Welcome to today's conference call to discuss the proposed combination of Frontier Group Holdings and Spirit Airlines. Today's call is being recorded. My name is Leo and I will be your conference operator today. During today's call, all participants will be in listen-only mode. We will open the call to questions and answers after the presentation and instructions will follow at that time. We kindly request that analysts ask one question each so we can get to as many as possible. To ask a question, you may press star one on your telephone keypad. If you have any additional questions, please re-queue up again. A copy of the presentation that will be used during today's call is available on both companies' investor relations websites, as well as on the new transaction website www.evenmoreultralowfares.com.
At this time, I would like to turn the call over to David Erdman, Senior Director of Investor Relations for Frontier. Please go ahead.
Good morning, everyone, and thank you for joining our call to discuss the proposed combination of Spirit Airlines and Frontier Airlines. On today's call, you will hear from Frontier Chairman, Bill Franke, Frontier President and CEO, Barry Biffle, and Spirit Airlines President and CEO, Ted Christie. Also joining us are Spirit CFO, Scott Haralson, Frontier CFO, Jimmy Dempsey, and Spirit's Senior Director of Investor Relations, DeAnne Gabel. Following the prepared remarks portion of the call, the team will be available to answer your questions during Q&A. In addition to the press release on this transaction, we also wanted to draw your attention to the earnings release issued by each airline this morning. With that, I'll now hand the call over to DeAnne.
Thank you, David. Before we begin, I'd like to remind everyone that statements made during this call that are not historical facts are considered forward-looking statements under federal securities laws. These forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to us. We have no obligation to update these forward-looking statements. Actual operating results may vary significantly from these forward-looking statements based on a variety of factors. These important factors are discussed in both companies' filings with the SEC, including each company's most recent annual report on Form 10-K and quarterly report on Form 10-Q, including the risks summarized in the section entitled Risk Factors. These and other important legal disclaimers are covered in slide two of the investor deck.
In addition, this call does not constitute an offer to sell or the solicitation of any offer to buy any securities or solicitation of any vote or approval. In connection with the proposed merger, the company is required to file a registration statement on Form S-4 containing a proxy statement prospectus with the SEC. You should read the proxy statement prospectus when it becomes available because it will contain important information. With that, I'll turn the call over to Bill Franke, Frontier's Chairman and the managing partner at Indigo Partners, Frontier's majority shareholder. Bill?
Thanks, DeAnne. Look, Indigo has a long history of both Spirit and Frontier. I think it's safe to say that no one knows them better than I do. We're proud to partner with them to create America's most competitive ultra-low fare airline, and it's actually a transformative moment in the airline industry. We work jointly with the boards and senior management teams to bring our two complementary airlines together. I'm confident that today's announcement will change the industry for the benefit of consumers, shareholders, as well as the team members for both Spirit and Frontier communities we serve. The combination of Frontier and Spirit will bring more ultra-low fares to more customers in more destinations across the United States, Latin America, and the Caribbean. For our best-in-industry team members represented by both airlines, they will have better career opportunities and more stability working for the airline.
Important to note, we will be America's Greenest Airline, operating the youngest, most modern fleet in the United States. Put simply, we expect all of Frontier and Spirit stakeholders to benefit from this transaction. I'll pass it over to Ted to discuss the transaction in more detail.
Thank you, Bill. I share your enthusiasm for combining our two great companies, and I wanna commend you for being such a staunch advocate of this proposed transaction. Before I begin, I wanna remind you that we also announced our fourth quarter and full year 2021 earnings this morning. We are pleased with our strong results and are very appreciative of our team members for all their hard work. To our Spirit family, thank you. Turning now to the transaction. This is a winning combination. The transaction is centered around creating an aggressive low-fare competitor that will better serve guests, expand career opportunities for our team members, and create value for our shareholders. Together, we will democratize air travel even further. We believe we are a perfect fit with Frontier. Our businesses share values, including our long-standing commitment to affordable travel.
