UPDATED: 07 MAR 2023 02:38 PM EST
The departments of Justice and Transportation on Tuesday launched a two-pronged attack on JetBlue’s $3.8 billion purchase of ultra-low-cost Spirit Airlines — an aggressive effort intended to counter decades of airline industry consolidation and ensure Americans maintain access to cheaper fares.
That includes a DOJ lawsuit filed in federal court against the proposed merger, which would create the fifth-largest airline. Its suit alleges that the deal would raise prices and reduce consumer choice in travel options. JetBlue and Spirit have argued that though the merger will mean fewer seats available to passengers, fares would remain low. Attorneys general in Massachusetts, New York and the District of Columbia joined the suit.
At the same time, DOT announced it will deny a request for the airlines to begin operating as a combined entity before the merger closes, though it is still investigating a separate request that would allow them to permanently merge. This represents a forceful and unusual step for an agency whose chief, Transportation Secretary Pete Buttigieg, has faced GOP accusations of being slow to respond to a train derailment in East Palestine, Ohio — and may help to soothe critics who say that his agency has been too cozy with the airline industry. It also represents a significant test for using DOT's public interest powers in this manner and is likely to provoke countersuits from the airlines.
In an appearance Tuesday on CNN, Buttigieg acknowledged the unusual step his department is taking, saying DOT has "generally not gotten involved in these merger cases, but that's changing today. It is so important to make sure that passengers have choices, that they have access to low fares and that they have access to competition, and yet we've seen less and less and less of that competition over the years."
"We've had a lot of authorities when it is comes to competition, but frankly over recent years the Department of Transportation hasn't used those authorities very much. I think that it needs to change," Buttigieg continued.
In the lawsuit, DOJ says the merger, which will remove seats from every plane Spirit operates, would be especially harmful to "cost-conscious" travelers. "Fewer seats means fewer passengers — and higher prices for those who can still afford to make their way onto the plane," the suit read.
The dual moves open a new high-stakes opportunity for the Biden administration to make good on its pledge to boost competition across the economy. DOJ scored a key victory last fall in blocking the merger of publishing giants Penguin Random House and Simon and Schuster. However, it also lost challenges to a health care technology deal, a merger of two sugar producers and a deal between two national security contractors.
"Threats to competition like those alleged here are particularly likely to harm working- and middle-class families, who may struggle to withstand the price increases that consolidation often brings," Associate Attorney General Vanita Gupta said at press conference on Tuesday. "The department’s commitment to ensuring economic opportunity and fairness means holding those concerns in the front of our minds."
The lawsuit has been looming over the pending merger for months and has been expected since the companies inked their deal last June. The companies have pledged to defend the case in court, and while the lawsuit could take a year or more to play out, they have until the middle of next year to close the deal.
JetBlue and Spirit have argued that their deal would increase rather than harm competition, and that it is necessary in order to compete with bigger rivals American Airlines, United Airlines, Delta Air Lines and Southwest Airlines. But those arguments ultimately were not convincing enough to avoid a lawsuit.
In its suit, DOJ argued that the merger would "stop future competition before it starts," noting that it could significantly curtail competition on several routes. It also said the merger will remove an important check against "coordinated behavior by eliminating Spirit’s aggressive, disruptive business model from the marketplace and by placing all of Spirit’s planes and crews under JetBlue’s control."
Last year, Spirit attempted to merge with fellow low-cost carrier Frontier but failed to drum up enough shareholder support for the deal. In the complaint, DOJ noted that aviation and economic consultants hired by Spirit warned against the transaction and included an image of a slide that Spirit presented to shareholders warning against a potential Spirit-JetBlue merger.
While there are other ultra low cost carriers in the market, they won't be able to fill Spirit's void. Allegiant and Frontier's limited frequency "makes it difficult for them to gain traction in new markets, which in turn limits their ability to effectively compete," the DOJ wrote in its complaint.
JetBlue was also in the early stages of competing with Spirit's business model, which the suit highlights. "The new unbundled 'Blue Basic' fare gave customers greater choices for which features they wanted to pay JetBlue. This allowed JetBlue to compete more effectively with Spirit for '[h]ighly price-conscious travelers … [who had shown] they [were] willing to give up some of the experience for the lowest fares possible,'" the suit read.
In an attempt to address DOJ’s concerns, JetBlue had offered to sell off the entirety of Spirit’s operations at Newark Liberty International Airport in New Jersey, New York’s LaGuardia Airport and Boston Logan International Airport in Massachusetts, as well as several slots at Fort Lauderdale-Hollywood International Airport in Florida.
Not on the table was an offer to abandon JetBlue’s Northeast Alliance with American Airlines, which allows the two airlines to largely combine operations at several major Northeast airports, which the DOJ challenged in court last year and is awaiting a ruling from a federal judge in Boston.
However, while the DOJ is concerned about the airlines’ overlapping routes in multiple markets, there was no amount of divestitures that would have made the department comfortable with the deal, according to a person with knowledge of the DOJ’s thinking.
The DOJ challenged the American partnership as a de facto merger in the Northeast market and in combination with the Spirit deal, sees it as essentially a three-way merger on those routes.
According to the complaint, which cites the companies' internal documents, when Spirit enters a new market, or city pair, prices drop on average 17 percent across all airlines, and when it leaves a market, prices jump an average of 30 percent.
In a statement released on Monday, JetBlue said it is three times more effective in lowering fares than Spirit when it enters a new market.
The airlines maintain that despite flying planes with fewer seats, they will not have to raise fares. When asked for details about how the merger could drive down prices, JetBlue CEO Robin Hayes said in a recent interview with POLITICO that customers would still save because planes in the new, combined airline will spend more time in the air and less time on the ground.
“One of the benefits of bringing these two airlines together is we can increase the utilization of the airline,” Hayes said. “You have more options to fly that next route to increase the length of time in the day that you’re flying.”
In the same interview Spirit CEO Ted Christie acknowledged that fares on some routes could increase if the merger is approved. But he argued that the new airline would lead to decreased fare costs overall.
On Monday, Florida Attorney General Ashley Moody reached a settlement with the two airlines, including a commitment to bring new flights and jobs to the state.
Mia McCarthy contributed to this report.
