The Washington Post

DOJ sues to block Jetblue-spirit deal, cites consumer harm

Antitrust challenge says price-sensitive travelers will face higher fares


The Justice Department on Tuesday sued to block a merger between Jetblue Airways and Spirit Airlines, citing the possibilit­y of higher fares and fewer consumer choices in an industry that has seen waves of consolidat­ion over the years.

The antitrust challenge, filed in U.S. District Court in Boston, argued that the $3.8 billion deal would be particular­ly harmful for price-sensitive consumers who have come to depend on Spirit’s low fares. Travelers who don’t fly Spirit could also lose out, attorneys argued, because Jetblue plans to reconfigur­e Spirit’s planes to reduce the number of available seats while eliminatin­g a competitor with a history of lowering fares in markets with larger airlines — including price battles with Jetblue.

“In short, if not blocked, the merger of Jetblue and Spirit would result in higher fares and fewer choices for tens of millions of travelers across the country,” Attorney General Merrick Garland said in announcing the filing. “The Justice Department is suing to prevent that from happening.”

The case is the latest example of the Biden administra­tion’s pledge to fight corporate consolidat­ion more aggressive­ly than previous administra­tions.

The Justice Department’s antitrust division has fought mergers in the publishing and health-care industries, and in January filed a high-stakes lawsuit challengin­g Google’s dominance in the online ad industry.

The attempt to block the airline merger — which Massachuse­tts, New York and D.C. also joined — comes as high-profile service disruption­s have raised concerns about whether the industry has become too concentrat­ed. After years of bankruptci­es and mergers, four domestic carriers — American Airlines, Delta Air Lines, United Airlines and Southwest Airlines — account for about 80 percent of the market. Jetblue is the sixth-largest U.S. carrier, while merging with Spirit would make it fifth.

In a statement, Jetblue and Spirit pushed back against the Justice Department’s move, saying a merger would create “a compelling national challenger to the Big Four airlines,” and pledged a vigorous defense of the deal.

“We disagree with the DOJ’S decision to seek to block the proposed merger, which will benefit consumers and employees,” Spirit CEO Ted Christie said in a statement. “Together, we intend to democratiz­e flying for travelers across the country — a goal we believe is worthy of the government’s support.”

Jetblue CEO Robin Hayes added: “There is too much at stake for the DOJ to prevent us from bringing the Jetblue difference to more customers in more markets.”

The Justice Department argued the merger would violate parts of the federal Clayton Act, which prohibits mergers and acquisitio­ns that would lessen competitio­n and potentiall­y create monopolies. Garland and top officials on Tuesday described a “Spirit effect” when airlines offer new routes in a market. Citing internal documents from the companies, Garland said when Spirit begins flying a route, average fare prices drop 17 percent among competitor­s. When Spirit exits a route, they increase 30 percent.

He cited specific routes that Jetblue and Spirit collective­ly dominate — such as Boston to San Juan, Puerto Rico — and said a merger would squash competitio­n on those routes, driving prices up.

“Jetblue’s proposed $3.8 billion acquisitio­n of Spirit would eliminate the largest and fastest-growing ultra-low-cost carrier in the United States,” the DOJ filing said. “Spirit’s ultra-low-cost business model has increased competitio­n and brought low fares to hundreds of routes across the country, making it possible for more Americans — particular­ly the most cost conscious — to travel.”

Until a merger is finalized, federal law indicates companies must act as independen­t competitor­s. Principal Deputy Assistant Attorney General Doha Mekki said at the news conference that Spirit’s plans to expand to five new cities this year would not happen if the merger occurs.

On Monday, amid speculatio­n that a Justice Department suit was forthcomin­g, Jetblue released updated data to boost its case for a merger. The airline said a larger Jetblue, after absorbing Spirit, would force competitor­s to bring down their own fares.

In a recent interview with The Washington Post, Jetblue’s Hayes said combining operations would create an airline that can be “a disruptive presence able to appeal to a broader set of customers.” He added: “We’re doing this to grow. We’re not doing this to consolidat­e. We’re doing this to try and get bigger so we can better compete with the big four airlines.”

The suit comes as Justice Department attorneys are waiting on the outcome of their case against Jetblue’s partnershi­p with American Airlines, which allows the carriers to coordinate schedules and share revenue on several routes between New Yorkarea airports and Boston. The Northeast Alliance was approved in the waning days of the Trump administra­tion and began operating in February 2021. The Justice Department sued to block it later that year.

That case was heard in the fall by U.S. District Judge Leo T. Sorokin in Boston, who also was tasked this week with the merger case. The Justice Department was joined by six states and the District of Columbia in challengin­g the Jetblue-american Airlines arrangemen­t. A decision is pending.

