A federal judge on Tuesday blocked JetBlue Airways' planned $3.8 billion takeover of Spirit Airlines, 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 and found that the merger would reduce competition in the airline business.
The planned merger would have created the country's fifth largest airline. The Justice Department argued that smaller low-cost airlines like Spirit helped drive down airfares and that the company's acquisition by JetBlue, which tends to charge higher prices than Spirit, would have harmed consumers.
The four largest U.S. airlines – 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 behind United, the fourth-largest U.S. airline, which has 16 percent.
JetBlue's lawyers argued in court last month that the merger would allow the company to better compete with the four major national airlines and lower prices overall. The Justice Department argued that a larger JetBlue would behave the same as its larger competitors but would take away a low-cost option for travelers.
Analysis presented at trial found that fares, including on JetBlue flights, drop when Spirit introduces a new route. JetBlue planned to reconfigure the tightly packed Spirit planes to fit its own, more spacious layout, which meant reducing the number of seats.
Judge Young agreed with the government, ruling Tuesday that the merger would “likely create further incentive for 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 said in the ruling. “But there are those who love it. To Spirit’s dedicated customers, this is for you.”
Spirit's stock price fell 47 percent Tuesday afternoon following the news, while JetBlue's stock closed up 5 percent.
Jonnathan Handshoe, an airline analyst at CFRA Research, said JetBlue shares rose 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 has struggled with operational problems and has not turned a profit since the pandemic.
During the pandemic, many domestic airlines have taken on a mountain of debt “as they sought to replace older aircraft with much newer ones,” Mr. Handshoe said.
As part of the merger agreement, JetBlue agreed to pay Spirit $70 million and its shareholders $400 million if the deal was blocked. In a joint statement on Tuesday, the airlines said they disagreed with the ruling and were reviewing their options.
“We continue to believe our combination is the best opportunity to increase much-needed competition and choice by offering low fares and superior service to more customers in more markets, while improving our ability to compete with the dominant U.S. airlines said the companies.
The ruling comes just weeks after Alaska Airlines announced plans to acquire Hawaiian Airlines for $1.9 billion. If approved, the 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 dampened competition for flights in the Northeast. Tuesday's ruling puts antitrust authorities on a “winning streak,” said Dylan Carson, an attorney at Manatt, Phelps & Phillips.
“It really helps re-energize the Biden administration’s enforcement agenda,” said Mr. Carson, a former antitrust litigation lawyer at the Justice Department.
Hubert Horan, an aviation consultant, said the proposed merger would have hollowed out competition in the aviation industry. Low-cost airlines like Spirit, rather than the four larger companies, have “driven most of the industry's operational and marketing innovation,” he said.
“Instead of competing aggressively, JetBlue has transformed itself into a smaller version of a legacy carrier,” Horan said.
Niraj Chokshi contributed reporting.