Turning to slide four, which provides an overview of key highlights. Under the merger agreement, Spirit equity holders will receive 1.9126 shares of Frontier common stock plus $2.13 in cash for each existing Spirit share they own. This implies a 19% premium over Spirit's closing price on Friday, February 4, 2022, and a 26% premium over the company's 30-day volume average prices. At close, existing Frontier equity holders will own approximately 51.5%, and existing Spirit equity holders will own approximately 48.5% of the combined airline on a fully diluted basis. The board of directors for the new airline will be comprised of 12 directors, 7 of whom will be named by Frontier and 5 of whom will be named by Spirit.
Bill will be the Chairman of the board of the combined company. The combined company's management team, branding, and headquarters will be determined by a committee led by Bill prior to close. It is expected to close in the second half of 2022, subject to satisfaction of customary closing conditions, including completion of the regulatory review process and approval by Spirit stockholders. Frontier's controlling stockholder, Indigo Partners, has approved the transaction and related issuance of shares of Frontier common stock upon signing of the merger agreement. Moving to slide 5. We are excited that shareholders of both companies will have the opportunity to participate in the upside potential of our combined airline. The combined company would have annual revenues of approximately $5.3 billion based on 2021 results.
Once combined, we expect to deliver annual run rate operating synergies of $500 million once the airlines are fully integrated. These will be primarily driven by scale efficiencies and procurement savings across the enterprise, with approximately $400 million in one-time costs. Most significantly, we expect to deliver approximately $1 billion in annual consumer savings, a huge win, giving consumers more choice. I'll now turn the call over to Barry to further highlight the transaction's benefit for consumers.
Thank you, Ted. It's been amazing to work with so closely with you again. For those who don't know, we've worked together for a long time in a past life, and on a personal note, I spent over eight years at Spirit and now eight years at Frontier, so today is particularly special for me. This is a historic moment for both organizations, and I'm excited about what we can achieve together. I'll start by reminding you that we also announced our fourth quarter and full year 2021 earnings this morning. Our strong results would not be possible without the ongoing commitment and unwavering dedication of Team Frontier, and I wanna thank everyone for their continued support to improve our airline.
On slide six, you can find more information on the Frontier results in the press release, but this transaction is exciting, and it builds on the incredible progress both Frontier and Spirit have made in the past couple years. This combination is a win for stakeholders, including Team Frontier, our customers, and our communities as we bring ultra-low fares to more people in more communities. Thanks to the hard work of Team Frontier, we've built a company that delivers the lowest fares for our customers, is the most fuel efficient in the industry, and is also America's Greenest Airline. We know our industry very well and believe now is the right time to take the next step in our journey and join forces with Spirit, a company that shares our values.
As a combined airline, we'll be able to expand routes with more than 1,000 daily flights to over 145 destinations in 19 countries across complementary networks. The combined airline will also have the ability to succeed in cities our companies have previously exited, such as Jackson, Mississippi, as well as expand into new small cities like Eugene, Oregon. As we expand service, we will also support small business growth in our communities with more frequent ultra-low fare flights.
On to slide seven. As Barry mentioned earlier, the combined company is expected to have a strengthened financial profile. Together for 2021, we flew a combined 68 billion available seat miles. This transaction will take us from the 7th and 8th largest airlines in the United States by ASMs to 5th, enabling us to be a more effective alternative against the Big Four, among others. Additionally, we are charging the lowest fares of only $54. Our all-in cost for the consumer is the lowest of any airline in the United States at $108 on average. The Big Four airlines charge over 80% more than us. When you combine this with the fact of our greater scale and our low fares, we become an even better option for consumers.
Moving to Slide 8. In a competitive industry like ours, the lowest cost always win, and we're proud to continue to deliver that for our customers day in and day out. Further, given our complementary footprint, the combined airline will be able to utilize efficient scheduling and high utilization to drive ultra-low costs. These low costs will in turn enable us to keep our fares low for customers. As a result, the combined airline will be poised to compete. Our single class service, efficient seating configuration, and unbundled fares will allow consumers to take advantage of affordable travel options to more communities. As the recovery progresses and demand returns, we believe the combined airline's focus on leisure travel coupled with its ultra-low fare strategy will position us as an industry leader. You move to Slide 9.
