JetBlue’s $3.8 Billion Acquisition of Spirit Airlines Goes To Trial

In a high-stakes antitrust trial that kicked off in Boston, the United States Department of Justice (DOJ) raised concerns over JetBlue Airways’ $3.8 billion deal to acquire Spirit Airlines. According to reports by Bloomberg, DOJ lawyer Arianna Markel argued that the acquisition aims to eliminate a low-cost competitor and subsequently increase ticket prices across an expanded flight network.

“JetBlue is counting on the fact that eliminating Spirit and the competition Spirit provides will allow JetBlue to increase fares,” said Markel during her opening statement. She added, “That is real harm to real people.” The proposed deal seeks to create “a bigger, turbo-charged JetBlue,” she noted, but emphasized that bigger does not necessarily equate to better.

Last year, the federal government, along with six states and Washington DC, filed a lawsuit seeking to block the merger, claiming it would remove JetBlue’s fastest-growing competitor in the United States and limit choices for passengers. However, JetBlue’s attorney, Ryan Shores, dismissed the government’s objections, labeling them as “misguided.” Shores argued that the merger was crucial for the two smaller carriers to compete effectively against their larger rivals.

This legal battle is the latest move by the federal government to curb airline consolidation, following decades of lax enforcement that allowed the nation’s four largest airlines—American Airlines Group Inc., Delta Air Lines Inc., United Airlines Holdings Inc., and Southwest Airlines Co.—to dominate 80% of the market.

Read more: Lawsuit Results In Termination Of JetBlue And American Airlines Partnership

Markel asserted that JetBlue’s internal documents would reveal that a larger JetBlue would mean fewer planes, fewer seats, and higher fares. The company plans to reduce its capacity by eliminating 10% to 15% of available seats after the merger. “JetBlue itself projects that fares will increase by 30% after Spirit exits,” Markel noted.

The DOJ attorney highlighted Spirit’s ability to charge lower fares than JetBlue due to its lower operational costs, which she referred to as the “Spirit effect.” On routes where Spirit competes, the average fares from all carriers drop by approximately 20%, according to Markel. She also expressed skepticism that other ultra-low-cost carriers would replace Spirit, which currently holds about half of that market.

“The loss of Spirit would result in roughly a billion dollars of net harm, year after year, for millions of passengers who fly over 100 routes throughout the country,” she warned. “Higher fares will mean that some people won’t be able to afford to fly at all.”

Investors have been wary of the deal’s completion, given the substantial gap between Spirit’s share price and JetBlue’s offer over a year ago. Spirit’s fourth-quarter revenue forecast fell short of estimates last week, causing its stock to drop by as much as 13% on Tuesday. It has plummeted over 40% in the year.

In response to these allegations, JetBlue’s lawyer, Shores, refuted claims that the merger would harm competition. He argued that the DOJ lawsuit marked the first time the government had ever challenged a merger of two small airlines on antitrust grounds, per Bloomberg.

“The stark division between industry haves and have nots is bad for competition and bad for consumers,” Shores asserted. “With this merger, JetBlue will finally become a disrupter nationwide, and the consumer benefits will multiply.”

JetBlue and Spirit currently rank as the sixth- and seventh-largest carriers in the United States. Proponents of the merger argue that combining their strengths is essential for these smaller carriers to compete effectively against larger airlines and offer lower fares to a wider range of communities. Together, JetBlue and Spirit account for only 8% of the industry’s total revenue.

Source: Bloomberg