The Justice Department and some state attorneys general on Tuesday sued to block JetBlue’s $3.8 billion purchase of ultra-low-cost Spirit Airlines, in an attempt to counter decades of industry consolidation and ensure Americans maintain access to cheaper fares.
Filed in Boston federal court, the lawsuit comes after an almost year-long investigation of the merger, which would create the fifth-largest U.S. airline, and alleges the deal would raise prices and reduce consumer choice in travel options. JetBlue and Spirit have argued that though the merger will mean fewer seats available to passengers, fares would remain low. Massachusetts, New York and the District of Columbia joined the suit.
In the lawsuit, DOJ says the merger would be especially harmful to “cost-conscious” travelers, and observed that it would remove 10 to 15 percent of seats “from every Spirit plane in operation today.”
“Fewer seats means fewer passengers—and higher prices for those who can still afford to make their way onto the plane. This is unlikely to stop business travelers flying on corporate expense accounts, but would put travel out of reach for many cost-conscious travelers,” the suit read.
The lawsuit opens a new high-stakes opportunity for the Biden administration to make good on its pledge to boost competition across the economy. DOJ scored a key victory last fall in blocking the merger of publishing giants Penguin Random House and Simon and Schuster. However, it also lost challenges to a health care technology deal, a merger of two sugar producers and a deal between two national security contractors.
The Department of Transportation is also weighing whether to intervene in the deal, according to two people familiar with the matter who were granted anonymity because they are not authorized to speak with the media. The agency has broad consumer protection authority which DOT could use to step in front of the merger, but the agency hasn’t made such a move in decades. DOT declined to comment about whether they planned to exercise this authority.
The lawsuit has been looming over the pending merger for months and has been expected since the companies inked their deal last June. The companies have pledged to defend the case in court, and while the lawsuit could take a year or more to play out, they have until the middle of next year to close the deal.
JetBlue and Spirit have argued that their deal would increase rather than harm competition, and that it is necessary in order to compete with bigger rivals American Airlines, United Airlines, Delta Air Lines and Southwest Airlines. But those arguments ultimately were not convincing enough to avoid a lawsuit.
In its suit, DOJ argued that the merger would “stop future competition before it starts,” noting that it could significantly curtail competition on routes from Florida to Puerto Rico and on some routes out of Boston. It also said the merger will remove an important check against “coordinated behavior by eliminating Spirit’s aggressive, disruptive business model from the marketplace and by placing all of Spirit’s planes and crews under JetBlue’s control.”
In an attempt to address DOJ’s concerns, JetBlue had offered to sell off the entirety of Spirit’s operations at Newark Liberty International Airport in New Jersey, New York’s LaGuardia Airport and Boston Logan International Airport in Massachusetts, as well as several slots at Fort Lauderdale-Hollywood International Airport in Florida.
Not on the table was an offer to abandon JetBlue’s Northeast Alliance with American Airlines, which allows the two airlines to largely combine operations at several major Northeast airports, which the DOJ challenged in court last year and is awaiting a ruling from a federal judge in Boston.
However, while the DOJ is concerned about the airlines’ overlapping routes in multiple markets, there was no amount of divestitures that would have made the department comfortable with the deal, according to a person with knowledge of the DOJ’s thinking.
JetBlue plans to redesign Spirit’s planes to be more like theirs, including removing seats, which will lead to higher ticket prices in order to recoup those losses, the DOJ said in its lawsuit. The DOJ is particularly concerned about the ability of low-income and working class consumers to fly if the deal were to go through. Spirit does not cater to business travelers, and while JetBlue historically has not either, it is attempting to make inroads in that lucrative market, particularly in the Northeast U.S. with its American partnership.
The DOJ challenged the American partnership as a de facto merger in the Northeast market and in combination with the Spirit deal, sees it as essentially a three-way merger on those routes.
According to the complaint, when Spirit enters a new market, or city pair, prices drop on average 17 percent across all airlines, and when it leaves a market, prices jump an average of 30 percent.
In a statement released on Monday, JetBlue said it is three times more effective in lowering fares than Spirit when it enters a new market.
The airlines maintain that despite flying planes with fewer seats, they will not have to raise fares. When asked for details about how the merger could drive down prices, JetBlue CEO Robin Hayes said in a recent interview with POLITICO that customers would still save because planes in the new, combined airline will spend more time in the air and less time on the ground.
“One of the benefits of bringing these two airlines together is we can increase the utilization of the airline,” Hayes said. “You have more options to fly that next route to increase the length of time in the day that you’re flying.”
In the same interview Spirit CEO Ted Christie acknowledged that fares on some routes could increase if the merger is approved. But he argued that the new airline would lead to decreased fare costs overall.
On Monday, Florida Attorney General Ashley Moody reached a settlement with the two airlines, including a commitment to bring new flights and jobs to the state.
Alex Daugherty contributed to this report.