All of the benefits we've covered today showcase how our customers will win from this combination. In addition to providing more choice, choices for consumers, the combined airline will offer strengthened operational reliability through a variety of efficiencies. Further, with a larger combined fleet and deepened services to cities across the United States, we'll be better positioned to improve recoverability during irregular operations. For example, take the Baltimore to Orlando route on this slide. As a combined airline, we will now offer a total of 5 daily scheduled departures. This is compared to the 2 and 3 scheduled departures per day at Frontier and Spirit, respectively. Now, in the event of inclement weather or other challenges, our customers will have at least 2 additional ultra-low fare options to reach their destination.
The combined airline will also provide greater customer loyalty benefits, building upon the existing loyalty program at each airline. Additional benefits that our customers will be able to utilize include more earn and burn options for frequent flyer program members, as well as more destinations and flights available. Moving to slide 10. In addition to our commitment to serving our customers, sustainability is at the core of each company's strategy. I'm proud to say that Frontier and Spirit will be America's Greenest Airline, which will save customers over $20 per seat round trip in fuel costs and the CO2 of over 7 gallons of fuel versus the Big Four. The combined airline will also have the youngest, most modern, and fuel-efficient fleet in the United States.
Through this transaction, we expect to achieve over 105 miles per gallon per seat per mile by 2025.
Indeed, on slide 11, combined airline has over 350 aircraft on order to deliver more ultra-low fares. Together, we will feature the largest fleet of A320neo family aircraft of any U.S. airline. Our pipeline of new aircraft will ensure we continue to be a leader in fuel efficiency. As you can see on this slide, our combined fleet is expected to increase at a 12% compound annual rate to 493 in 2026 from 283 aircraft in 2021. This represents approximately a 75% increase in our total aircraft over the next 5 years, reflecting our commitment to offering more service to more people in more cities. On to slide 12. Not only will our customers win from our combined fleet, but the combined airline will also benefit as we drive operational efficiency throughout the company.
Leveraging our sustainability commitments, over a third of our modern fleet utilizes new fuel efficient engine technology. In addition, the 350 orders I mentioned previously will help the combined airline become even more efficient as we continue to add more A320neo family aircraft. In fact, by 2026, we anticipate that nearly 79% of our fleet will consist of A320neo aircraft, providing the airline with both operational and environmental benefits. Increasing fuel efficiency is part of our ESG goals, but it's also helpful to the P&L, especially in high fuel price environments like we are currently facing today.
While higher fuel prices impact all, because Frontier and Spirit tend to have greater seat density than most of our competitors, and our combined fleet is more fuel efficient, our per passenger fare would need to move up less than other competitors to more fully offset the rising cost of fuel. Turn to slide 13, to the benefits for our team members. As part of a growing competitor in the United States, we expect that our combined team members will have better career opportunities and more stability. In fact, by 2026, Frontier and Spirit expect to add 10,000 direct jobs and thousands of additional jobs at the company's business partners. Given the growth of the combined company, it is expected that all current team members will have an opportunity to be a part of the combined airline.
Not only will we create these jobs, but we anticipate the vast majority will be high quality, high paying union jobs with strong career stability.
On slide 14, in summary, this is a transaction that's a win for all of our stakeholders. It means ultra-low fares for more consumers. It means more benefits to our communities. It means more jobs and opportunities for our team members. And finally, it means the opportunity for our shareholders to participate in the upside potential of America's most competitive ultra-low fare airline. As we look ahead, we're excited to unite our talented teams to increase competition in the airline industry while also continuing our commitment to excellent customer service. Thank you for your time this morning and your interest in our bright future. With that, operator, please open up the line for questions.
We'll take a question from Mike Linenberg of Deutsche Bank.
Oh, yeah. Hey. Hey, good morning, everyone. I guess, Ted, I wanna hit you up on the $500 million of synergies that you talked about. I think you said predominantly scale and procurement savings. When I think about the amount that that is and I think procurement, are you also talking about the fleet? When I think about the fleet, I know Indigo has probably one of the best, when you look at their order book, the pricing that they got given the size is probably better than anyone out there. Is there an opportunity to sort of meet that with the Spirit aircraft order? Is that what you're referring to? Thank you.
