A federal judge on Tuesday blocked JetBlue Airways’ proposed $3.8 billion acquisition of Spirit Airlines, a victory for the Justice Department, which had argued the deal would harm travelers.
In a 109-page decision, Massachusetts District Court Judge William G. Young sided with the Justice Department in determining that the merger would reduce competition in the airline business.
The proposed merger would have created the nation’s fifth largest airline. The Justice Department argues that small, low-cost airlines like Spirit help drive down fares, and that allowing JetBlue, which tends to charge higher prices than Spirit, to acquire the company, would harm consumers. He insisted on giving it.
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 will give JetBlue a 10% market share, but it is still behind United Airlines (16%), the fourth largest airline in the United States.
Lawyers for JetBlue argued in court last month that the merger would make it more competitive with the four largest national carriers and lower overall airfares. The Justice Department argued that JetBlue’s larger size would make it behave more like its larger competitors, while depriving travelers of lower-cost options.
An analysis presented in court found that Spirit’s fares would drop when it introduced new routes, including on JetBlue flights. JetBlue plans to reconfigure its tightly packed Spirit aircraft to fit its more spacious layout, which means fewer seats.
Judge Young agreed with the government on Tuesday, ruling that the merger “is likely to further encourage JetBlue to abandon its roots as a maverick low-cost carrier.” He said Spirit plays an important role in the market as a small, low-cost alternative to major carriers.
“Spirit is a small airline,” he said in his ruling. “But some people love it. To the loyal customers of Spirit, this is for you.”
President Biden hailed the ruling as a victory for consumers in a post on social media site X and said his administration would aggressively enforce antitrust laws. “Capitalism without competition is not capitalism. It is exploitation,” he said. “Today’s ruling is a victory for consumers around the world who demand lower prices and more choice.”
Spirit’s stock price fell 47% by Tuesday afternoon on the news, while JetBlue’s stock closed up 5%.
Jonathan Handschuh, an aviation analyst at CFRA Research, said JetBlue shares rose because the merger rejection resulted in $3 billion in cost savings for the company. One reason Spirit’s stock price has fallen is that the proposed merger was supposed to be a lifeline for the company, which had been suffering from financial problems and wasn’t profitable even before the pandemic.
Handshoe said many domestic airlines took on large amounts of debt during the pandemic “as they tried to replace older aircraft with newer aircraft.”
As part of the merger agreement, JetBlue agreed to pay Spirit $70 million and shareholders $400 million if the deal is blocked. The airlines said in a joint statement on Tuesday that they disagreed with the ruling and were considering their options.
“Our partnership brings much-needed competition and choice by offering lower fares and superior service to more customers in more markets, while strengthening our competitiveness with leading U.S. carriers. “We continue to believe this is the best opportunity to increase this,” the companies said.
The ruling came just weeks after Alaska Airlines announced plans to acquire Hawaiian Airlines for $1.9 billion. If the deal is approved, Alaska Airlines would capture about 8% of the airline market.
In May, a federal judge blocked JetBlue from partnering with American Airlines in Boston and New York after the partnership was challenged by the Justice Department, saying it would stifle competition in the Northeast. Dylan Carson, an attorney at Manatt, Phelps & Phillips, said Tuesday’s ruling marks a “win streak” for antitrust regulators.
“This will really help shed some light on the Biden administration’s enforcement policies,” said Carson, a former Justice Department antitrust trial lawyer.
Aviation consultant Hubert Horan said the proposed merger would erode competition in the airline industry. He said low-cost carriers like Spirit, rather than the Big Four, “have driven most of the operational and marketing innovations in the industry.”
“Instead of competing aggressively, JetBlue is turning into a smaller version of a traditional airline,” Horan said.
Niraj Chokshi Contributed to the report.