US Justice Department uses JetBlue and Spirit’s acrimonious past to its advantage
Shortly after JetBlue emerged as the victor for Spirit Airlines in Jul-2022, speculation began to grow regarding how US regulators would view Spirit's ultra-low cost model being eliminated from the marketplace.
Now, the US Department of Justice (DoJ) is suing to block the merger, arguing that eliminating an ultra-low cost airline from the marketplace would be detrimental to consumers.
There are other reasons the DoJ believes the merger harms competition - and ironically, the agency culled arguments made by Spirit as it was attempting to fend off JetBlue's advances in favour of a merger with Frontier to justify its arguments.
- The US Department of Justice (DoJ) is suing to block the merger between JetBlue and Spirit Airlines, arguing that it would harm competition and negatively impact consumers.
- The DoJ believes that eliminating Spirit's ultra-low cost model through the merger would result in higher prices for cost-conscious customers and reduce seat availability.
- JetBlue's proposed remedies, such as divesting Spirit's gates and facilities, have not convinced the DoJ.
- The DoJ used Spirit's previous arguments against the merger with JetBlue to support its case.
- The merger would have anticompetitive effects on more than 150 markets and 40 nonstop routes.
- JetBlue remains committed to proving the merits of the merger in court, despite the legal challenges it faces.
Summary
- The US DoJ argues that eliminating Spirit's business model through a merger with JetBlue will impose competitive harm.
- The regulator seems unimpressed by JetBlue's concessions to push the deal through.
- In a unique twist, the DoJ uses Spirit's previous argument against to rationalise its legal arguments.
- JetBlue is ready to prove the merits of its merger with Spirit in the courts.
The US DoJ argues that dissolving Spirit's model is anti-competitive
DoJ's attempts to stymie the merger are not surprising. The antitrust division of the agency under the administration of President Joe Biden has been hawkish about mergers.
The DoJ contended on 7-Mar-2023 that eliminating Spirit as an ultra-low cost competitor would create harm for its cost-conscious customer base.
Specifically, the agency argued that JetBlue's plants to reduce seats on Spirit's aircraft would result in those types of customers being forced to forgo trips they would have otherwise taken.
DoJ said that JetBlue's plans to reconfigure Spirit's aircraft to match its less dense layout would remove 10% to 15% of seats from every Spirit aircraft in operation today. Fewer seats means fewer passengers, and higher prices for those passengers "who can still afford to make their way onto the plane", DoJ said.
There are two major ultra-low cost carriers in the US: Spirit and Frontier. Spirit is the larger of those two operators based on domestic seat share, data from CAPA and OAG show. (Note: the seat share data groups LCCs and ULCCs into the same low cost category.)
US low cost carrier: domestic seat share by airline, as of early Mar-2023
Additionally, the DoJ said that proposed merger would have anticompetitive effects on more than 150 markets that would be most directly affected, on 40 nonstop routes.
Regulators are unimpressed by JetBlue's proposed remedies
This is not the first time that antitrust enforcers have attempted to block airline mergers.
In Aug-2013 the DoJ filed a lawsuit against the merger between American Airlines and US Airways, contending that the tie-up would lessen competition and result in passengers paying higher airfares.
The DoJ and the airlines reached a settlement in Nov-2013, and part of the agreement required the two airlines to divest slots at Washington Reagan National and New York LaGuardia airports, which increased the presence of LCCs at those facilities.
JetBlue has offered similar types of concessions to push the Spirit deal through, such as the divestiture of Spirit's gates, take-off and landing rights, and some ground facilities at Boston Logan, Newark, LaGuardia, and Fort Lauderdale.
But the DoJ seems suspicious of those remedies.
"In other words", the department said, "JetBlue and Spirit claim they would replace significant lost competition in hundreds of markets across the country, the Caribbean and Latin America, where defendants compete today, through a plan to divest a total of 15 gates, related operating rights and ground facilities at a handful of airports."
The airlines haven't finalised those divestitures, the department observed.
DoJ used Spirit's aversion of a JetBlue merger to prove its case
This merger is also different from those in the recent past.
Spirit was a reluctant partner for JetBlue and sternly stated its preference to merge with Frontier before JetBlue's hostile takeover. In 2022, as the bidding battle was under way, Spirit's CEO Ted Christie said it defied common sense to believe a merger with JetBlue would gain regulatory approval.
The DoJ also used Spirit's previous arguments against the merger in its own lawsuit that was filed on 7-Mar-2023. Citing a presentation from Spirit advising against the JetBlue merger, arguing that the tie-up would raise ticket prices and that it would remove 50% of ULCC seat capacity in the US; that it would merge Spirit into a de facto combination of American and JetBlue in the US Northeast and represented a second major transaction for JetBlue, at the same time as DoJ was suing to block its alliance with American.
JetBlue and American are still waiting for a judge to issue a decision regarding their Northeast Alliance after the trial concluded in late 2022.
Of course, Spirit now supports the merger with JetBlue, after the ULCC's shareholders endorsed the deal.
But the chequered past between JetBlue and Spirit remains in place.
As its fate remains uncertain, JetBlue soldiers on in the courts
Ultimately, JetBlue could prevail in preserving its partnership with American and gaining approval for its acquisition of Spirit, but potentially not without spending many hours in court instead of preparing for a merger integration.
Still, JetBlue believes in the merits of its proposed merger, and is up for the challenge of proving its case in yet another legal battle to preserve the airline's plans for its future.