Justice Department sues to block JetBlue’s merger with Spirit Airlines

The Department of Justice filed a lawsuit on Tuesday to block the proposed merger between JetBlue and Spirit Airlines.

The $3.8 billion merger would create the nation’s fifth-largest airline and be the first U.S. airline merger since 2016, when Alaska Airways bought Virgin Atlantic.

At a Justice Department press conference, Attorney General Merrick Garland said the merger would hurt those who “can least afford to see travel costs go up”.

“Ultra-low-cost carriers like Spirit play a key role in the economy,” he said. “They’re making air travel possible so more Americans can take hard-earned family vacations or celebrate and mourn their loved ones together.”

Ahead of a DOJ lawsuit, JetBlue said a merger with Spirit would cut costs for customers.

“The big four airlines hold around 80% of the market,” the company said in a statement. “Combining JetBlue with Spirit allows it to create a compelling domestic challenger to these dominant airlines, while ensuring that (ultra low cost carrier) options remain available in overlapping markets.”

The company said it had already made changes before the merger and their routes did not overlap.

“JetBlue’s unique combination of low fares and great service is a competitive force that keeps traditional carriers on their toes and translates into lower fares,” the company said.

In the lawsuit filed in Massachusetts federal court, the Justice Department said allowing the merger would eliminate Spirit as “the largest and fastest-growing ultra-low-cost carrier in the United States.” “.

Spirit, the Justice Department said, allows cost-conscious Americans to travel, and by eliminating that business model, it hurts competition for consumers.

“If the acquisition is approved, JetBlue plans to discontinue Spirit’s business model, remove seats from Spirit’s aircraft, and charge higher prices to Spirit customers,” the lawsuit states. “JetBlue’s plan would eliminate the unique competition offered by Spirit – and about half of all ultra-low-cost airline seats in the industry – and leave tens of millions of travelers facing higher fares and less. Spirit itself put it simply: “An acquisition of Spirit by JetBlue will have lasting negative impacts on consumers.”

Spirit’s model of unbundling certain services like carry-on baggage allows consumers to choose what they want to pay for, which is their “secret weapon.”

“The rest of the industry – including JetBlue – has been forced to react to Spirit’s innovations and low prices. Spirit estimates that when it begins flying on a route, average fares drop 17%; JetBlue estimates that when Spirit stops flying on a route, average fares increase by 30%,” the lawsuit states. “The success of Spirit – and the reaction of other airlines – has led to the ‘Spirit effect’: when Spirit enters a new route, prices for consumers on all airlines tend to fall and demand air travel is increasing.”

The DOJ argues that Spirit serves a different demographic — families traveling for vacation, not those traveling for work or something else.

“The acquisition of JetBlue would also reduce competition with other airlines,” the lawsuit states. “Airlines don’t always compete as aggressively as they could. Sometimes they take advantage of opportunities to dampen competition through coordinated actions, such as ‘follow the leader’ price increases. that result in higher fares or reduced capacity “no obligation” to “follow the herd” when it comes to collective industry price increases. On the other hand, JetBlue has already demonstrated its willingness to follow some of these opportunities of coordination and would have increased incentives to do so if the acquisition materializes through.”

The acquisition would stunt Spirit’s growth and reduce the number of seats on Spirit’s planes, according to the DOJ. The department says when JetBlue entered the market it was the disruptor, but has now become a “close ally” of the Big Four airlines.

“Spirit’s strategy of focusing on cost-conscious travelers has prompted other airlines to follow suit by introducing their own fare options to better compete,” the suit reads.

The Department of Justice notes that JetBlue has tried to buy Spirit before – unsuccessfully in 2017 and 2019.

Garland said the Justice Department more broadly will always keep middle-class families in mind — especially when it comes to things like plane tickets.

“Threats to competition like those alleged here are particularly likely to harm working and middle-class families who may struggle to withstand the price increases that consolidation often brings. The department’s commitment to securing economic opportunity and fairness means we must keep these concerns top of mind. Keeping the economy open to all Americans, regardless of income level, is a priority across the department.”

The merger is illegal, said Justice Department third official Vanita Gupta, because it violated the Clayton Act.

“Indeed, under federal antitrust law, the transaction is presumed illegal on more than 150 routes and markets were JetBlue and Spirit Fly today. For years, the spirits business strategy, a unique business strategy, has acquired reputation as a disruptor in the commercial airline industry. Plagued by high concentration and old populist practices. Customers across the United States will benefit from an independent spirit. Simply put, where spirit is competing, other airlines including JetBlue are responding by vigorously competing and lowering airfare prices to lure customers in. After spending many years criticizing consolidation in the airline industry, JetBlue seems to have a change of heart.”

Senior Assistant Deputy Attorney General Doha Mekki of the Antitrust Division, whose division is suing, said a previous indictment with American Airlines disqualified JetBlue from a merger.

“Today, JetBlue has already dedicated 75% of its capacity to American Airlines, which we believe is hurting passengers. an offer.”

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