NEW YORK (CNN) – The US Department of Justice is suing to halt JetBlue’s proposed $3.8 billion deal to buy discount airline Spirit Airlines, the first time in more than 20 years that the government is trying to to block a merger of US airlines.
The lawsuit announced Tuesday by Attorney General Merrick Garland comes as no surprise: the Biden administration has argued since taking office that there needs to be more competition between companies, particularly in the airline industry, to bring down costs for consumers. Spirit (SAVE), with its low base fare business model that charges customers extra for everything including carry-on baggage, is driving larger airlines to offer a percentage of their seats at the lowest possible price.
Garland said approving the merger would cause significant harm to consumers, particularly those who rely on Spirit’s low tariffs.
“If the JetBlue-Spirit merger were not blocked, it would result in higher fares and fewer choices for millions of travelers across the country. The Justice Department is suing to prevent that from happening,” Garland said. “Businesses in every industry should understand by now that this Department of Justice will have no hesitation in enforcing antitrust laws and protecting American consumers.”
But over the past 22 years, the Justice Department has allowed a string of five airline mergers without a lawsuit, like the one announced on Tuesday. These deals turned nine major US airlines into four—American Airlines (AAL), Delta Air Lines (DAL), United Airlines (UAL), and Southwest Airlines (LUV). Together, airlines control about 80% of the nation’s air travel.
JetBlue (JBLU) argues that the deal would create a new, stronger competitor for these four larger airlines and would work to lower fares, not raise them. It is argued that JetBlue and Spirit compete primarily with other airlines and not with each other and therefore the merger will not significantly reduce competition. It has offered to cede landing and take-off slots and gates at congested airports to other up-and-coming low-cost airlines to boost competition.
“The combination of JetBlue and Spirit plus the rapid growth of ultra-low-cost carriers will ensure increased competition and low fares,” JetBlue said in a statement.
It has vowed to press ahead with its merger efforts and hopes to be able to ditch the lawsuit in time to close the deal with Spirit by the end of the year. But it has been fighting a separate Justice Department lawsuit against an alliance with American Airlines for nearly 18 months.
While Spirit now supports the deal as well, it had previously opposed being bought by JetBlue. It had originally agreed to a merger without another ultra-low-cost airline, Frontier Airlines, arguing that a deal with JetBlue faces too many regulatory challenges to be approved because it would increase airfares.
It wasn’t until its own shareholders rejected the merger with Frontier in favor of JetBlue’s more lucrative offer that it gave up on accepting the JetBlue deal.
Garland cited a statement from Spirit’s board of directors while it was still fighting the JetBlue deal, which said: “A court will be very concerned that a JetBlue-Spirit combination will result in a more expensive, more expensive airline serving a would eliminate lower costs, lower fares and the elimination of about half of the lower cost capacity in the United States.”
“We agree,” Garland added after reading this quote.