(Law and Crime) The Department of Justice sued to block JetBlue’s proposed $3.8 billion acquisition of Spirit Airlines, a deal that the Biden administration says would mean “higher prices and fewer choices” for Americans who rely on low-cost air travel.
“As our complaint alleges, the merger of JetBlue and Spirit would result in higher fares and fewer choices for tens of millions of travelers, with the greatest impact felt by those who rely on what are known as ultra-low-cost carriers in order to fly,” Attorney General Merrick Garland said in a statement. “Companies in every industry should understand by now that this Justice Department will not hesitate to enforce our antitrust laws and protect American consumers.”
In a 39-page antitrust complaint, the United States, Massachusetts, New York State, and Washington, D.C., note that Spirit’s “ultra-low-cost business model has increased competition and brought low fares to hundreds of routes across the country.”
“JetBlue competes hard against Spirit, and views it as a serious competitive threat,” the complaint states. “But instead of continuing that competition, JetBlue now proposes an acquisition that Spirit describes as ‘a high-cost, high-fare airline buying a low-cost, low-fare airline.’”
The government says that JetBlue would abandon Spirit’s model if the deal were consummated.
“JetBlue’s plan would eliminate the unique competition that Spirit provides—and about half of all ultra-low-cost airline seats in the industry—and leave tens of millions of travelers to face higher fares and fewer options.”
The Justice Department seeks to block the deal under Section 7 of the Clayton Act.
The “low-cost, no-frills option” that Spirit embraced has made ripples industry-wide, the government notes.
“Spirit estimates that when it starts flying a route, average fares fall by 17%; JetBlue estimates that when Spirit stops flying a route, average fares go up by 30%. Spirit’s success—and other airlines’ response to it—has led to the ‘Spirit Effect’: when Spirit enters a new route, prices for consumers across all airlines tend to fall and demand for air travel goes up,” the complaint says.
JetBlue once shared a similar trajectory.
“For years, JetBlue has boasted of its own ‘JetBlue Effect’ when it enters new markets, but JetBlue has recognized that its own fares and revenues on a route drop significantly when Spirit enters,” the complaint continues. “Where JetBlue and Spirit compete, travelers win—customers enjoy the benefits of both the Spirit and JetBlue Effects, fares go down, and more Americans can afford trips they could not before.”
JetBlue, headquartered in Long Island City, New York, reported about $9 billion in revenue in 2022. Spirit, headquartered in Miramar, Florida, reported roughly $5 billion that same year. Both are Delaware corporations.
The Justice Department says that Spirit would also lose from the deal.
“In the last 10 years, Spirit has doubled its network in size and, before this deal, expected to continue expanding at a quick pace,” the complaint says. “For example, before the end of 2023, Spirit independently expected to add service in five new cities and increase daily departures from Fort Lauderdale, Orlando, and Los Angeles—all JetBlue focus cities. And over the next five years Spirit plans to add nonstop service to several routes JetBlue flies today. The acquisition stops this future competition before it starts.”
JetBlue and Spirit’s CEO both released statements supporting the deal and opposing the Justice Department’s action.
“Customers deserve a competitive airline marketplace and we will pursue this merger to ensure they get it, continuing to disrupt the legacy airlines with low fares and award-winning service that even the DOJ has applauded,” JetBlue CEO Robin Hayes said in a statement. “We believe the DOJ has got it wrong on the law here and misses the point that this merger will create a national low-fare, high-quality competitor to the Big Four carriers which – thanks to their own DOJ-approved mergers – control about 80% of the U.S. market. There is too much at stake for the DOJ to prevent us from bringing the JetBlue difference to more customers in more markets.”
Spirit CEO Ted Christie also said that they “disagree” with the antitrust action.
“We will vigorously defend our position that a combined JetBlue and Spirit will be a game changer for customers nationwide, creating the most compelling national low-fare challenger to the dominant U.S. carriers,” Christie wrote. “Together, we intend to democratize flying for travelers across the country – a goal we believe is worthy of the government’s support.”
Read the complaint here.
Reporting from Law and Crime.
