The US Justice Department is suing to stop JetBlue’s proposed $3.8 billion deal to buy discount carrier Spirit Airlines, the first time in more than 20 years that the government has sought to block a US airline merger.
The lawsuit, announced Tuesday by Attorney General Merrick Garland, is not a surprise: The Biden administration has argued since taking office there needs to be greater competition between businesses, especially in the airline industry, to lower costs for consumers. Spirit (SAVE), with its low base fare business model that charges customers extra for everything, including carry-on bags, prompts larger carriers to offer a percentage of their seats at the lowest possible price.
Garland said that allowing the merger would significantly harm consumers, particularly those who depend on the low fares available on Spirit.
“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. The Justice Department is suing to prevent that from happening,” said Garland. “Companies in every industry should understand by now that this Justice Department will not hesitate to enforce antitrust laws and protect American consumers.”
But over the last 22 years, the Justice Department has allowed a series of five airline mergers without a suit like the one announced Tuesday. Those deals turned nine major US carriers into four – American Airlines (AAL), Delta Air Lines (DAL), United Airlines (UAL) and Southwest Airlines (LUV). Between them, the airlines control about 80% of the nation’s air traffic.
JetBlue (JBLU) argues that the deal would create a new, stronger competitor to those four larger airlines and work to bring down fares, not increase them.
“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 US market,” said JetBlue CEO Robin Hayes. “There is too much at stake for the DOJ to prevent us from bringing the JetBlue difference to more customers in more markets.”
It argues JetBlue and Spirit primarily compete with other carriers not each other, and thus the combination will not significantly decrease competition. It has offered to give up landing and takeoff slots and gates at crowded airports to other upstart, low-fare carriers, in order to encourage continued competition.
“The combination of JetBlue and Spirit plus the rapid growth of ultra low cost carriers will assure increased competition and low fares,” said a statement from JetBlue.
It has vowed to press ahead with its merger efforts and hopes to defeat the lawsuit in time to still close its deal with Spirit by the end of the year. But it has been fighting a separate lawsuit from the Justice Department challenging an alliance it has with American Airlines for nearly 18 months.
Spirit once argued against the deal
While Spirit also now supports the deal, it had previous opposed being purchased by JetBlue. It originally had agreed to a merger without another ultra low cost carrier, Frontier Airlines, and it argued that a deal with JetBlue faced too many regulatory challenges to be approved because it would raise fares.
It gave in to accept the JetBlue deal only when its own shareholders rejected the combination with Frontier in favor of the more lucrative offer from JetBlue.
Garland cited a statement from the Spirit board when it was still fighting off the JetBlue deal, when it stated, “A court will be very concerned that a JetBlue-Spirit combination will result in a higher cost, higher fare airline that would eliminate a lower cost, lower fare airline and eliminate about half of lower cost capacity in the United States.”
“We agree,” Garland added after reading that quote.
But now the decision on the deal is not in the hands of the Justice Department or two other federal agencies whose approval is also needed before the proposed JetBlue-Spirit combination can be completed – the Department of Transportation and the Federal Communications Commission. Instead, the decision will be up to federal courts that will hear the case.
The Justice Department filed this case in federal court in Boston. It had yet to be assigned to a specific judge as of midday Tuesday.