Mergers among U.S. airlines in recent decades have left passengers with fewer air travel choices. The Justice Department is taking a step for the first time on Tuesday to stop the number of industry players from shrinking further: It’s bringing its case to a judge. A trial is set to begin in U.S. District Court in Boston focused on JetBlue Airways’ $6.8 billion bid for rival Spirit Airlines. It would mark the first time regulators have gone to court to stop a merger between two U.S. carriers, coming as four carriers dominate the domestic market.
The Justice Department has challenged previous mergers — most notably in 2013 when American Airlines and US Airways combined to create the world’s largest carrier — but the cases were settled before a trial. JetBlue has offered concessions, but regulators argued in court filings they fall short and are moving to block a proposal to create the fifth-largest domestic airline. The effort is the latest from the Biden administration to apply stricter enforcement to the nation’s antitrust laws.
“This is a different DOJ,” said William J. McGee, a consumer advocate and senior fellow for aviation and travel at the American Economic Liberties Project. “In my lifetime, in this industry, we have never seen the DOJ be so aggressive on the airline front.”
JetBlue’s bid — which would create the first airline merger in seven years — comes after the Justice Department has challenged proposed deals in a range of industries, including technology, health care and publishing. A Justice Department lawsuit against Google, the first antitrust case filed against a tech company in more than 20 years, is underway in a federal courtroom in Washington.
While the administration’s results have been mixed — regulators successfully blocked a merger in the publishing industry but lost a bid to stop another between two health-care companies — the strategy points to a willingness to cite more novel theories of harm to consumers and workers, said Diana Moss, vice president and director of competition policy at the Progressive Policy Institute.
Ultimately, the question of whether JetBlue will merge with Spirit will fall to U.S. District Court Judge William G. Young, who is scheduled hear arguments during a trial expected to last about three weeks. The Justice Department is joined in the suit by attorneys general in six states and the District.
The trial will begin months after the Justice Department won an antitrust case in the same Boston court that also involved JetBlue. In his ruling, District Court Judge Leo T. Sorokin ordered American and JetBlue to dismantle an alliance that allowed them to coordinate schedules and share revenue on certain routes in the Northeast. The airlines argued unsuccessfully they needed to combine operations to compete with larger carriers.
While making its case for the Spirit merger, JetBlue is offering arguments similar to those it made to justify its American alliance.
“We look forward to presenting our case in court as we strongly believe our combination with Spirit is the best opportunity to disrupt the industry by increasing competition and choice, creating a long overdue national low-fare challenger to the dominant Big Four airlines,” JetBlue said in a statement.
The Justice Department didn’t respond to a request for comment about the case.
According to a Justice Department filing in the Northeast Alliance case, the four largest airlines had 55 percent of the domestic air travel market in 2000, while a dozen smaller carriers competed for the rest. Today, the top four U.S. airlines account for 80 percent of the market, with the number of smaller competitors dwindling.
“Organic growth of the sort needed to mount a national challenge to the legacies would take decades,” JetBlue argued in court filings. “JetBlue’s merger with Spirit would turbocharge JetBlue’s growth and create a strong fifth national player in the domestic airline market.”
That growth will result in lower fares and higher quality, while still offering the “no-frills service” some travelers prefer, JetBlue’s attorneys said.
The Justice Department contends a merger would lead to fewer flight options, particularly for cost-conscious customers who prefer Spirit’s business model of low ticket prices and extra costs for choosing a seat ahead of time or bringing a carry-on bag. In court filings, regulators noted Spirit has developed a loyal following.
“The proposed acquisition would eliminate Spirit, a disruptive and innovative competitor and reduce consumer choice in hundreds of markets that it serves today or would serve in the future,” the Justice Department argued in court filings, adding that JetBlue planning documents show a merger would result in fewer seats and higher prices in markets Spirit currently serves.
A wave of airline mergers in the years after the Sept. 11, 2001, attacks saw the disappearance of Northwest Airlines, Continental Airlines and US Airways. The last major domestic airline merger occurred in 2016, when Virgin America was acquired by Alaska Airlines, which outbid JetBlue.
