JetBlue’s Spirit Deal Called Bid to Eliminate Low-Cost Rival

JetBlue Airways Corp.’s $3.8 billion deal to acquire Spirit Airlines Inc. is an effort to get rid of a low-cost rival and boost ticket prices across a wider network of flights, a US Justice Department lawyer told a judge at the start of an antitrust trial in Boston.

“JetBlue is counting on the fact that eliminating Spirit and the competition Spirit provides will allow JetBlue to increase fares,” DOJ attorney Arianna Markel said Tuesday during her opening statement. “That is real harm to real people.” The deal is intended to make “a bigger, turbo-charged JetBlue,” she said. “But bigger isn’t always better.”

The federal government, along with six states and Washington DC, sued last year to block the deal it says would kill JetBlue’s fastest growing competitor in the US and limit choices for passengers. The companies, which will make their opening arguments later, contend the combination is needed to better compete with larger rivals.

The case is the latest effort by the federal government to crack down on airline consolidation after decades of lax enforcement that left the nation’s four biggest airlines — American Airlines Group Inc., Delta Air Lines Inc., United Airlines Holdings Inc. and Southwest Airlines Co. — with 80% of the market.

JetBlue’s internal documents “will show that a bigger JetBlue means fewer planes, fewer seats and higher fares,” Markel said, adding that the company plans to reduce its capacity after the combination by removing 10% to 15% of available seats. “JetBlue itself projects that fares will increase 30% after Spirit exits.”

JetBlue-Spirit Merger Trial Tests US Crackdown on Airline Deals

The government lawyer said Spirit is able to charge less than JetBlue because it has lower costs than its rival. The so-called “Spirit effect” on routes reflects the 20% average drop in fares for routes where the company competes, Markel said.

It’s unlikely other ultra-low-cost carriers would step in to replace Spirit, which accounts for about half of that market, she said.

“The loss of Spirit would result in roughly a billion dollars of net harm, year after year, for millions of passengers who fly over 100 routes throughout the country,” she said. “Higher fares will mean that some people won’t be able to afford to fly at all.”

In court filings, JetBlue and Spirit argued that combining forces will allow the sixth- and seventh-largest carriers in the US to better compete with the bigger airlines and offer lower fares in more communities.

JetBlue pledged to sell flight slots and gates at certain airports to ultra-low-cost carriers in order to resolve antitrust concerns, but the government contends the divestitures don’t go far enough to fully restore competition that would be lost if the deal can proceed.

The case is US v. JetBlue, 23-cv-10511, US District Court, District of Massachusetts (Boston).

--With assistance from Mary Schlangenstein.

To contact the reporters on this story:
Madlin Mekelburg in Austin at mmekelburg@bloomberg.net;
Allie Reed in Arlington at areed119@bloomberg.net

To contact the editors responsible for this story:
Sara Forden at sforden@bloomberg.net

Steve Stroth

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