DOJ Seeks to Block Spirit-JetBlue Merger

The Department of Justice announced earlier this week it is challenging the proposed merger between Spirit Airlines and JetBlue.

The suit, filed in a federal circuit court in Massachusetts, claims the airlines’ proposed merger violates Section 7 of the Clayton Act’s prohibition on mergers whose effect “may be substantially to lessen competition, or to tend to create a monopoly.”

The two airlines agreed to merge last July after JetBlue purchased the ultra-low-cost carrier for $3.8 billion. Together, the two would form the nation’s fifth-largest air carrier. While a merger-boosting site claims JetBlue’s acquisition would create “a national, customer-centric, low-fare alternative” to the four legacy carriers, the Department of Justice claims it would “leave tens of millions of travelers to face higher fares and fewer options.”

Spirit, the nation’s largest ultra-low-cost air carrier, is one of JetBlue’s largest competitors. The airline had nearly doubled the size of its network over the past decade, and was expected to expand to popular tourist destinations such as Orlando and Los Angeles in the coming years, which the Justice Department called “focus cities” for JetBlue.

The Department alleges JetBlue intends to use the merger to shield itself from competition and potentially increase ticket prices. Its evidence includes JetBlue’s plans to retrofit Spirit aircraft to match JetBlue’s template, reducing the number of seats by between 10 and 15 percent, and competitive overlap on routes such as Boston-to-Miami/Fort Lauderdale and Boston-to-San Juan, where the two carriers together command 50 and 90 percent of the flights, respectively.

On those and other routes where the two carriers command large shares of the existing market, the merger could result in substantial price increases and take away a low-cost alternative for lower-income passengers. Internal estimates suggest that Spirit’s presence on a route drops competitors’ fares by about 17 percent, and according to JetBlue, when Spirit stops flying a given route, competitors raise their fares by about 30 percent.

Without Spirit, those routes could become effectively monopolized by JetBlue. And even if legacy carriers eventually move in, the Department claims JetBlue has demonstrated its willingness to engage in tacit collusion with other airlines through informal mechanisms such as “follow-the-leader” price increases. Spirit, by contrast, has largely kept its prices low when other airlines engage in such cooperation.

By shunning many of the perks of traditional air travel, Spirit has kept its prices low, and established itself as the nation’s eighth-largest firm in a notoriously concentrated airline industry. The proposed merger would further entrench the power of the industry’s established players and hurt the downscale passengers who rely on Spirit’s low fares to attend weddings, reunions, and funerals. Antitrust law exists for cases like this.

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