Hawaiian’s business.
@IsaacM — Woah, MSP-ANC is a unique route. 6 hours, and seems like only Delta operates it regularly a321neo, these days.