Consumer advocates say the disappearance of smaller carriers has led to an oligopoly, in which a market is dominated by a few large companies. Those concerns were amplified by airlines’ pandemic-era performance, a time when they received $50 billion in government grants and loans to maintain operations but weren’t prepared to handle a surge in travel demand.
Those disruptions spurred calls for new consumer protections and penalties for carriers that don’t meet obligations. The Transportation Department has launched several investigations during the pandemic, including into whether Southwest Airlines knowingly scheduled more flights than it could operate amid a massive breakdown in December 2022. The Biden administration also said it would propose regulations to force airlines to compensate customers for more than the cost of their ticket when flights are canceled or substantially delayed.
Labor unions are split on a merger between Spirit and JetBlue, while the proposal has put consumer advocates in the unusual position of advocating for an airline they have long blasted for its business model and treatment of customers.
“The list of problems with Spirit is a long one, but the answer is not for it to go away,” McGee said. “We’d like to see Spirit become a better airline and improve.”
He said travelers might not realize they benefit from Spirit’s presence regardless of whether they fly the airline, because it forces competitors to lower prices.
John Breyault, vice president of public policy, telecommunications and fraud at the National Consumers League, said most important is whether consumers have choices.
“What needs to exist is competition,” he said. “Say what you want about Spirit and other low-cost carriers, but they have had an impact on prices that consumers pay.”
Craig Minerva, a partner with Axinn, Veltrop & Harkrider and a former lead attorney in the Justice Department’s antitrust division, said while lawyers have made a strong case for why the merger shouldn’t be approved, one hurdle is the carriers’ size, adding that a merger of small rivals is “very rarely an antitrust problem, if ever.
Henry Harteveldt, an aviation analyst and president of Atmosphere Research, said despite its size, Spirit has proved to be a formidable competitor to larger rivals because it has gone head-to-head with the major players. Unlike other ultra-low-cost carriers that focus on serving smaller airports, Spirit has muscled into major terminals like Chicago’s O’Hare International, Dallas-Fort Worth International and Houston’s Bush Intercontinental, forcing larger carriers to compete on prices.
However, he said if the government is worried about concentration in the market, it would be better served by focusing on strategies that help smaller carriers become stronger competitors.
“If the government is worried about concentration in the industry, it should be more worried at the concentration at the higher levels,” he said. “To counter that, they need to help other airlines become larger and become more of a competitor to the ‘Big Four’ carriers.”
Some Spirit customers said they worry the loss of the discount carrier could mean fewer flights.
Tyler Dunbrack, 30, recently drove three hours to Baltimore-Washington International Marshall Airport from Harrisburg, Pa., because Spirit’s $300 round-trip fare to Las Vegas was the best option he and friend Tiffany Stagg, 27, could find.
“It’s like the Greyhound of flying,” Dubrack said. Stagg said she worries that if Spirit disappears, fewer people would be able to afford air travel.
Even Elizabeth Jackson-D’Ambrosi and her husband, Fred, who vowed never to fly Spirit again after it canceled their flight to San Antonio earlier this month, said competition in the industry is important. The couple ended up paying more than $1,200 — nearly three times the cost of their original Spirit tickets — to rebook on United.
“I don’t want to just have a few choices,” Elizabeth Jackson-D’Ambrosi said.
The deal between JetBlue and Spirit was finalized in July 2022. Spirit had announced plans to merge with Frontier Airlines before JetBlue swooped in with its surprise offer.
Spirit initially resisted JetBlue’s overtures, arguing a merger with the New York-based carrier was unlikely to win regulatory approval. But ultimately, the low-cost carrier was unable to persuade enough of its shareholders to spurn the JetBlue offer. A combination of Frontier and Spirit would have eclipsed JetBlue to become the nation’s fifth-largest carrier.
Robin Hayes, JetBlue’s chief executive, has said he expects the deal to close in early 2024. If it doesn’t win approval for the merger, JetBlue would have to pay a $70 million fee to Spirit and $400 million in fees to Spirit shareholders.
This article originally appeared on the Washington Post.
Photo: Wilfredo Lee/AP
Comments