The Justice Department filed a lawsuit on Tuesday to stop the proposed merger between JetBlue and Spirit Airlines.
The $3.8 billion merger would create the country’s fifth-largest airline and would be the first merger of a US airline since 2016, when Alaska Airways bought Virgin Atlantic.
At a Justice Department press briefing, Attorney General Merrick Garland said the merger would hurt those who “least can afford to see travel costs go up.”
“Ultra low-cost carriers like Spirit play a key role in the economy,” he said. “They make air travel possible so more Americans can take a hard-earned family vacation or celebrate and mourn the loss of loved ones together.”
Pending a lawsuit from the DOJ, JetBlue said a merger with Spirit would reduce costs for customers.
“The big four airlines control about 80% of the market,” the company said in a statement. “The combination of JetBlue with Spirit makes it possible to create while ensuring a compelling national challenger to these dominant airlines [ultra low cost carrier] Options remain available in overlapping markets.”
The company said it made changes before the merger and their routes don’t overlap.
“JetBlue’s unique combination of low fares and great service is a competitive force that is keeping legacy airlines on their toes and leading to lower fares,” the company said.
JetBlue and Spirit aircraft at Fort Lauderdale-Hollywood International Airport in Fort Lauderdale, Florida, May 21, 2022. Bloomberg via Getty Images, FILE
In the lawsuit filed in Massachusetts federal court, the Justice Department said that Spirit would be eliminated as “the largest and fastest growing ultra-low-cost airline in the United States” if the merger were allowed.
Spirit, according to the Justice Department, enables cost-conscious Americans to travel, and by scrapping that business model, it harms competition for consumers.
“If the acquisition is approved, JetBlue plans to abandon Spirit’s business model, remove seats from Spirit’s aircraft and charge Spirit’s customers higher prices,” the lawsuit reads. “JetBlue’s plan would eliminate the unique competition that Spirit offers — and roughly half of all ultra-low-cost airline seats in the industry — and leave tens of millions of travelers with higher fares and fewer options.” Spirit himself put it simply: “A JetBlue acquisition of Spirit will have a lasting negative impact on consumers.”
Spirit’s model of unbundling certain services like carry-on luggage allows consumers to choose what they want to pay for, which is their “secret weapon”.
“The rest of the industry — including JetBlue — has been forced to respond to Spirit’s innovations and low prices. Spirit estimates that average fares drop by 17% once the company starts flying a route; JetBlue estimates that when Spirit stops flying a route, average fares increase by 30%,” the lawsuit reads. “Spirit’s success — and other airlines’ response to it — has resulted in the “Spirit Effect”: When Spirit enters a new route, consumer fares on all airlines tend to fall and demand for air travel increases.”
The DOJ claims that Spirit serves a different demographic — families traveling for vacations, and not those traveling for work or anything else.
“The acquisition of JetBlue would also dampen competition from other airlines,” the lawsuit states. “Airlines don’t always compete as aggressively as they could. Sometimes they take opportunities to mitigate competition through coordinated actions – such as follow-the-leader fare increases – that result in higher fares or reduced capacity. Spirit recognized that “no obligation” to “follow the herd” when it comes to collective price increases in the industry. In contrast, JetBlue has already demonstrated its willingness to follow up on some of these coordination opportunities and would have greater incentive to do so if the acquisition goes through.”
The acquisition would dampen Spirit’s growth and reduce the number of seats on Spirit’s planes, according to the DOJ. The department says JetBlue was the disruptor when it launched but has now become a “close ally” of the big four airlines.
“Spirit’s strategy of focusing on cost-conscious travelers has prompted other airlines to follow suit and introduce their own fare options to better compete,” the lawsuit reads.
The Justice Department notes that JetBlue has tried to buy Spirit before – unsuccessfully in 2017 and 2019.
Garland said that more broadly, the Justice Department will always keep middle-class families in mind — particularly when it comes to things like airfares.
“Competitive threats such as those alleged here particularly hurt working- and middle-class families, who may struggle to withstand the price hikes that consolidation often entails. The Department’s commitment to ensuring economic opportunity and fairness means we are vigilant about these concerns. Keeping the economy open to all Americans, regardless of income status, is a department-wide priority.”
That merger is illegal, said Vanita Gupta, third party chief of justice at the Justice Department, because it violates the Clayton Act.
“In fact, the transaction is allegedly illegal under federal antitrust laws on more than 150 routes and markets where JetBlue and Spirits fly today. For years, the spirits business strategy, a unique business strategy, has earned a reputation for being a disruptive factor in a commercial airline industry plagued by high concentration and old populist practices. Customers in the United States will benefit from an independent spirit. Simply put, where Spirit competes with other airlines, including JetBlue, they respond by competing vigorously and cutting airfares to lure customers. After many years of criticizing consolidation in the airline industry, JetBlue appears to have changed its mind.”
Deputy Assistant Attorney General Doha Mekki of the Antitrust Division, whose department is filing the lawsuit, said a previous indictment with American Airlines barred JetBlue from a merger.
“Today, JetBlue has already committed 75% of its capacity to American Airlines, which we believe will hurt passengers. JetBlue wasn’t ready yet. JetBlue ran the public solicitation for Geist, which was turned down more than once before Geist finally accepted an offer.”