Thanks, Mike. I'll start. Obviously, Scott and Jimmy can jump in as well, but the $500 million in synergies, by the way, is at the EBITDA line. We estimate about $100 of that is related to cost synergies. The other $400 is really network benefits. Let me tell you a little bit about that. On the cost side, it is largely procurement scale, that sort of thing. We didn't really contemplate any aircraft-related synergies right now.
On the complementary network side, what we're really doing is we believe as the companies combine we're finding ways to create utilization of the existing fleet, which is gonna drive tremendous benefit on the P&L and more importantly, drive a lot of benefit to consumers. That's how you achieve the $5 billion in savings. We're able to deploy the existing fleet in more efficient ways and into more markets. It's kind of a win-win and an easy one to kinda understand when you start thinking a bigger airline of scale able to deploy that way.
Great. Thanks, Ted.
Thank you. We'll take our next question from Ravi Shanker of Morgan Stanley. Your line is open.
Thanks. Morning, everyone. Thanks for the call and the detail here. Follow-up on synergies as well, but can I ask you more about revenue synergies? Kind of, does this change the way you guys re-look at the network and kind of where you fly and the cities, the blue dots that overlap? Have you even quantified the revenue synergies internally? Thank you.
Yeah. Internally, no. We actually had independent third parties actually conduct this for us. Of the $500 million, I mean, Ted was just talking about it.
Of EBITDA, $400 is derived from revenue, which the revenue is even higher than that. The biggest benefit comes from the distribution power of the two brands. Obviously, Spirit's very strong in the East, Frontier very strong in the West. That's gonna drive more customers onto our existing flights, which means more low fares to more people. As Ted mentioned, we'd have the additional utilization come in from, you know, changing the sparing ratios as well as efficiencies that frees us to even more places and free people from the shackles of high fares. A lot of small and mid-sized communities will benefit from that ability to grow more.
You've got all the routes that, together, what we call kind of the Big Four that, without this merger, we can make work. These are places, and I mentioned earlier in the slide, which is, you know, places that we failed in the past or possibly together we can make successful. I don't know if that kind of gets at your questions, kind of the breakdown. Again, the majority of the EBITDA comes from the revenue, which is even more revenue, but you got to subtract the incremental flying costs.
Understood. Thank you.
Our next question is from Duane Pfennigwerth of Evercore ISI.
Hey, thanks. Good morning, and congratulations. Question for Bill, if he is still on the line. How are you thinking about the combined management team here, how you're gonna evaluate that and when you'll kinda know the direction going forward?
It's an interesting question. Obviously, we need to be thoughtful, careful in the analysis. I've told both Barry and Ted that I am going to take my time and do it in an orderly way. They're both comfortable with that. At the end of the day, they're both exceptionally good CEOs, and it's not an easy process, but we'll go through it. I mean, I don't think there's any real urgency to the decision when we have regulatory approval pending. The airlines have to operate separately and during that period of time. Important that the management teams of each of those airlines have the capacity to manage their particular base. You shouldn't expect an answer on this a bit closer to regulatory approval.
Okay, that's great. If I could ask a follow-up. Can you talk about access to airports, and this is to the teams maybe. Access to airports, what does this agreement do to give you access to slot-constrained airports that you've been historically boxed out of? You know, is there a particular market where kind of the combined relevance, you know, is something you're more excited about, again, relative to slot constraints and boxing you guys out? Thanks for taking the questions.
Well, thanks. I mean, I think, you know, this merger is all about getting more low fares to more people in more places. When you look at it's all about providing, you know, real balance and real competition to the Big Four. The truth is both of our carriers, along with other carriers, have just been locked out with the dominance of the Big Four in a lot of places. This enables us the ability to take the scarce resources that we do have and use them more efficiently and provide more flights on each gate. I suspect the combined entity will have one of the highest gate utilization in the United States, and that will provide even more low fares to more people in more places.
Our next question comes from Jamie Baker of JP Morgan.
Hey, good morning, everybody. Can you share the degree to which your unions were involved with this morning's announcement? Did they find out at roughly the same time as the rest of us? Is the $500 million synergy target net of any potential labor cost dyssynergies? Thank you.
