The Justice Department sues to block acquisition of Spirit Airlines by JetBlue Airways, citing that the result would harm travelers in the United States due to further concentration and consolidation of the commercial aviation industry, which would result in higher fares and fewer choices across the country for tens of millions of travelers.
Justice Department Sues to Block Acquisition of Spirit Airlines By JetBlue Airways
Along with the attorneys general of the Commonwealth of Massachusetts, the state of New York, and the District of Columbia, the Department of Justice of the United States filed a civil antitrust lawsuit on Tuesday, March 7, 2023 to block the proposed $3.8 billion acquisition of Spirit Airlines, Incorporated by JetBlue Airways Corporation, alleging that the low-cost, no-frills flying option of Spirit Airlines has resulted in lower fares and more options to routes across the country and allowing for more Americans — particularly price sensitive consumers who pay their own fares — to travel.
“JetBlue’s acquisition of Spirit would eliminate the ‘Spirit Effect,’ where Spirit’s presence in a market forces other air carriers, including JetBlue, to lower their fares. The deal also would eliminate half of the ultra-low-cost capacity in the United States. This will lead to higher fares and fewer seats, harming millions of consumers on hundreds of routes”, according to this official press release from the Department of Justice of the United States. “The complaint, which seeks to block the acquisition under Section 7 of the Clayton Act, alleges Spirit has been a particularly disruptive force, growing rapidly, introducing innovative products, and allowing customers to choose which services to purchase, all while charging customers very low fares. Spirit has forced larger airlines, particularly the already-low-cost JetBlue, to compete for customers by introducing unbundled, customizable ticket options and lowering their own fares, allowing more Americans to travel. If the acquisition is allowed to proceed, prices would increase on routes where the two airlines currently compete. This is particularly the case on the over 40 direct routes where the two companies’ combined market shares are so high that the deal is presumptively anticompetitive.”
Brief History of the Proposed Acquisition of Spirit Airlines
A definitive merger agreement between Frontier Group Holdings, Incorporated and Spirit Airlines, Incorporated — which are the respective parent companies of Frontier Airlines and Spirit Airlines — was announced on Monday, February 7, 2022; and it would have resulted in the creation of the fifth largest airline in the United States once the merger is completed. The agreement was not fulfilled because the board of directors at Spirit Airlines voted on terminating its merger with Frontier Airlines, as they apparently wanted what they considered to be a superior offer from JetBlue Airways.
In a surprise move on Tuesday, April 5, 2022, JetBlue Airways confirmed that a proposal has been submitted to the board of directors of Spirit Airlines with the intent to acquire the airline for $33.00 per share in cash, which implies a fully diluted equity value of $3.6 billion and providing full and certain value to the shareholders of Spirit Airlines.
In 2022:
- JetBlue Airways flew greater than 39 million passengers to approximately 107 destinations around the world, earning approximately $9.1 billion in revenue.
- Spirit Airlines flew greater than 38 million passengers to approximately 92 destinations in North America and South America, earning approximately $5 billion in revenue.
Why This Is Important To You
With the consolidation of airlines over the years, airfares have generally increased — and not just due to the cost of inflation. When fewer choices are available, suppliers of products and services have more leeway to increase prices, reduce benefits and services — or both.
As airfares have been more expensive since the advent of the 2019 Novel Coronavirus pandemic — which caused people to want to travel again after being isolated or quarantined for months — ultra-low-cost carriers have become more important in providing transportation to cost conscious passengers who are on a budget, which includes college students, single parents, and senior citizens on fixed incomes.
Spirit Airlines has roughly doubled its network in size during the past ten years and was expected to continue expanding at a rapid pace — but this acquisition may stop this future competition before it starts.
Although it was once a preferred airline, a growing number of consumers, passengers, and frequent fliers have been complaining more about JetBlue Airways in recent months. Take away the option of Spirit Airlines, and the only airlines left besides the legacy carriers are Frontier Airlines and Southwest Airlines.
“If allowed to eliminate the Spirit option, JetBlue would likely increase prices on every route where Spirit flies today”, according to the aforementioned press release. “As a result, travelers who previously preferred Spirit’s lower-price, no-frills service would either have to pay more for amenities they do not want, or may no longer be able to afford to travel at all.”
JetBlue Airways has pledged significant growth in Los Angeles, Fort Lauderdale, and Orlando — by increasing the number of flights in Orlando from 77 daily departures to 200 daily departures in fewer than five years — if its acquisition of Spirit Airlines is approved and permitted to proceed.
Other Controversial Business Developments With JetBlue Airways
In a different development, the Department of Justice of the United States — along with attorneys general in Arizona, California, Florida, Massachusetts, Pennsylvania, Virginia, and the District of Columbia — filed a lawsuit in the District of Massachusetts on Tuesday, September 21, 2021 to block an unprecedented series of agreements between American Airlines and JetBlue Airways through which the two airlines intend to consolidate their operations in Boston and New York into what has been called the Northeast Alliance.
Although JetBlue Airways and Qatar Airways have been partners since 2011 and announced the intent to expand their existing partnership to offer their customers even more benefits than they currently enjoy, Emirates Airline has also been one of the official codeshare partner airlines of JetBlue Airways for years — and some people were outraged pertaining to the announcement from the General Services Administration of the United States that it awarded the government contract for 2016 on the Washington-Dubai route to JetBlue Airways because JetBlue Airways does not actually offer service to Dubai from the United States. Rather, Emirates Airline was solely operating this route carrying an estimated 15,000 government employees of the United States, which includes active duty military personnel whose official travel is funded by taxpayers of the United States.
Moreover, a second government contract was reportedly awarded to JetBlue Airways for service between New York and Milan — even though JetBlue Airways does not actually offer service to Milan from the United States — and once again, Emirates Airline was actually the beneficiary of that contract, as it is the airline which operates service for that route as an official codeshare partner with JetBlue Airways.
Final Boarding Call
Is JetBlue Airways “doubling down on consolidation, seeking to acquire and eliminate its main ultra-low-cost competitor, depriving travelers of yet another choice”? Perhaps. Is the airline engaging in what may be considered questionable business practices? That is debatable.
The chief executive officers of American Airlines and United Airlines reportedly joined the chief executive officer of JetBlue Airways in opposing the lawsuit. Could that be a subtle indication of possible collusion?
“JetBlue and Spirit compete fiercely today on hundreds of routes serving millions of travelers”, according to the aforementioned press release pertaining to the Justice Department sues to block acquisition of Spirit Airlines by JetBlue Airways. “By eliminating that competition and further consolidating the United States airlines industry, the proposed transaction will increase fares and reduce choice on routes across the country, raising costs for the flying public and harming cost-conscious fliers most acutely.”
That scenario is possible but not definite. Although some benefits can be realized from this acquisition — such as a larger network and possibly more flights — this development is worth following, as it could affect you financially and in terms of benefits and convenience pertaining to commercial aviation in the United States…
All photographs ©2014, ©2018, and ©2022 by Brian Cohen.
