JetBlue-Spirit Deal Collapse Signals End of Airline Merger Era

A federal judge’s ruling to block JetBlue Airways Corp.’s $3.8 billion acquisition of Spirit Airlines Inc. signals difficulty for new airline deals and underscores the end to an era of rampant airline consolidation.

Judge William Young of the US District Court for the District of Massachusetts this week ruled against the deal between JetBlue and Spirit, agreeing with the Department of Justice that the merger would hurt low-cost airline consumers and cause anticompetitive effects, as the two airlines currently compete head-to-head on multiple routes.

The ruling’s focus on the merger’s anticompetitive effects for at least some consumers signals antitrust law is likely to pose more obstacles to future airline industry consolidation. Any planned merger between legacy airline companies is “dead on arrival,” said George A. Hay, professor of law and economics at Cornell Law School who served as director of economics at the Justice Department’s Antitrust Division.

“Further consolidation in the airline industry is a no-no,” Hay said. “The court’s clear that if you are worried about competition for the low-cost customer, this is going to reduce it.”

In his ruling, Young said “the loss of Spirit’s influence on JetBlue as a head-to-head competitor would likely result in less competition to both discipline the prices and spur the innovation of JetBlue as a smaller, maverick—more competitive—market participant.”

The ruling is the second JetBlue deal to be blocked over the last year after a separate federal judge in May ruled against a partnership between American Airlines Group Inc. and the low-cost carrier covering flights across the northeastern US. It comes nearly a year after the Department of Justice sued to stop the JetBlue-Spirit deal, arguing JetBlue would abandon Spirit’s ultra low-cost business model and charge Spirit’s customers higher prices.

The judges’ decisions to block the JetBlue deals speaks to the notion that past airline consolidations resulted in higher airfare prices, leading the government to say “no more,” Hay said.

The late 2000s marked a wave of airline consolidation, including Delta Air Lines Inc.‘s 2008 takeover of Northwest Airlines, United Airlines Holdings Inc.‘s purchase of Continental Airlines in 2010, and Southwest Airlines Co.‘s purchase of AirTran Airways in 2011.

Future deals between the Big Four airlines— Delta, American, United, and Southwest—are “highly unlikely” given the judge’s recent ruling, said Katherine Van Dyck, senior legal counsel at the American Economic Liberties Project, a Washington-based antimonopoly advocacy group.

The ruling has also cast doubt on the viability of Alaska Air Group Inc.’s proposed $1.9 billion acquisition of Hawaiian Holdings Inc.

The government and the courts “are taking very seriously the effects of past mergers” in the airline industry, Van Dyck said. “We are in an oligopolistic world now, and I think it’s unlikely that any airline mergers are just going to sail through.”

The airlines argued that any anticompetitive harms of the proposed acquisition would be offset, both by new entrants to the market and potential competitive benefits. They said in a statement that their merger is the “best opportunity to increase much needed competition and choice by bringing low fares and great service to more customers in more markets.”

‘Large Category’ of Flyers

Young’s ruling is a balanced opinion that tried to “give something to both parties,” Hay, from Cornell Law School, said.

Young did conclude that the combination of JetBlue and Spirit would place stronger competitive pressure on the larger airlines. But he found the merger would also harm vulnerable consumers such as college students seeking a cheap flight to a Spring Break destination, Hay said.

“These are the ones that would be adversely affected by this merger, even if lots of other airline passengers might be better off,” he said.

In his ruling, Young gave examples of the average Spirit consumer who could be harmed including “a college student in Boston hoping to visit her parents” in San Juan, Puerto Rico, and a “large Boston family planning a vacation to Miami that can only afford the trip at Spirit’s prices.”

“It is this large category consumers, those who must rely on Spirit, that this merger would harm,” Young said.

The judge’s decision comes out strongly in favor of the Justice Department by saying “even if this deal does some good, if it still harms some people trying to fly some routes, that’s enough,” said John Newman, professor at the University of Miami School of Law and a former trial attorney with DOJ.

“For people who have the means to fly any airplane in the world, they might sometimes fly one of these airlines just because it happens to be the most convenient,” Newman said. “But there are people who carefully budget out X amount of dollars for vacation, and if an airline ticket costs more than that amount, they cannot do the vacation. Those are the people who literally have no other option.”

Other Courts

The law is clear that if there is an anticompetitive effect found in one market, “that is enough to kill the deal,” Cornell’s Hay said.

However, district courts are rarely influential, and a different court with a different judge could have come up with an entirely different opinion, he said.

JetBlue could certainly appeal Young’s ruling, in hopes that an appellate court might side with it.

But appealing creates business risks for the airline, which would have to keep the deal offer open for another six months, he said. That comes as analysts are raising the possibility that without the deal, Spirit may be forced to file for bankruptcy and reorganize, or liquidate entirely.

“It’s a question of ‘Do you really want to keep this going, given the pretty low odds of being successful?’” Hay said. “It’s a combination of a legal and business decision. They’ve agreed to pay a lot of money for a company that may not be worth a lot in six months.”

The case is US v. JetBlue, D. Mass., No. 23-10511, 1/16/24.