Alaska and Hawaiian Airlines have not been challenged on its acquisition by the DOJ during its standard review period in what appears to green light their merger while Spirit and JetBlue struggle to survive independently.
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No Challenge From The Department of Justice Within Review Period
What was considered to be the most likely and largest test of Alaska Airlines acquiring Hawaiian Airlines, the DOJ has not yet challenged the deal during a period in which they normally would and many believe it has essentially greenlit the combination. Alaska issued a press release (before later revising it) stating that they received no challenge to the purchase and then revised it to say they received no challenge during the HSR (a period of time for which the government is permitted to review the deal) but that the DOJ is still reviewing. However, all suggestions point to approval given that the government’s task to challenge now has to be far more extensive than during the HSR.
What makes this interesting is that the DOJ during the last four years has been relatively active in challenging airlines joining forces whether via codeshares (as was the JetBlue-American Northeast Alliance) or the JetBlue-Spirit merger which the DOJ fought tooth and nail without offering concessions.
Alaska Airlines and Hawaiian Airlines follow a similar carrier model but with some caveats. Hawaiian controls a significant but not majority share of seats to the islands and Alaska Air Group was one of the largest carriers to the island on its own. Together, Alaska and Hawaiian holdings would control a significant share of the market at all Hawaiian airports though not outright total control.
The lack of a challenge from the DOJ during this litigious posture was surprising but in the context of what it has challenged and the extent of those challenges over the last few years, it’s utterly shocking.
Live And Let’s Fly reached out to Spirit Airlines for comment early in the week but the airline provided no response.
Route Dominance Is Ok
One peculiarity from the Alaska-Hawaiian green light vs the DOJ’s move to prosecute JetBlue-Spirit is the domination of a particular market. In the case of Alaska and Hawaiian, the elevated presence in routes to and from Hawaii were not of concern because there was sufficient service from competing carriers and the consumer would not be harmed by consolidation of the two. Inter-island flights are served not just by Hawaiian but also in a significant way by Southwest.
By this logic, as long as there is significant presence from other airlines on the same route then the JetBlue-Spirit merger should have been permitted. Where would this have been a true might have been Boston to Fort Lauderdale or Boston to Orlando. But New York markets to Florida wouldn’t have been a threat, nor Philadelphia, Washington DC, Chicago, Houston, Dallas, Charlotte, Atlanta, or almost any other market in the US to those two Florida airports. In fact, the opposite might be true for Charlotte where American has 11 frequencies daily to Orlando vs two from Spirit, three from Frontier and none from Southwest or JetBlue. A near mirror image is the case in Baltimore, but with Southwest offering 10 flights daily vs three from Spirit and two from Frontier. Newark has nine departures from United, three from JetBlue and two from Spirit.
If it’s ok for Alaska-Hawaiian to split the San Francisco-Honolulu market (three from United, two from Alaska-Hawaiian) or all but own Seattle at six to Delta’s two daily flights, or 50/50 with Southwest from San Jose, then the government is behaving inconsistently.
Airport Dominance Can’t Be The Issue
The reason why the two airports before were mentioned is because combined JetBlue and Spirit would have controlled more than 30% of Orlando and 50% of Fort Lauderdale. Yet 90%+ of Dallas/Fort Worth and Miami flights are operated by American Airlines. United holds 75% of traffic at Washington Dulles, dominates Houston, Delta has the same in Salt Lake City, Minneapolis, Detroit, and Atlanta – the busiest airport in the world. In the case of Delta, Minneapolis, and Detroit came via its merger with Northwest while Salt Lake and Atlanta existing Delta fortresses. And while those mergers might be deemed as mistakes now, it doesn’t change the fact that the DOJ has not sought to breakup those airlines or make them further divest to give a foothold to competition.
If it’s ok for Alaska and Hawaiian to have similar strongholds in Honolulu and Seattle, why is it not ok for a combined JetBlue-Spirit to have even less domination of Orlando and Fort Lauderdale?
JetBlue’s Challenges, Spirit Languishing
JetBlue has gone from industry darling pre-pandemic to finishing in last place three years in a row for combined metrics that include on-time performance, guest satisfaction, cancellations, and lost luggage. Of course the solution to such performance failures is to part ways with the CEO and promote the COO who oversaw those departments.
Since her appointment, CEO Joanna Geraghty has sought to eliminate routes that are unprofitable, offer voluntary leave to pilots and pause hiring.
For its part, Spirit has been losing money the last few quarters but is suspected to be down some 30% in Q3 2024. While this is speculation, such performance would be damning news. Further, with more than $1bn due next year, deferred new aircraft deliveries and selling current equipment, Spirit is clearly planning for a stormy season ahead.
Many believe that Spirit can’t make it without bankruptcy protection, and some have speculated it can’t emerge from such a filing. JetBlue has also been rumored down the same path.