Hey, Jamie, it's Ted. I'll start. Obviously, this has been a confidential transaction that we've worked closely here to get to this point. We did give our unions notification today, and they're aware of us working through it. You know, as far as the labor market goes, I think both companies, as Bill mentioned, will be operating their businesses standalone here during this period of time, and we'll be working, to the extent open contracts, working with our unions on those contracts. Broadly speaking, this is a fantastic arrangement for the teams, broadly speaking, and including the unions to create more stability. It's gonna create more opportunity. It's gonna create more flexibility. There's gonna be more bases.
There's gonna be more chances for people to find interesting places to fly. We think this is a win across the workforce as well, and we're excited to kind of fill everyone in on that and what it's gonna look like for them.
Okay, thank you very much.
We'll take our next question from Helane Becker of Cowen.
Thanks very much, operator. Hi, everybody, and thank you for the time. Not sure who wants to take this, but why are you so sure or have you talked to the Justice and Transportation Departments yet about this? I've had some pushback this morning from folks who don't think this will get regulatory approval. Can you just talk about your thoughts regarding that? Thank you.
Thanks, Helane. It's Barry. Look, we've reached out to the administration and we're really excited about telling them our story. I mean, this merger is completely different than any other merger in the past in the U.S. This is not about, you know, reducing competition and raising fares. This is about getting more low fares to more people in more places. We're excited to tell our story to them, and I think it'll be well received.
Just a quick follow-up. DOT, Hart Scott Rodino, do you need DOJ as well?
Yes, we will need the DOJ.
Okay. All right. Thank you.
Once again, that is star one on your telephone keypad to enter the queue. We'll move next to Hunter Keay of Wolfe Research.
Good morning. Congratulations on the announcement, everybody. Ted, I'm kinda curious what makes you feel good about selling at this price, given just three months ago you were reiterating the 2023 EBIT margin guide of 13.5%. I would think if you thought that you could do anything close to that, you know, staying alone and being driving organic growth would be far more accretive than selling down here at this price. Has something changed over the last three months? Is it oil? I mean, what makes you feel presumably less good about that margin outlook that you were giving us back in October?
Hey, Hunter, good to hear from you. I don't feel less good at all. In fact, I feel even better. One of the things that's really great about this transaction is both companies are gonna participate in significant upside here. This is a largely stock for stock deal, and that means both shareholders participate. We don't view it the way you described it. In fact, both of us have an objective to achieve, pre-pandemic margins, and we feel like that's achievable. When we do, the synergies are purely accretive. I think we're gonna deliver tremendous value to the Spirit shareholder in this transaction, and I know the Frontier side feels the same way.
Thank you.
We'll take our next question from Conor Cunningham of MKM Partners.
Hey, everyone. Thanks for the time. I would think, you know, now you're gonna be the fifth largest airline. I would think loyalty is gonna be a much more prominent discussion just given the size of the combined company. Just curious on how you're thinking about the opportunity set going forward and, you know, what's contemplated in, I think you said $400 million of EBIT from revenue, just from loyalty in general, going forward. Thank you.
Oh, okay. Well.
However you wanna think about it. Yeah.
Yeah. Look, what we said is there's $500 million in EBITDA. Of that, $400 million is from revenue and $100 million from cost. To be clear, you get more than $400 million in revenue, so you'll have incremental flying that is created, so it's net of the cost. That's why we actually listed it as $500 million of EBITDA. Of the $400 million, it breaks down as, and I mentioned a little bit of this earlier, but it breaks down the largest benefit comes from distribution of the two brands, flyfrontier.com and spirit.com pushing together across both networks, as well as the utilization benefit that comes from principally two things.
One, the sparing ratios is inefficient in certain small places will actually benefit with more flying as a result. Also from the schedule efficiency that happens in a variety of airports where both of us maybe have an aircraft that has maybe an hour left, but not enough for a flight. Together, you mesh the schedules together and you can get more flying. That'll be deployed into a lot of places that are new places that in some cases we've never served, couldn't do maybe on our own without the combination of distribution, but also in places that perhaps we've failed in the past, but with the combined carrier, we can be successful. You get into the other benefits.
Yes, the subscription programs as well as the loyalty program. We have not assigned a huge amount to that, but we do believe that it's gonna be very powerful because consumers are gonna have the access and benefits and features of both combined programs with more places to fly, and more places to earn and burn, which is obviously more appealing. We have not assigned a huge amount. The majority of it comes from, as I mentioned, the distribution and the aircraft utilization.
