Loading...
In an ongoing antitrust trial in Boston, the U.S. Justice Department, along with six states and Washington D.C., is challenging JetBlue Airways Corp.’s $3.8 billion acquisition of Spirit Airlines Inc. The government contends that the deal is an attempt to eliminate a low-cost rival and raise ticket prices across a broader network of flights.
The Battle Begins: Opening Statements
During the trial’s opening statements, DOJ attorney Arianna Markel argued that JetBlue’s intention in acquiring Spirit is to stifle competition, leading to fare hikes that would negatively impact consumers. She stated, “JetBlue is counting on the fact that eliminating Spirit and the competition Spirit provides will allow JetBlue to increase fares.” The overarching goal of the merger, Markel continued, is to create “a bigger, turbo-charged JetBlue.” Nevertheless, she pointed out that “bigger isn’t always better.”
Want to know if you’re earning what you deserve? Find out with LawCrossing’s salary surveys.
In response, JetBlue’s attorney, Ryan Shores, dismissed the government’s objections as “misguided.” Shores asserted that the merger is necessary for the two smaller carriers to compete effectively against their larger rivals.
A History of Airline Consolidation
Get JD Journal in Your Mail
Subscribe to our FREE daily news alerts and get the latest updates on the most happening events in the legal, business, and celebrity world. You also get your daily dose of humor and entertainment!!
The case highlights the federal government’s ongoing efforts to scrutinize airline consolidation after years of lax enforcement, which resulted in the nation’s four biggest airlines—American Airlines Group Inc., Delta Air Lines Inc., United Airlines Holdings Inc., and Southwest Airlines Co.—controlling 80% of the market.
Key Arguments in the Trial
A significant point of contention in the trial is JetBlue’s internal projections. Markel argued that these projections reveal that the merger would result in fewer planes, fewer seats, and higher fares. She highlighted JetBlue’s plans to reduce capacity by removing 10% to 15% of available seats, projecting a 30% fare increase after Spirit’s exit.
Markel also explained the “Spirit effect” on routes, where the average fares drop by 20% due to the competition provided by Spirit. She further contended that it’s unlikely that other ultra-low-cost carriers would replace Spirit, given that Spirit accounts for approximately 50% of this market segment.
“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,” Markel warned. “Higher fares will mean that some people won’t be able to afford to fly at all.”
Investor Skepticism
Investors have been skeptical about the deal’s completion, as the wide gap between Spirit’s share price and JetBlue’s offer more than a year ago suggests uncertainty. Spirit’s fourth-quarter revenue forecast missed estimates, leading to a decline in its stock price by as much as 13% on a single day. The stock had fallen more than 40% that year.
JetBlue’s Defense
JetBlue’s attorney, Ryan Shores, rejected that the merger would harm competition. He argued that this lawsuit marked the first time the government had challenged a merger of two small airlines on antitrust grounds. Shores stated, “The stark division between industry haves and have-nots is bad for competition and consumers.” He believes that the merger would lead to JetBlue becoming a disrupter nationwide, benefiting consumers.
Shores also emphasized that JetBlue and Spirit only account for 8% of the industry’s revenue. He pointed out that the real competitors for JetBlue are legacy airlines such as Delta, American, and United, which collectively operate over 4,000 aircraft.
The Path Forward
Even if the merger is approved, JetBlue’s market share would increase only from 5% to 7%, allowing it to expand its presence in the western U.S. and compete more effectively with larger carriers. Shores emphasized that there is nothing anticompetitive about JetBlue charging prices commensurate with its value, and it will continue to offer a budget-friendly option for customers who seek it.
The Challenge for Spirit Airlines
Attorney Jay Cohen, representing Spirit, explained that Spirit had been pursuing a merger since 2016, discussing possibilities with other airlines. However, no financial plan would enable Spirit to become large enough to compete effectively with the major carriers.
Divestiture Controversy
JetBlue has proposed selling flight slots and gates at certain airports to ultra-low-cost carriers to address antitrust concerns. However, the government contends that these divestitures are insufficient to restore lost competition fully.
The Trial’s Verdict
The trial, presided over by U.S. District Judge William G. Young without a jury, will ultimately decide whether the merger can proceed. The outcome of this case could have a significant impact on the future of airline competition in the United States.
Don’t be a silent ninja! Let us know your thoughts in the comment section below.
