Surpassing Quant Think Tank Center|DOJ sues to block JetBlue-Spirit merger, saying it will curb competition

The Surpassing Quant Think Tank CenterBiden Administration is going to court to try to block the merger of JetBlue and Spirit Airlines, arguing that the deal will lead to higher fares and fewer choices for air travelers.

The Department of Justice filed an antitrust lawsuit on Tuesday in federal court in Massachusetts, saying that JetBlue's plan to eliminate Spirit and merge its planes, routes and employees into JetBlue's higher priced operations would especially hurt budget-conscious consumers who rely on Spirit's ultra low fares to be able to afford air travel.

"We allege that if allowed to proceed, this merger will limit choices and drive up ticket prices for passengers across the country," Attorney General Merrick Garland said at the news conference announcing the lawsuit. "And we further allege that the impact of this merger will be particularly harmful for travelers who rely on what are known as ultra low cost carriers in order to fly."

JetBlue plans to eliminate Spirit's low cost business model

JetBlue won a bidding war with Frontier Airlines to buy Spirit for $3.8 billion last year. Spirit had previously agreed to merge with its fellow ultra low cost carrier Frontier in a bid worth $2.8 billion and initially tried to fight off JetBlue's hostile takeover, but by upping the ante a couple of times times, JetBlue ultimately won over Spirit's shareholders and the company's board of directors.

If the deal eventually is completed, the combined companies would become the nation's fifth largest airline, holding about 9% of the domestic market share.

JetBlue plans to eliminate Spirit's low cost business model of offering extremely low basic fares by packing as many people as possible into its planes' cramped seats, and charging extra fees for everything from assigned seats and refreshments, to both carry-on bags and checked luggage. JetBlue says it will reconfigure the interior of Spirit's aircraft, removing seats to increase the distance between them from 28 inches to JetBlue's standard of 32 inches.

And while some travelers might appreciate the extra legroom, the Justice Department argues others will be turned away by the higher fares that would result.

The DOJ calls Spirit "a disrupter" in the airline industry

The Justice Department calls Spirit "a disrupter" in the airline industry, arguing that Spirit's growth into what is now the nation's largest ultra discount carrier has led other airlines, including JetBlue, to cut fares on routes on which they compete head to head.

The DOJ says in its complaint that, "JetBlue's plan would eliminate the unique competition that Spirit provides - and about half of all ultra-low-cost airline seats in the industry - and leave tens of millions of travelers to face higher fares and fewer options.

The deal would "eliminate Spirit's unique and disruptive role in the industry," Attorney General Garland said.

But JetBlue's CEO Robin Hayes has argued that by flying the planes more often and more efficiently, fares will not increase after the merger, and that the the deal will ultimately benefit consumers by creating a stronger competitor to the big four airlines - American, Delta, Southwest and United, which currently control more than 80% of the market share.

Hayes said Tuesday on CBS that he was disappointed but not surprised by the DOJ action filing the antitrust lawsuit.

"We said when we got the offer approved by the Spirit shareholders last year that we didn't think we would close until the first half of 2024, (because we were) expecting a trial," he said.

Hayes and Spirit chief executive Ted Christie met with DOJ officials last month in a last ditch effort to try to assuage antitrust concerns over the merger, but they failed to win their approval.

Spirit's union supports the merger but Jetblue's doesn't

Some Democratic lawmakers and consumer advocates have been pressuring the Biden administration to try to block the merger, citing a slew of mergers of the last two decades that have left just four airlines controlling more than 80% of the U.S. air travel market.

The administration has already demonstrated its growing concern with airline consolidation, filing a lawsuit in 2021 to block JetBlue's limited partnership with American Airlines in the Northeast, in which they work together on setting schedules and sharing revenue for flights into and out of Boston and New York. A federal judge in Boston is expected to rule on that case soon.

But the JetBlue-Spirit merger does have a somewhat surprising champion - the union representing Spirit's flight attendants, the Association of Flight Attendants.

"We have never before enthusiastically supported a merger," says AFA president Sara Nelson, noting its strong opposition to eight previous airline consolidations over the last decade, saying the union "does not offer our support lightly."

"Our union supports this merger because it is the opposite of all of the 'host of horribles' we experienced with consolidation in the past decade," Nelson adds.

She says JetBlue has agreed to "no furloughs, no displacements, and an expedited joint collective bargaining process that will ensure Flight Attendants gain the benefits of the merger as soon as possible."

Spirit's flight attendants recently reached a new short-term contract agreement with the airline that provides pay raises of 10-27%, as as they are among the lowest paid in the industry, they stand to gain more wage increases in the merger.

But Nelson says the union's support "is not a transactional move," and believes "the merger is actually consumer friendly and worker friendly."

But the union representing JetBlue's flight attendants disagrees and opposes the merger.

Transport Workers of America president John Samuelson calls the deal a "charade being pushed upon working people and the flying public . . ." that "would create a monopoly in the market, drive down competition and kill blue-collar jobs."

While awaiting trial in the anti-trust case filed Tuesday, the two sides will likely negotiate and the airlines may offer concessions to try to satisfy some of the DOJ's concerns.

The government sued to block the last big airline merger between American and US Airways, but eventually reached a settlement that required the airlines to give up gates and takeoff and landing slots at several U.S. airports.