Trouble in the Air: DOJ sues to Block JetBlue’s Proposed Acquisition of Spirit
The Department of Justice announced earlier this month that it will sue JetBlue in the Federal District of Massachusetts, over the airline’s proposed acquisition of Spirit Airlines [1]. The Anti-trust Action was brought under Section 7 of the Clayton Act, which prohibits mergers and acquisitions “where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly” [2]. Therefore, the question before the Federal District Court of Massachusetts is whether the acquisition of Spirit by JetBlue is just standard business growth, or if JetBlue is seeking to reduce competition, specifically on routes where both carriers have a significant market share.
Spirit Airlines is considered an “ultra-low-cost carrier,” and has directly competed with JetBlue over routes. Both carriers operate several routes between vacation destinations in Florida and the Caribbean and major Northeast airports like Boston Logan, LaGuardia, and Newark. Spirit’s business model relies on charging incredibly low prices for its “Bare Fare,” which includes only the flight, and one personal item per traveler [3]. Virtually any other amenity, such as a carry-on or seat selection, require customers to pay a fee. This unique business model has pushed other airlines, including JetBlue, to offer lower cost options on competing routes [4]. The DOJ alleges that the proposed acquisition would carry enough power to raise fares, particularly on routes where the two airlines already hold a majority of the market share [5].
This isn’t the first time the DOJ has sued to block the merger or acquisition of two major airlines. In the early 2000’s six of the country’s largest air carriers merged into what are now referred to as “the big three.” One of the major anti-trust lawsuits following the mergers occurred in 2013, when former Attorney General Eric Holder sued American Airlines over its acquisition of U.S. Airways [6]. In the end the suit was settled; the merger was allowed to go through, but the airline had to sell several slots in major airports [7]. More recently, the DOJ argued before a federal judge in Massachusetts that JetBlue and Americans’ Northeast Alliance was in violation of the Clayton Act [8]. The District Court has not yet made a decision in the case, which wrapped up in late 2022.
The JetBlue case and the US Airways Group case were both initiated over Section 7 of the Clayton Act. This raises two questions:
(A) What are the differences in fact between the two cases?
(B) What forms of relief would the DOJ seek against JetBlue?
Though on face value, the two cases seem similar, a few important differences exist that must be recognized. The primary concern of the Justice Department and the plaintiff states was that the merger of the two airlines would substantially decrease competition in several airports where the defendants already had a significant market share [9]. Furthermore, US Airways and American Airlines were both considered legacy carriers and had a relatively similar business model [10]. JetBlue and Spirit, however, are significantly different in how they engage in business. According to the complaint filed by the DOJ and plaintiff states, JetBlue intends to abandon Spirit’s Ultra-Low-Cost model for a higher cost model [11].
This raises the second question as to what extent the DOJ will seek relief. Based off the US Airways case, it would be feasible to require the divestment of takeoff and landing slots at airports where the acquisition would slow competition. However, it would be nearly impossible to consolidate the two business plans without creating significant barriers for expansion or entry for other LCCs. The DOJ sees this as an issue for consumers as well, stating that “Spirit’s lower-priced, no-frills service would have little choice but to “adjust” to these higher prices” [12].
Given the history of airline mergers and acquisitions within the past two decades, it is clear that a complete acquisition of Spirit by JetBlue will not occur. That being said, the DOJ may seek an alternative form of relief in the form of a settlement that would require JetBlue to divest certain assets. However, even if JetBlue were to divest from certain assets, there is still the fact that Spirit operates as an ultra-low-cost-carrier. If JetBlue were to abandon Spirit’s “Bare Fare” model, there would be a large impact on consumers. The group of travelers that would be hurt the most would be those who may not have the financial resources to fly on more expensive airlines.