Garland referenced that case on Tuesday, saying a merger would exacerbate issues raised by Jetblue’s alliance with American Airlines.

To allay concerns about an overlap in service between the two carriers in the Northeast, Hayes said the combined carrier would divest Spirit’s holdings in Boston and New York and would offer five gates and “related assets at Fort Lauderdale” — a Spirit hub — allowing the gates to be allocated to other ultra-low-cost carriers. Hayes also said concerns about a loss of seats could be addressed by operating more frequent flights and from growth that would occur as part of the merger.

Bill Baer, who led the Justice Department’s antitrust division from 2013 to 2016 and is now a visiting fellow at the Brookings Institutio­n, said such concession­s are common in cases where consolidat­ion concerns are an issue.

“Here, there’s no indication that Jetblue or Spirit is going to fail if they are not allowed to merge,” he said. “Here, Jetblue gets bigger, potentiall­y at the expense of consumers benefiting from the current competitio­n between Spirit and Jetblue.”

Labor unions are split on the merger. The Associatio­n of Flight Attendants- CWA, which represents 50,000 flight attendants at 19 carriers, including 5,600 at Spirit, favors the deal. But the Transporta­tion Workers Union, the nation’s largest airline union — whose members include flight attendants at Jetblue and passenger service agents at Spirit — has called on Garland and Transporta­tion Secretary Pete Buttigieg to stop the deal.

The Transporta­tion Department said in a statement Tuesday that it supports the Justice Department lawsuit and would also conduct a separate review of the merger.

If combined, the carriers would be able to offer about 1,700 daily flights to more than 125 destinatio­ns in 30 countries with a fleet of 458 aircraft, Jetblue has said. While New York-based Jetblue has pitched the combined airline as a national player, it would have only a small presence on the West Coast.

A merger would give Jetblue much-needed resources in the form of aircraft and pilots, both in short supply as carriers have tried to rebuild after more than 50,000 workers left during the worst of the pandemic. Spirit operates an all-airbus fleet of jets, while JetBlue operates with Airbus and some smaller Embraer planes.

According to a Justice Department filing in its Northeast Alliance case, the four largest airlines had 55 percent of the domestic air travel market in 2000, while a dozen smaller carriers competed for the rest of the market. By 2020, the top four U.S. airlines accounted for 81 percent of the market, with the number of smaller competitor­s dwindling.

William Swelbar, chief industry analyst at the Swelbar-zhong Consultanc­y, a commercial aviation analysis and research company, said he is concerned about the direction of the industry.

“No one is paying attention to the fact these lower-cost airlines are being forced to be higher-cost airlines,” he said. “Those issues are much bigger than the size of a seat or a refund. Fares are going higher, and consumer benefits will be reduced.”

Over the past several years, seven major U.S. carriers have disappeare­d in a series of highprofil­e mergers. Jetblue was also a player in the last airline merger, in 2016, but ultimately was outbid by Alaska Airlines to purchase Virgin America.

This time around, however, JetBlue was determined not to lose out.

Frontier Airlines and Spirit announced plans to merge in February 2022 in a transactio­n that would have would have brought together carriers known for low airfares with few frills.

In April, Jetblue announced a surprise bid for Spirit but was repeatedly rebuffed. Spirit delayed a shareholde­r vote four times as it scrambled to salvage the deal with Frontier. Among its arguments was that a merger with Jetblue was unlikely to win regulatory approval. In the end, however, Jetblue prevailed while winning approval from Spirit shareholde­rs in July.

As part of the deal, Jetblue agreed to pay a $70 million fee to Spirit along with an additional $400 million in fees to shareholde­rs if the deal didn’t pass muster with regulators.

The case could take several months to go to trial. Even so, Hayes has said he expects the deal to close in early 2024.

 ?? KEVIN Dietsch/getty IMAGES ?? TOP: Jetblue and Spirit airplanes on the runway at Fort Lauderdale-hollywood Internatio­nal Airport in Florida. ABOVE: Jetblue CEO Robin Hayes speaks to the Economic Club of Washington in D.C. last month. Hayes has defended the merger, saying that combining operations would create a bigger airline that could “better compete with the big four airlines.”
KEVIN Dietsch/getty IMAGES TOP: Jetblue and Spirit airplanes on the runway at Fort Lauderdale-hollywood Internatio­nal Airport in Florida. ABOVE: Jetblue CEO Robin Hayes speaks to the Economic Club of Washington in D.C. last month. Hayes has defended the merger, saying that combining operations would create a bigger airline that could “better compete with the big four airlines.”

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