A federal judge on Tuesday blocked JetBlue Airways’ bid to acquire Spirit Airlines for $3.8 billion, a victory for the Justice Department, which argued the deal would harm travelers.
In his 109-page ruling, Judge William G. Young of the U.S. District Court for the District of Massachusetts sided with the Justice Department in determining that the merger would reduce competition in the airline business.
The proposed merger would have created the country’s fifth-largest airline. The Justice Department argued that smaller, low-cost airlines like Spirit helped drive down fares and that allowing the company to be acquired by JetBlue, which tends to charge higher prices than Spirit, would have harmed consumers.
The four largest airlines in the United States (American Airlines, Delta Air Lines, Southwest Airlines and United Airlines) control about two-thirds of the market. The merger would have given JetBlue a 10 percent market share, still below United, the fourth-largest U.S. airline, which has 16 percent.
JetBlue’s lawyers argued in court last month that the merger would allow it to better compete with the big four domestic airlines, lowering prices overall. The Justice Department argued that a larger JetBlue would act just like its larger competitors while eliminating a low-cost option for travelers.
Analysis presented at trial showed that when Spirit introduces a new route, fares, including those on JetBlue flights, go down. JetBlue planned to reconfigure the very compact Spirit planes to match its own more spacious design, which meant it would reduce the number of seats.
Judge Young agreed with the government, ruling Tuesday that the merger “would likely further incentivize JetBlue to abandon its roots as a maverick, low-cost airline.” He said Spirit plays an important role in the market as a small, low-cost alternative to large airlines.
“Spirit is a small airline,” he stated in the ruling. “But there are those who love him. For those dedicated Spirit customers, this one is for you.”
Spirit’s stock price fell 47 percent Tuesday afternoon following the news, while JetBlue’s stock price closed up 5 percent.
Jonnathan Handshoe, airline analyst at CFRA Research, said JetBlue shares had risen because the rejected merger represented a $3 billion cost-saving measure for the company. Spirit shares fell in part because the proposed merger would have been a lifeline for the company, which had been struggling with operational problems and had not turned a profit since before the pandemic.
During the pandemic, many domestic airlines took on a mountain of debt “because they were trying to replace older aircraft with much newer ones,” Handshoe said.
As part of the merger deal, JetBlue agreed to pay Spirit $70 million and its shareholders $400 million if the deal was blocked. In a joint statement Tuesday, the airlines said they disagreed with the ruling and were evaluating their options.
“We continue to believe that our combination is the best opportunity to increase much-needed competition and choice by offering low fares and excellent service to more customers in more markets, while improving our ability to compete with dominant US airlines,” they said. the companies.
The ruling comes just weeks after Alaska Airlines announced plans to acquire Hawaiian Airlines for $1.9 billion. If approved, that deal would give Alaska about 8 percent of the airline market.
In May, a federal judge blocked a partnership between JetBlue and American in Boston and New York after it was challenged by the Justice Department, which argued it curbed competition for flights in the Northeast. Tuesday’s ruling creates a “winning streak” for antitrust officials, said Dylan Carson, an attorney with the firm Manatt, Phelps & Phillips.
“It really helps advance the Biden administration’s law enforcement agenda,” said Carson, a former antitrust trial attorney at the Justice Department.
Hubert Horan, an aviation consultant, said the proposed merger would have eroded competition in the airline industry. Low-cost airlines like Spirit, rather than the four largest carriers, had “driven most of the industry’s marketing and operational innovations,” he said.
“Instead of competing aggressively, JetBlue has been morphing into a smaller version of a traditional airline,” Horan said.
Niraj Chokshi contributed with reports.