Undersold At Trial
Spirit and JetBlue wanted to emulate some level of strength and, at the time of the trial, they mostly held such strength in place. However, within months of the verdict blocking their tie-up, both have become immediately troubled. Part of the strength of prior mergers like US Airways and American Airlines or Delta and Northwest was that without joining forces, being able to rationalize a combined fleet, reduce expenses, and grow, one of those airlines may go permanently out of business. Spirit and JetBlue took on such questions at the time but dismissed the possibility that either carrier was dependent on the merger for survival.
That could have made all of the difference because of the situation we now find both airlines in. They absolutely would have been stronger together.
What Happens If JetBlue and Spirit Can’t Make It?
If both of the carriers were to fail, the damage would affect consumers not only who fly the carriers now, but those who fly other carriers as well. Here’s how:
You Pay For It
Even if you don’t fly either airline, or if you felt as I did, that Spirit held a unique value as a discounter in major markets, you’ll be affected. Spirit keeps airlines honest because at a basic economy level, the inclusions and exclusions are basically the same from a Spirit Airlines entry-level ticket to that of network carriers.
When Spirit offers a non-stop route the big competitors simply can’t charge whatever they want. With Spirit eliminated, the threat of that low cost competitor creating price disparity is gone and flight costs will increase. Frontier flies fewer non-stop flights with lower frequency, Allegiant is similar to Frontier but doesn’t fly to major airports as often meaning that airlines are even less likely to compete with the Spirit fare.
Fares across the rest of the airlines will rise as a result of fewer seats on the market and some of the least expensive options from major airports eliminated.
A Lot Of Unemployment
Between the two carriers, more than 37,000 jobs would be at risk. But it’s not just the direct employees and contractors, it’s also secondary and tertiary employees that will suffer. In the case of Fort Lauderdale, there won’t be a rush to replace the void as airlines already have a presence in nearby Miami, and West Palm Beach.
Loss Of Transportation Lifeline
If the judge siding with the DOJ was correct in that JetBlue and Spirit couldn’t merge because Spirit offers a unique entry point for consumers that is imperative to the market, then by not allowing the merger, if Spirit is to die the same lifeline is lost. How does it make sense for the DOJ to bring a suit to preserve Spirit and its market position only to lose that same carrier inside of nine months?
In the case of my home airport, Pittsburgh, Spirit has been a bright spot now flying to 12 destinations. How many of those flyers would not fly at all if not for Spirit?
Conclusion
If the Department of Justice chooses to maximize competition by keeping every airline independent, that’s its choice to make. If the DOJ chooses to allow airlines to unite that’s fine too – but this approach has been anything but consistent. The DOJ took JetBlue and American to court to reverse a prior approved alliance that only affected one region of the country (the Northeast.) It not only sued to block the JetBlue acquisition of Spirit, but gave no terms or circumstance under which it would reconsider its suit. Then, months later, seemingly allows Alaska and Hawaiian Airlines to proceed without any protestation at all. The Alaska-Hawaiian tie-up is regional in nature too, but the DOJ which reversed existing approvals now doesn’t so much as challenge it with recommendations? If this were between two different administrations, that would also make sense, but this is an incredibly uneven hand from the same people. This is choosing winners and losers and if Spirit and or JetBlue find they cannot survive independently then employees, businesses, and consumers are all harmed by the DOJ’s selective prosecution.
What do you think?
The base alloy of your argument is that we lose Spirit either way & that’s bad. However, that’s a flawed argument because we haven’t lost them & therefore is not factual. No one knows. Also, Hawaiians & Alaska’s business models, routes & fleets are not apples to apples with Spirit & jet blue, which further invalidates your shaky (at best) reasoning that DOJ didn’t challenge. Did you consider that DOJ wanted to block the merger but saw it as unwinnable in court? You really have no way to interpret their intent or reasoning without making crystal ball assumptions about the future.
@Same – I think it was pretty clear that this hasn’t happened yet and may not happen. I think it was also clear that both JetBlue and Spirit are struggling (earnings calls from their own executives wouldn’t disagree). For example, “For its part, Spirit has been losing money the last few quarters but is suspected to be down some 30% in Q3 2024. While this is speculation, such performance would be damning news.”
An entire section is literally entitled “What if…”
As for the case being unwinnable in court, recent challenges would suggest they are likely to be victorious but we won’t likely find out.
The question is IF less people will be flying IF Spirit went away? The jobs issue is irrelevant as other airlines will hire for the increase in business IF Spirit disappeared. Someone would buy the planes and again, need staff.
As one who argues Spirit is garbage like Carnival Cruises I don’t see any loss if they aren’t there. Are people not going to fly as much? If not, are they going to drive, thus creating jobs in other industries.
America has done fine without Pan Am, Continental, TWA and many more. And we will do just fine without Spirit, although Matt would have less material to work with on clickbait stories.
