Allegiant buys Sun Country in $1.5 billion cash and stock deal

Allegiant Travel announced on Sunday the acquisition of another leisure carrier Country of the sun in a $1.5 billion cash-and-stock deal, including debt, a plan that comes as U.S. budget airlines face rising costs following the pandemic and an increase in domestic capacity.

“Our two complementary airlines will create the leading, more competitive, leisure-focused airline in the United States,” Allegiant CEO Greg Anderson said in an interview.

Budget and leisure-focused airlines are overshadowed by larger competitors Delta Airlines, American airlines, United Airlines And Southwest Airlineswhich together had about 70% of the U.S. domestic market share in the 12 months ended Oct. 31, according to federal data.

Las Vegas-based Allegiant and Minneapolis-based Sun Country both focus on cost-conscious travelers, connecting small towns to sun, beaches and other vacation destinations.

Sun Country also offers charter flights, as well as packages for Amazona venture that Anderson said was crucial to the deal. Airline CEOs discussed their proposed tie-up with Amazon beforehand, he said.

Both carriers have faced fewer headwinds than other low-cost airlines, shifting capacity to meet demand, analysts noted. Allegiant and Sun Country, aside from the former’s failed foray into owning a Florida resort, are faring better than their rivals.

Michael Linenberg, an analyst at Deutsche Bank, said in a note Sunday that for this year, “we estimate that Allegiant and Sun Country will produce operating margins of 9.3% and 11.7%, respectively, both within the approximate range of what we expect for the industry’s financial leaders, Delta and United.”

Sun Country shares rose 10% Monday afternoon, trading around $17.50, while other U.S. airlines, including Allegiant, fell.

Allegiant’s offer has an implied value of $18.89 for each Sun Country share, a premium of nearly 20% over Sun Country’s closing stock price of $15.77 on Friday, Allegiant said.

Allegiant shareholders would own about 67% of the combined company and Sun Country shareholders would own about 33%, the airlines said. The deal includes $400 million in Sun Country’s net debt.

The deal will test the Trump administration’s appetite for an airline merger.

Allegiant’s Anderson said he was confident the deal would be approved, noting that the two carriers’ networks have little overlap. In a report released Monday, aviation data firm Cirium said carrier route overlap was “basically zero.” The airlines expect the deal to close in the second half of this year.

Allegiant contacted Sun Country in late fall, Anderson said. If the deal is approved by regulators, Anderson will become CEO of the combined airline. Sun Country CEO Jude Bricker, former Allegiant COO, would join Allegiant’s board of directors.

Biden administration challenged JetBlue Airways’ acquisition of Spirit Airlines, which is now in its second bankruptcy in less than a year and fighting for its survival. A federal judge sided with the Biden Justice Department and blocked the JetBlue-Spirit deal on antitrust grounds two years ago. The JetBlue deal upended an earlier 2022 merger agreement between Spirit and Border Airlines.

Spirit and Frontier executives engaged in repeated discussions over the next several years, and airline analysts continue to view their tie-up as a possibility.

The Biden administration, however, authorized Alaska Air acquisition of Hawaiian Airlines for nearly $2 billion in 2024.