Justice Dept. set to block JetBlue-Spirit merger, citing consumer harm


“No one is paying attention to the fact these lower-cost airlines are being forced to be higher-cost airlines.”

A JetBlue Airways Airbus A320 passes a Spirit Airlines Airbus A320 as it taxis on the runway, July 7, 2022, at the Fort Lauderdale-Hollywood International Airport in Fort Lauderdale, Fla. Wilfredo Lee/AP

The Justice Department is expected to file suit to block a merger between JetBlue Airways and Spirit Airlines, citing the possibility of higher fares and fewer consumer choices in an industry that has seen waves of consolidation over the years, according to several people familiar with the matter.

  • Mass. man allegedly tried to stab flight attendant, open emergency exit on Boston-bound plane

  • Two United planes ‘made contact’ at Logan Airport

The challenge, which could come as early as Tuesday, will argue that the $3.8 billion deal will be particularly harmful for price-sensitive consumers who have come to depend on Spirit’s low fares. Travelers who don’t fly Spirit could also lose out, the people said the DOJ will argue, because JetBlue plans to reconfigure Spirit’s planes to reduce the seat count while eliminating an aggressive competitor with a history of lowering fares in markets with larger airlines – including price battles with JetBlue.

The case is the latest example of the Biden administration’s efforts to fight consolidation after challenging proposed mergers in key industries, including publishing, health care and technology. The federal government’s expected attempt to block the merger comes as high-profile service disruptions have raised concerns about whether the industry has become too concentrated.

After years of bankruptcies and airline mergers, four domestic carriers – American Airlines, Delta Air Lines, United Airlines and Southwest Airlines – account for about 80 percent of the market. JetBlue is the sixth-largest U.S. carrier, while merging with Spirit would make it fifth.

On Monday, amid speculation that a DOJ suit was forthcoming, JetBlue released updated data to boost its case for a merger. The airline said a larger JetBlue, after absorbing Spirit, would force competitors to bring down their own fares.

In a recent interview with The Washington Post, JetBlue chief executive Robin Hayes said combining operations would create an airline that can be “a disruptive presence able to appeal to a broader set of customers.” He added: “We’re doing this to grow. We’re not doing this to consolidate. We’re doing this to try and get bigger so we can better compete with the big four airlines.”

The suit will come as Justice Department attorneys are waiting on the outcome of their case against JetBlue’s partnership with American Airlines, which allows the carriers to coordinate schedules and share revenue on several routes between New York-area airports and Boston. The Northeast Alliance was approved in the waning days of the Trump administration and began operating in February 2021. The DOJ sued to block it later that year.

That case was heard in the fall by U.S. District Judge Leo T. Sorokin in Boston. The Justice Department was joined by six states and the District of Columbia in challenging the arrangement. A decision is pending.

To allay concerns about an overlap in service between the two carriers in the Northeast, Hayes said, the combined carrier would divest Spirit’s holdings in Boston and New York and would offer five gates and “related assets at Fort Lauderdale” – a Spirit hub – allowing the gates to be allocated to other ultra-low-cost carriers.

Bill Baer, who led the Justice Department’s antitrust division from 2013 to 2016 and is now a visiting fellow at the Brookings Institution, said such concessions are common in cases where consolidation concerns are an issue.

“Here, there’s no indication that JetBlue or Spirit is going to fail if they are not allowed to merge,” he said. “Here, JetBlue gets bigger, potentially at the expense of consumers benefiting from the current competition between Spirit and JetBlue.”

Labor unions are split on the merger. The Association of Flight Attendants-CWA, which represents 50,000 flight attendants at 19 carriers, including 5,600 at Spirit, favors the deal. But the Transportation Workers Union, the nation’s largest airline union – whose members include flight attendants at JetBlue and passenger service agents at Spirit – has called on Attorney General Merrick Garland and Transportation Secretary Pete Buttigieg to stop the deal.

If combined, the carriers would be able to offer about 1,700 daily flights to more than 125 destinations in 30 countries with a fleet of 458 aircraft, JetBlue has said. While New York-based JetBlue has pitched the combined airline as a national player, it would have only a small presence on the West Coast.

A merger would give JetBlue much-needed resources in the form of aircraft and pilots, both in short supply as carriers have tried to rebuild after more than 50,000 workers left during the worst of the pandemic. Spirit operates an all-Airbus fleet of jets, while JetBlue operates with Airbus and some smaller Embraer planes.

According to a Justice Department filing in its Northeast Alliance case, the four largest airlines had 55 percent of the domestic air travel market in 2000, while a dozen smaller carriers competed for the rest of the market. By 2020, the top four U.S. airlines accounted for 81 percent of the market, with the number of smaller competitors dwindling.

William Swelbar, chief industry analyst at the Swelbar-Zhong Consultancy, a commercial aviation analysis and research company, said he is concerned about the direction of the industry.

“No one is paying attention to the fact these lower-cost airlines are being forced to be higher-cost airlines,” he said. “Those issues are much bigger than the size of a seat or a refund. Fares are going higher, and consumer benefits will be reduced.”

Over the past several years, seven major U.S. carriers have disappeared in a series of high-profile mergers. JetBlue was also a player in the last airline merger, in 2016, but ultimately was outbid by Alaska Airlines to purchase Virgin America.

This time around, however, JetBlue was determined not to lose out.

Frontier Airlines and Spirit announced plans to merge in February 2022 in a transaction that would have would have brought together carriers known for low airfares with few frills.

In April, JetBlue announced a surprise bid for Spirit but was repeatedly rebuffed. Spirit delayed a shareholder vote four times as it scrambled to salvage the deal with Frontier. Among its arguments was that a merger with JetBlue was unlikely to win regulatory approval. In the end, however, JetBlue prevailed while winning approval from Spirit shareholders in July.

As part of the deal, JetBlue agreed to pay a $70 million fee to Spirit, along with an additional $400 million in fees to shareholders if the deal didn’t pass muster with regulators.

The case could take several months to go to trial. Even so, Hayes has said he expects the deal to close in early 2024.

Source link

Denial of responsibility! insideheadline is an automatic aggregator around the global media. All the content are available free on Internet. We have just arranged it in one platform for educational purpose only. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – [email protected]. The content will be deleted within 24 hours.

Leave A Reply

Your email address will not be published.