Thank you.
We'll take our next question from Andrew Didora of Bank of America.
Hi, good morning, everyone, and congratulations. I know the other two airlines had a little bit of a different strategy in terms of their networks. I guess, you know, Barry or Ted, just wondering how you envision that network, you know, that route network evolving in the combined company. I guess more importantly, does this change the way you think about the growth profile of the combined entity versus what you had contemplated at the standalone airlines? Thanks.
Hey, Andrew. No, it doesn't change the view of the growth profile. I think as Barry just illustrated, if anything, it enhances it. You know, there's plenty of opportunity today for us to pursue markets with low fares or increase density in markets where we serve today. What this combined airline will be able to do is do that faster and more efficiently. While there are nuances to each airline's networks, we obviously are core focused on the leisure markets and serving the leisure guest and the leisure customer.
There's still plenty of that out there, and we're really looking forward to kind of getting to the goal line and then focusing on making this network hum, because I think there's gonna be a tremendous opportunity in the combination.
Thank you.
We'll take our next question from Catherine O'Brien of Goldman Sachs.
Hey, everyone. Good morning. On the combined network, a bit of a follow-up to Helane's question. I'm guessing the answer is no to this, but are there any airports where you expect your combined share might merit any divestitures? Thanks.
Thanks for the question. I think it's too early to speculate on something like that. You know, we would combine. I think if you just think globally, you know, we'll only be about 7.5% capacity. I think what's important about that is it's even smaller percentage when you consider the revenue, which gets to the point that this, you know, these are low-fare airlines that provide a lot of stimulation. I think it's too early to speculate on any type of divestitures. Just as a reminder, neither one of us have large positions in many of the more restricted airports that are especially ones that are flight control.
Okay, great. That's what I was thinking. Thanks.
We'll take our next question from Christopher Stathoulopoulos of Susquehanna.
Morning. Thanks for taking my question. Just curious, if this transition from pandemic to endemic takes longer than expected, and by extension, you continue to see, you know, atypical or inventory patterns from U.S. peers, you know, would you consider perhaps looking at markets that in the past didn't make sense or ranked lower in terms of your RASM or margin per ASM criteria? Thanks.
I think I'll reiterate, you know, you don't wanna be anywhere other than in a low-cost airline when things are tough. To start with over the last two years, this has been a comfort zone for both of us. But in the instance that you provide, where perhaps the pandemic stretches on longer, I don't think, you know, we'd make the same evaluation we make at any given point, which is we look at the market opportunity to try to determine whether or not it fits within our profile and pursue it. I think at Spirit, we've done that.
We've flexed the network quite a bit over the course of the pandemic up and down and into new places, and that was an attempt to kind of find the demand where it was. I think that's worked okay for us, and I know Barry would feel the same way.
Thank you.
We'll take our next question from Savanthi Syth of Raymond James.
Hey, good morning, everyone. My follow-up first, actually, just going on the questions that have been asked. I know this is something that both teams have looked at before, so I was curious why now, in terms of kind of executing going forward with this?
Hey, Savanthi . Again, you know, the focus here is on how accretive this transaction is for the consumer and for our guests and for our team and for the shareholder. There's nothing particular about timing in there. Once you look at it and you start understanding what it really does drive for both sides, it becomes obvious to all of us that this is a very complementary transaction with the same fleet types, same business model, a lot of benefit that we think we can drive. You know, we're excited about it. I wouldn't say that there's anything kind of like special about the timing other than we're just glad to be on the road.
That's helpful. If I might just ask a little bit more of a shorter term question in terms of what you're seeing in the environment today. I know you're not holding any earnings calls. I'm just curious if you had any commentary on the kind of current environment.
Yeah. I think this is Ted, by the way, on behalf of Spirit. You know, I think we would say that, you know, not surprisingly, coming out of the new year, the Omicron surge was probably in full bloom, and so January and the early part of February were tough. Interesting to see was the rebound in booking activity and demand as we headed into the middle part of this month and into the spring, which gives us a good feeling about how things are gonna look heading into the summer. I think it points to perhaps a much more resilient consumer base than earlier on in the pandemic. They're willing to kind of move through these things and get on to next, so I think that's encouraging signs.
