JetBlue blocked from acquiring Spirit Airlines in $3.8B deal

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By Dan Sears

A federal judge on Tuesday blocked JetBlue Airways’ planned $3.8 billion acquisition of ultra-low cost carrier Spirit Airlines after agreeing with the Justice Department that the combination would be anticompetitive.

The ruling by US District Judge William Young in Boston marked a victory for the Biden administration in its efforts to preserve competition among the lowest cost airlines to ensure that air travel remains affordable for more US consumers.

Young said the proposed merger “does violence to the core principle of antitrust law: to protect the United States’ markets — and its market participants — from anticompetitive harm.”

“A post-merger, combined firm of JetBlue and Spirit would likely place stronger competitive pressure on the larger airlines in the country,” Young wrote. “At the same time, however, the consumers that rely on Spirit’s unique, low-price model would likely be harmed.”

Spirit shares tumbled 60%, while Jet Blue shares fell 5% after the judge’s ruling.

JetBlue and Spirit agreed to merge in 2022. REUTERS

The companies could still appeal the ruling.

The airlines and Justice Department did not immediately respond to a request for comment.

The Justice Department, along with Democratic state attorneys general from six states and the District of Columbia, had argued the deal would lead to fewer flights and higher prices for millions of Americans.

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They said that allowing JetBlue to absorb its no-frills, budget rival Spirit would “extinguish a vital source of low cost competitive disruption along more than 375 routes,” causing nearly $1 billion of net harm annually to consumers.

Spirit was the first US domestic carrier to allow passengers to pick what features of their flights they pay for, such as checked bags and food and drink service.

Spirit was the first US domestic carrier to allow passengers to pick what features of their flights they pay for. Getty Images

Its model has pushed competing airlines to slash prices, the Justice Department said.

JetBlue is a higher cost airline than Spirit.

But it has historically maintained a low cost model compared to larger airlines and been able to similarly pressure larger airlines to reduce prices when it enters a new route.

Wile the Justice Department noted that JetBlue’s historical competition on price has benefited consumers, it said the airline would “have increased incentive to behave more like a higher-fare, higher-cost legacy airline after it acquires Spirit.”

A judge agreed with the Justice Department that the combination would be anticompetitive. Bumble Dee – stock.adobe.com

It said JetBlue’s own internal analysis projected its fares would increase 30% once Spirit is not a competitor on routes both currently fly.

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JetBlue’s lawyers argued that the case was a “misguided” challenge to a merger between the nation’s sixth and seventh largest airlines, which combined control less than 8% of a domestic market dominated by four larger airlines.

Those four US carriers — United Airlines, American Airlines, Delta Air Lines and Southwest Airlines — control 80% of the market following a series of previous airline mergers that the federal government blessed.

In his closing argument on Dec. 5, JetBlue attorney Ryan Shores said the proposed merger was pro-consumer and was critical to allowing JetBlue to become a “viable, disruptive national challenge to the industry’s dominant airlines.”

JetBlue had tried to address US regulators’ concerns by agreeing to divest gates and slots at key airports in New York City; Boston; Newark, New Jersey; and Fort Lauderdale, Florida.

The companies’ lawyers said that unlike the largest airlines that are flourishing in the aftermath of COVID-19 pandemic industry disruptions, JetBlue and Spirit have faced significant financial headwinds that would stifle their ability to meaningfully challenge the biggest airlines on their own.

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The department’s case is part of a broader push by the Biden administration to aggressively step up antitrust enforcement, an initiative that has had mixed results in court.

JetBlue was already the focus of one of its earlier cases, with a different Boston judge, Leo Sorokin, in May siding with the government in finding that JetBlue’s US Northeast partnership with American Airlines violated antitrust law.

JetBlue subsequently decided to terminate the alliance.

American Airlines is appealing Sorokin’s decision.

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