JetBlue, Spirit merger hits snag as DOJ sues to block it

The proposed $3.8 billion merger agreement between JetBlue and Spirit Airlines faces a major new challenge as the U.S. Department of Justice announced March 7 it was filing a civil antitrust lawsuit to block the move, which would create the nation’s fifth largest airline.

The merger, announced last July, would result in a combined airline with a fleet of 458 aircraft serving a combined 77 million customers.

The Justice Department, along with attorney generals of Massachusetts, New York and the District of Columbia, allege in a complaint that the two airlines are fierce competitors in the sector and that eliminating that competition will further consolidate the nation’s airline industry, resulting in increased fares and reduced choices for travelers.

The complaint alleges that Spirit’s low-cost, no-frills flying option has led to lower fares and more options making it possible for more Americans to travel. And officials say eliminating that “Spirit Effect,” which forces other carriers to lower their fares, would decimate the ultra-low-cost capacity in the U.S.

“As our complaint alleges, the merger of JetBlue and Spirit would result in higher fares and fewer choices for tens of millions of travelers, with the greatest impact felt by those who rely on what are known as ultra-low-cost carriers in order to fly,” said U.S. Attorney General Merrick Garland. “Companies in every industry should understand by now that this Justice Department will not hesitate to enforce our antitrust laws and protect American consumers.”

“Ultra-low-cost carriers make air travel possible so more Americans can take a much-needed family vacation or celebrate or mourn together with loved ones,” said Associate Attorney General Vanita Gupta. “We allege that the proposed merger would lead to fewer seats and higher prices for travelers.”

Under Section 7 of the Clayton Act, the complaint alleges that Spirit has been an industry disruptor that has helped forced larger airlines to compete for customers by introducing innovative products and services, such as introducing unbundled, customizable ticket options and lowering its own fares. The complaint further alleges that if this acquisition is allowed to proceed, prices would increase on routes where the two airlines currently compete, especially on the more than 40 direct routes where the two companies’ combined market shares are so high that the deal is presumptively anticompetitive.

Moving ahead

Not surprisingly, the two airlines have a much different take on things.

JetBlue and Spirit say that their merger would boost competition nationally, and essentially create the opportunity to put JetBlue’s increased legroom and free amenities on Spirit aircraft, creating more low-fare, great experience options for travelers.

Under the proposed agreement, JetBlue would pay $33.50 per share in cash, which included a prepayment of $2.50 per share in cash and a ticking fee of $0.10 per month that began in January through the closing, which the airlines had hoped would take place no later than the first half of 2024.

However, if the deal is rejected for antitrust reasons, JetBlue will pay Spirit a reverse break-up fee of $70 million and pay Spirit stockholders a reverse break-up fee of $400 million, minus any amounts paid to them prior to termination.

The two airlines say they will press on with their plan to create a national challenger to the Big Four airlines.

“Customers deserve a competitive airline marketplace, and we will pursue this merger to ensure they get it, continuing to disrupt the legacy airlines with low fares and award-winning service that even the DOJ has applauded,” said JetBlue CEO Robin Hayes in a statement. “We believe the DOJ has got it wrong on the law here and misses the point that this merger will create a national low-fare, high-quality competitor to the Big Four carriers which – thanks to their own DOJ-approved mergers – control about 80% of the U.S. market. There is too much at stake for the DOJ to prevent us from bringing the JetBlue difference to more customers in more markets.”

“We disagree with the DOJ’s decision to seek to block the proposed merger, which will benefit consumers and employees,” said Spirit CEO Ted Christie. “We will vigorously defend our position that a combined JetBlue and Spirit will be a game changer for customers nationwide, creating the most compelling national low-fare challenger to the dominant U.S. carriers. Together, we intend to democratize flying for travelers across the country – a goal we believe is worthy of the government’s support.”

Here in New Jersey, JetBlue operates out of Newark Liberty International Airport in Terminals A and B while Spirit operates in Terminal B. Additionally, Spirit is the only airline operating out of Atlantic City International Airport.