This is Barry. On to your side, we've seen very, very similar situation. I mean, obviously, the Omicron had some damage to the holiday periods and so forth. We've seen for several weeks now, as you can see in the public booking data on kayak.com and other places, that every week we continue to see improvements. Obviously everyone's kind of at least the booking curve is needing to reflate. We're really optimistic about the spring given what we're seeing. Like Ted said for Spirit, we're really excited about the summer. I think it really does point to how resilient the consumer is, and you can see the leisure demand really starting to percolate. We're excited about the year.
Okay. Thank you.
We'll take our next question from Dan McKenzie of Seaport Global.
Oh, hey, good morning. Congratulations, you guys. With respect to the growth opportunities that you've highlighted, can you speak to the return metrics that are gonna guide the combined airline, you know, as you look ahead? Is it a pre-tax metric, a return on invested capital? Then, you know, related to this, can you speak to the leverage metrics that you're targeting once the airline is fully merged and how, you know, what the right leverage metrics are longer term?
Yeah, Dan, it's Jimmy Dempsey here. You know, the two businesses have been focused on getting back to pre-COVID margins. That's certainly in our thoughts going into 2023 and 2024 and beyond. That really determines the overall return in the business. We're very excited about getting the business back up fully operational as you progress through this year and move on from this latest Omicron surge. I think, you know, you'll see significant cash flow generation build off the business over the coming years as you see the full extent of the program.
The leverage metrics that you're targeting, you know, once merged and fully merged and longer term?
Hey, this is Scott Haralson.
Yes, I think, you know, Jimmy touched on some of the return stuff, but I think you'll see, you know, the business together, from a leverage perspective will be a bit better, than both entities as we head through sort of 2023, 2024, 2025 as we get integrated. I think, you know, we're gonna focus on ROIC. We're gonna focus on bringing back op margins to where they were pre-COVID. The other components of the balance sheet, I think will take form, you know, as Jimmy mentioned, as the cash flow components of the business will be pretty considerable as we get integrated.
Thanks for the time, you guys.
We'll take a question from Myles Walton of UBS.
Thanks. Good morning. I was wondering if you could talk to the $400 million cost to achieve in terms of buckets of spend there, and maybe it seems relatively high relative to the cost synergy savings of a $100 million. Can you just confirm, I think you said 2024, 2025 is when run rate synergies are there. Is that also ratably the time through which you spend?
Sure, sure. Again, the $400 million of the $500 million that EBITDA is derived from, particularly consumer benefits, applying more people to more places, which is driven number one largest by distribution benefit, as well as the additional utilization that came from freed up aircraft and more efficiencies. But we have deducted the cost to achieve that incremental flying, so incremental fuel, labor costs, airport costs against that. So that is a net number. That is a EBITDA number. And all of this is gonna be phased in obviously over time. You know, we start getting benefits almost immediately from the distribution once we have closed and the transaction closed, but it'll take a total of a few years to get everything flowed through the operation.
Yeah. Sorry. Just a clarification. I think the $400 is the cost to achieve through restructuring and other expenses. Is that not right?
Oh, I'm sorry. Restructuring. Oh, the cost. Jimmy, you wanna walk through the cost?
This is Bill. You can imagine how focused we are on the synergies, motivating we will be with management around the opportunity. Synergies tend to be a misused concept in transactions. I don’t want that to be the case here. I want these to be real.
Myles, just this is Jimmy Dempsey here , just to give you an insight into the cost of putting the synergies in place and integrating the companies. We spent a little bit of time on trying to understand what needs to be done over coming years. You know, we've been very conscious of ensuring that we retain the two airlines operating over the next period until closing. We put a significant retention plan in place across our salaried employees.
Clearly got some public company costs that will exist. Then we're looking at, you know, the rebranding of one of the airlines and the headquarters location, putting structures around that that will drive costs as you integrate the two companies over time. That's what builds up to the four.
Okay. Thank you.
This does conclude our question and answer session, as well as our conference call for today. You may now disconnect your lines, and everyone, have a great day.