Wow, there’s a lot of tone deaf in your comment. Any company shutting down because of direct government interference is not a good thing. The loss of jobs being irrelevant is also a ridiculous argument. Many jobs in the airline industry are seniority based for quality of life and longevity based for pay. A senior Spirit Captain making $350k a year having to leave their job to start over again at the very bottom somewhere else is not irrelevant.
@Dave – Taking out the bottom of the market shuffles all prices higher and at least some products lower.
With regard to Continental and TWA – both of those were allowed to merge so I am not sure that it makes your case. Pan Am died and the carcass split amongst the competition. Whether that was the right way to do things and in the best service of the consumer is up for debate.
Who cares about Spirit and Jet Blue–let them both fail
That’s really insensitive considering a lot people have give their soul to both of this companies. Maybe people like you are the real problem on today’s economy environment.
Who cares? Companies and businesses fail all the time. Just because one caters to blacks doesn’t mean it gets any extra breaks. History has shown the damage affirmative action has done to equality in America.
“Given their soul” to JetBlue and Spirit? Both of those flaming dumpsters of companies offer renumeration for souls, as do all demons. If both of them vanished tomorrow, the only affect it would have on me is that maybe my UA regional flight might land at the end of F concourse. And there’d probably be less human trash like New Yorkers infesting the airport.
It’s all about the dirty money!
The real question is who actually block the JetBlue and Spirit merge and how much some folks were actually paid to block this transaction? How can two small airlines in the east coast Not be allowed to merge but two west coast airlines are ? Why Does the DOJ protects the turf of the legacy airlines so much but don’t really care about the small airlines?
It was extremely obvious it was a great plan two similar airlines trying to keep expanding but some higher power stop them from do so …… mmm
Spirit small? Isn’t Spirit the seventh largest airline in North America?
Can I say the same thing about your livelihood? Rooting for fellow Americans to lose their jobs says a lot about your character.
What about that JetBlue memo the judge handling the JetBlue/Spirit merger was given? It said JetBlue would raise fares by 30% if the two airlines merged. That would have left working class people with one major airline (Frontier). That judge should get a statue of his image placed in downtown Boston for blocking that crazy merger.
@Atiya – As reported here and elsewhere, your information is incorrect. The purported leaked memo was actually a suggestion by a party suing to block the merger, not actually from the JetBlue administration. While I don’t disagree that JetBlue would have raised rates from Spirit’s price point, it’s incorrect.
That said, while I fully believe that Spirit plays an important role in the marketplace, by disallowing the merger, it may die and then the space is vacant anyway. Wouldn’t it be better for JetBlue to absorb the routes, staff, and equipment?
The decision by the DOJ was not logical, it was purely political.
The DOJ reports to the White House. Biden wants Kamala in the White House.
No need to rock the boat if it hurts the chances for the Democrats to return to office.
Again, it was a political decision!!
Alaska will probably get Jet Blue at fire sale prices. Who else will be allowed to buy them?
SWA
No. The garbage airline only has garbage planes from Airbus. If the fleet don’t fit, you must submit.
HAHA…Ive seen you before. The only thing thats garbage is your brain, Boeing has been the laughing stock. United almost crashed a boeing plane every week for the months of May and June. The only thing thats garbage is your brain and what comes out of your mouth. And that city you call “a second home”
Absolutely! Do your work before commenting! Compared to SW or any of the legacies Spirit is a small airline.
United airlines alone has 17,000 pilots vs 3200 at Spirit
American 15,000 pilots 800 plus planes
Delta 17000 pilots 800 plus planes
Spirit is a small airlines compared to the big legacies.
Honestly regardless of Kyle’s purpose on this article, I still believe that DOJ will have no issues if Frontier and Spirit merges. Those two carriers are similar in nature and will maintain a strong ULCC market in the US. But JetBlue and Spirit are fundamentally two different airlines. JetBlue is ultimately a full service carrier with a premium cabin in many key markets. Most importantly, both airlines will not create a major service vacuum if they go away. JetBlue is a big player in NE but honestly if they go away, many airlines will step in quickly and provide the needed boost. Plus they are no longer the cheapest in many markets anyway. Spirit surely will create some problems but let’s be honest that Frontier will be able to step in immediately in the West and Midwest. Avelo and Breeze will surely just step into many of the secondary airports in Northeast. Allegiant will definitely step up its Florida market.
