On January 16, a federal court judge ruled to block JetBlue Airways’ proposed $3.8 billion purchase of Spirit Airlines on antitrust grounds. The decision was made based on a U.S. Justice Department lawsuit filed in March 2023 and aimed at stopping the deal. According to the suit, the merger would “allow JetBlue to eliminate its largest ultra-low-cost rival, further concentrate the airline industry, and harm American travelers.”
Why the merger was rejected
The JetBlue-Spirit merger was rejected by a federal judge who found that it violated the Clayton Antitrust Act, which prohibits mergers and acquisitions when “the effect of such acquisition may be substantially to lessen competition.”
Given that JetBlue’s routes and Spirit Airlines’ routes overlap in many markets, the merger would have lessened competition in those markets. JetBlue’s declaration that it planned to reduce the number of seats on acquired Spirit Airlines aircraft didn’t help its case, nor did its blunder of accidentally revealing a plan to increase fares by up to 40 percent after the merger, according to a report from Law360.
JetBlue argued the merger would in fact increase market competition by making the company a more viable competitor against the “Big 4” airlines (American, Delta, Southwest, and United), providing increased choice for consumers. However, the judge ruled that it would be the “large category of consumers, those who must rely on Spirit (for discounted prices), that this merger would harm; the defendant airline . . . simply cannot demonstrate that these consumers would avoid harm.”
“The Spirit Effect:” What the blocked merger means for travelers
“Today’s ruling is a victory for tens of millions of travelers who would have faced higher fares and fewer choices had the proposed merger between JetBlue and Spirit been allowed to move forward,” stated Attorney General Merrick Garland in a press release about the U.S. District Court of Massachusetts decision.
With the blocked merger, JetBlue and Spirit Airlines are set to continue operations as is, pending a potential appeal of the ruling, a modified merger offer from JetBlue protecting the fare structure and routes, or an offer from a different carrier. For example, were Frontier Airlines to renew its 2022 merger bid to create a combined budget airline with Spirit, such a bid might win the Justice Department’s approval, given the protection of the discount fare model and the smaller overlap of their routes.
For the time being, Spirit’s low-cost fares will probably remain in place, and Spirit’s competitors on its routes must consider those fares when pricing their own flights. Thus, even if you don’t ever plan to fly Spirit Airlines, airfares on routes that Spirit flies are likely to remain cheaper. This is what the Justice Department lawyers called the “Spirit Effect,” in which “Spirit’s presence in a market forces other air carriers, including JetBlue, to lower their fares.”
You can see an example of the “Spirit Effect” on JetBlue’s airfares for flights between New York’s La Guardia Airport (LGA) and Florida. One-way JetBlue fares this March from LGA to Fort Lauderdale (where Spirit has regular flights) are about $119 on average, according to JetBlue’s website. However, JetBlue’s flights from LGA to Jacksonville, Florida, where Spirit does not fly, cost an average of about $194 this March, a 63 percent price premium for a shorter flight. Other factors might be at play in the pricing, but logic (and JetBlue’s accidentally released pricing plan) suggests that the simple presence of Spirit’s competition has the potential to lower prices.
What’s in store for Spirit now?
What’s good for the consumer isn’t always what’s good for airline profitability—or even survival. Spirit Airlines’ stock price plummeted by 47 percent the day of the ruling, and not just because stockholders were losing out on JetBlue’s premium payout. Spirit reported losses of more than $263 million in the first three quarters of 2023, saying “softer demand for our product and discounted fares in our markets led to a disappointing outcome.”
With Spirit Airlines’ continued losses, and now without JetBlue coming to its rescue, might the airline have to raise prices—or take even more dramatic action to survive? Given Spirit’s business model of discounted fares for bare-bones service, convincing consumers to pay a premium for its flights will be challenging.
Thus, without a big uptick in demand, Spirit may be forced to consider other options. For one, Spirit could look for another buyer, Helane Becker, airline analyst at TD Cowen, told Reuters, adding that Spirit’s recent capital raise also provided the company with funding that could be used to self-finance a potential Chapter 11 filing, also known as a reorganization.
What this means for the future of airline mergers
The effect of the Justice Department court victory may have a ripple effect across the industry. Alaska’s recently announced merger with Hawaii Airlines might be at risk, should the government choose to appeal that plan, too. And further industry antitrust actions may be pending, given President Biden’s post-trial message on January 16: “My administration will continue to fight to protect consumers and enforce our antitrust laws.”
Regardless of future market dynamics, for the time being, JetBlue and Spirit will continue to compete for passengers, and travelers should expect discount pricing in Spirit’s markets to be available for the foreseeable future.
