by Scott Laird
Last updated: 9:20 AM ET, Wed January 24, 2024
Last week, a federal judge handed down a decision barring
JetBlue Airways and Spirit Airlines from merging to form a single airline in
their current state, citing antitrust concerns. The elimination of Spirit via a
merger with JetBlue, the U.S. District Judge William Young ruled, would harm
consumers by removing a vigorous ultra-low-cost competitor that had driven
other carriers to lower their own fares.
So, what happens now?
Attorneys for both carriers have said they will appeal the
ruling. However, it's worth noting that a terse joint statement issued by the
airlines explained that the terms of the merger agreement required them to
appeal. The appeal filed by the two airlines also does not lay out any legal
rationale for the appeal. Barring any new information not presented at the
original trial or some blockbuster accusation of misconduct or other evidence
that the parties did not receive a fair trial, the ruling is expected to stand.
If the merger is ultimately not closed, JetBlue owes
Spirit’s stockholders $470 Million in reverse breakup fees, but that may come
as cold comfort to the stockholders, who were expecting the sale at a share
price significantly higher than what is currently trading on the news that the
merger is effectively canceled.
For both airlines, which have spent the last year and a half
working toward a merger, it would mean a change in strategy. JetBlue cited the
aircraft and pilot corps it would acquire with the merger as necessary for
future growth that would otherwise be hindered by labor and aircraft shortages.
To continue growth, JetBlue must likely now accomplish this without Spirit,
leaving options limited. Both Boeing and Airbus have order books that are full
until the end of the decade, and consolidation in the U.S. airline industry
leaves few carriers left to acquire.
Spirit Airlines hasn’t been profitable since 2019, but has a
large fleet of Airbus aircraft that would have been compatible with JetBlue’s
existing Airbus fleet. Spirit took on significant debt during the pandemic but
hasn't seen the same rebound in financial results that larger network carriers
have observed. In 2023, the bulk of that demand growth was in Europe and other
destinations not served by Spirit, which only operates in the Americas.
However, the debt remains, and Spirit must now seek
another buyer or bankruptcy protection.
Judge Young’s court ruling effectively addressed each of the
arguments brought by both the U.S. Department of Justice, which filed the suit
to block the merger on antitrust grounds, and those of the two airlines. When
the carriers argued that Spirit's financial situation had necessitated the
merger, the judge ruled that a merger with JetBlue was not the only avenue for
relief for Spirit—they could merge with a smaller carrier, sell assets and
attempt to merge with JetBlue in a reduced form, or they could reorganize in
bankruptcy.
The airlines also argued that the government had created an
environment that made competing with the nation's larger airlines more
challenging, each of which had grown through mergers approved by the courts. Today,
four airlines—American, United, Delta, and Southwest—comprise 75% of U.S. air
passenger market seats.
JetBlue Airbus A320 in Fort Lauderdale, Florida. (photo via Boarding1Now/iStock Editorial/Getty Images Plus)
The acquisition was initially announced by the airlines in
July 2022. Merging the two carriers’ brands and operating certificates would
have made them the country’s fifth-largest airline, supplanting Alaska
Airlines, and would have given JetBlue increased presence in Florida, Latin
America, and several key cities where JetBlue has limited presence, including
Dallas, Las Vegas, and Atlanta.
Alaska Airlines and Hawaiian Airlines also announced plans
to merge in 2023, but the Justice Department has thus far not made any move to
block that proposed merger. Alaska and Hawaiian overlap on fewer nonstop routes
than JetBlue and Spirit, and both carriers are similar in cost structure and
pricing.
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