In a major setback for JetBlue and Spirit Airlines, a federal judge has blocked JetBlue’s proposed $3.8 billion acquisition of its budget airline rival citing antitrust concerns. The ruling throws the future of both airlines into uncertainty amidst a rapidly evolving airline industry.
Key Highlights
- Federal judge William Young blocked JetBlue’s acquisition of Spirit Airlines in a sternly worded ruling that cited “substantial harm to consumers”
- Deal would have made JetBlue the 5th largest U.S. airline. Spirit Airlines now faces an uncertain future and possible bankruptcy
- Judge quoted from Les Misérables in ruling: “There are no minor lapses with competition policy”
- Ruling raises doubts about further airline consolidation in the U.S. including speculated Alaska-Hawaiian merger
The Proposed Merger and Ensuing Drama
JetBlue originally made an unsolicited $3.6 billion cash offer for Spirit in April 2022, later raised to $3.8 billion, sparking a bidding war with Frontier Airlines. Spirit’s board ultimately chose Frontier’s lower offer citing regulatory concerns over the JetBlue deal. However, JetBlue persisted and eventually won over Spirit’s shareholders by offering a higher price.
The acquisition would have made JetBlue the 5th largest U.S. airline with a nationwide footprint and hundreds more routes for passengers. JetBlue promised the deal would allow it to compete more effectively with giants like American, United, Delta and Southwest.
However, the U.S. Justice Department sued to block the deal in September arguing it would lead to higher fares, fewer choices, and poorer service for travelers. Antitrust regulators also worried the merger would make coordination between the remaining big four airlines easier.
| Airline | 2021 Revenue | 2021 Passengers |
|---|---|---|
| American Airlines | $29.9 billion | 123 million |
| Delta Air Lines | $29.9 billion | 128 million |
| United Airlines | $24.6 billion | 85 million |
| Southwest Airlines | $15.8 billion | 162 million |
| Proposed JetBlue + Spirit | $11.9 billion | 85 million |
Source: Airlines for America
Judge Feared “Appreciable Damage” from Merger
In his ruling, Judge Young said he shared the Justice Department’s concerns the merger risked “appreciable damage to consumers (read: passengers) in the form of higher fares and reduced service.”
The judge strongly dismissed JetBlue’s claims the budget carrier would continue competing aggressively on price and expanding routes after absorbing Spirit and its ultra-low cost business model.
“JetBlue has given insufficient guaranty that it will not eliminate Spirit’s discount business model while taking the opportunity to increase prices,” Young wrote.
Young also expressed doubts JetBlue could deliver on $1.3 billion in annual consumer savings it promised from the merger.
“To put it bluntly, experience teaches that optimistic predictions of consolidation’s effects often prove inaccurate,” said Judge Young.
In an unusual move highlighting the case’s importance, Young quoted from Victor Hugo’s Les Misérables saying “There are no minor lapses with competition policy.”
What Next for Spirit Airlines?
Blocking the acquisition leaves Spirit Airlines in a vulnerable financial situation facing an uncertain independent future.
Spirit shares plunged over 25% on news of the blocked merger and are now trading near record lows. There are worries Spirit could be forced into bankruptcy or outright liquidation without an urgent cash infusion.
“Spirit could be worth more grounded than flying,” warned analyst Jamie Baker of J.P. Morgan.
One option is Spirit immediately restarts merger talks with Frontier Airlines, but Frontier has signaled it may seek new terms given Spirit’s deteriorating finances.
To survive alone, Spirit says it is exploring options to refinance debt and raise new capital investment. It still projects turning an annual profit in 2024 despite losses in recent quarters.
Spirit is also backing off previous plans for bold expansion that assumed additional support from a merger. The airline says it will cut costs and could reduce flight schedules in some markets.
Industry experts warn if Spirit shrinks operations too far, its low cost advantage could diminish leading to even higher fares for budget-conscious travelers.
“Keeping Spirit cheap for flyers threatens to kill it altogether,” concluded a Bloomberg analysis.
What’s Next for JetBlue?
JetBlue said it was “disappointed” by the judge’s ruling and is considering an appeal. But most legal experts give JetBlue little chance of overturning the decision.
“This is a legal long shot for JetBlue,” said Jeffrey Cohen, an antitrust lawyer not involved in the case. “The judge had the testimony and the facts on his side.”
Instead, JetBlue is refocusing efforts on previously announced plans for transatlantic flights to London later this year. JetBlue is also trying for new routes to Europe out of New York and Boston.
JetBlue insists the ruling won’t impact its growth goals and still projects sizable expansion over the next five years. The airline recently announced pay raises for flight attendants despite the failed merger.
However, antitrust experts says Judge Young’s decision will likely curb further consolidation and mega-mergers across the entire U.S airline industry. Rumors of a potential Alaska-Hawaiian tie-up are also likely dashed.
For now, the ruling maintains the status quo with passengers still enjoying low fares and extensive choices from seven major U.S. airlines and smaller discount carriers. But the fierce competition is causing financial strain across the industry, and further bankruptcies or liquidations can’t be ruled out warns industry watchers.
Consumer Groups Applaud Ruling
Consumer rights groups and advocates for airline workers mostly praised Judge Young’s ruling saying it protects both travelers and employees from potential harm. Some airline unions also expressed relief the acquisition was blocked.
“Unnecessary consolidation is bad for everyone but corporate executives and shareholders,” said one union spokesperson.
However, Spirit’s flight attendant union accused the government of risking Spirit employee jobs by opposing the merger on dubious grounds.
On Capitol Hill, Democratic lawmakers allied with the Biden administration applauded the efforts to promote competition in the airline industry. But some Republican’s blasted what they termed “overreach” by antitrust regulators in blocking deals between private companies.
What’s clear is passengers have escaped higher prices and reduced options from this particular airline merger. But lasting questions around competitiveness, consolidation and regulation still cloud the future trajectory of the U.S. airline business emerging from the pandemic.
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