JetBlue – Spirit Airlines Merger Blocked

A federal judge in Boston ruled in favor of the US Justice Department, which sued to block the proposed merger of Spirit Airlines into JetBlue on anti-competitive grounds. US District Judge William Young said that the proposed merger “does violence to the core principle of antitrust law: to protect the United States’ markets–and its market participants– from anticompetitive harm.”

In his opinion, the judge stated “a post-merger, combined firm of JetBlue and Spirit would likely place stronger competitive pressure on the larger airlines in the country. At the same time, however, the consumers that rely on Spirit’s unique, low-price model would likely be harmed.”

The Department of Justice and state attorneys general from six states and the District of Columbia had argued the deal would lead to fewer flights and higher prices for millions of Americans, extinguishing a vital source of low cost competitive disruption along more than 375 routes, causing nearly $1 billion of net harm to consumers annually.

This leaves JetBlue with a need to change its growth strategy just as Joanna Geraghty takes over from Robin Hayes as CEO, who is retiring next month. With Airbus having a 7-8 year backlog for new aircraft, the merger was the fastest way for JetBlue to acquire A320neo aircraft powered by the same GTF engines to maintain fleet commonality from Spirit. That plan is now moot.

Spirit has not been performing well post-pandemic, and its shares will likely take a major hit given that the deal is now off the table. Frontier Airlines was another potential suitor with a similar ultra low cost al a carte business model that was outbid by JetBlue, and could come back after Spirit.

After years of consolidation in the airline industry, this merger of two very different types of carriers, was shown to shift competition away from low priced consumers, which was its competitive downfall.

The Bottom Line:
This is not good news for Spirit, which has been faltering in recent months, but may be viewed as good news for JetBlue, which won’t be overpaying for Spirit, given their high bid when compared with Frontier’s.  JetBlue’s growth ambitions are put on hold, but not likely finished. Stay tuned.

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