Alaska and Hawaiian are completely different. The US Mainland-Hawaiian market is very competitive and Delta can always add flights if they see the needs. But the DOJ is more concerned about Hawaiian surviving. Hawaiian serves many interisland flights and many residents rely on Hawaiian to do the most basic things like visiting a specialist in Honolulu. That’s why DOJ needs Alaska to promise that they will maintain the capacity in the intra-Hawaiian market. I have a feeling that they will be able to compromise by letting Alaska to use some kind of Embraer regional jets to replace 717 on these intra-Hawaiian flying but they will maintain the frequencies. I can see Alaska ordering some brand new Embraer E190/195-E2s in long term, with E175 supplementing 717s on intra-Hawaiian flights. Embraer just needs to prove that the E2 fleet can handle the unique operating environment in Hawaii and maybe a variant that can handle the frequent takeoff and landings that Hawaiian 717s currently do. Airbus A220-100/300s will be great too but Alaska is just not an Airbus carrier
Anyway from a layman’s perspective, I really think Alaska/Hawaiian merger is very different from JetBlue/Spirit. Hawaiian is really hit hard by Covid and the strong US dollars/weak Japanese Yen. If Hawaiian goes under, it will really impact the state in a big way. Plus Alaska’s promise in maintaining their separate brands is a smart move. JetBlue and Spirit is just a mismatch and the fact the fare will increase 30% after the merger basically seals the fate of this ill-considered merger. I still strongly believe that Frontier and Spirit merger will get approval easily. I am not sure what JetBlue is thinking but I don’t even think a GOP-led DOJ can stomach a merger between JetBlue and Spirit that will result in higher fares for customers.
@Adrian – My purpose?
Frontier and Spirit may have to happen but who foots the bill and who wants to challenge the DOJ again under the current administration – I guess, aside from Alaska and Hawaiian.
To your last paragraph, I agree and said so in the post that the two differ from JetBlue and Spirit. But to say that Hawaiian was hit hard by COVID isn’t the same as posting hundreds of millions of dollars in losses with a looming billion-dollar note. The strength of the US Dollar vs the Japanese Yen wouldn’t be a reason to justify a forever union. This again uses the 30% number that has been debunked. You keep saying what the cost is both politically and to the customer for a merger with JetBlue, but doesn’t the same thing happen if Spirit dies? The only difference is that in one of those scenarios we don’t have 17,000 unemployed people and in the other, we do.
In terms of a potential Spirit/Frontier merger……the ULCC model in the United States is failing. I don’t think the answer is to double down on that strategy, which is what that merger would be.
Great write-up Kyle, excellent analysis and observations. I would like to put an even sharper point on what you wrote by sharing some of my takes on this topic and offer a wonkish dive into some meaningful details of anti-trust law in attempt to correct some very widespread misconceptions about antitrust law and how it applies to airlines.
First I’d like to address the both the antitrust zealots and the troll type commenters here and elsewhere saying “Who cares? Nothing has changed? Both Spirit and JetBlue are still in business.” Everything has changed since the DOJ won their case against JetBlue but none of the changes have been good for the flying public, airline competition or Spirit/JetBlue employees and customers. BOTH carriers post DOJ loss have slashed their networks and have made every effort to reduce head-head competition with stronger airlines. Spirit has sold aircraft and deferred new aircraft deliveries (A321 NEOs which have been snapped up by Big 3 monopolist, United) and has started furloughing pilots. Many senior Spirit pilots had already started jumping ship due to bankruptcy concerns and diminished career prospects so the cuts have not been as deep as they might have been, but the loss is more severe than furlough numbers alone suggest. Most of these pilots are going to Big 4 monopolists competitors that offer fatter paychecks and career stability. JetBlue has gutted their LAX operation and given up any ambition of competing with anybody on the West Coast. SLC, SEA, PDX, CUN, PVR, SJD, SFO, SJC, LAS, SAC, OAK, BZN, all gone, probably forever. JetBlue now only flies from the West Coast to the East coast and they’re doing less of that too. The Big 4, plus yet-again-enlarged legacy Alaska are very happy about it. JetBlue has announced the end of their LAX-EWR route with Mint service giving United a virtual monopoly once more. Cranky flier had a west coast JetBlue post-mortem post with a before and after Spirit court loss route map. It’s devastating. JetBlue and Spirit had big plans on the west coast and would have had some real synergy with LAX-LAS hubs providing some critical mass out west. This is a major loss for airline competition and a giant boon for the Big 4 plus rapidly growing legacy Alaska who is 2 and 0 for mergers since 2016 while JetBlue is 0 for 2 with another loss in the NEA.
The arbitrary and capricious manner of antitrust justice meted out for JetBlue versus Alaska airlines makes a mockery of the entire system. Some commenters have argued the entire government case against JetBlue’s acquisition of Spirit should have been dismissed on the principle of “judicial estoppel” I agree. For those unfamiliar, the American Bar Association explains- “The doctrine of judicial estoppel serves to prevent litigants from asserting claims in a court proceeding that are directly contrary or inconsistent to a prior statement made in a previous proceeding. With this doctrine, its purpose is to preserve the integrity of the judicial process by prohibiting parties from deliberately changing positions because of exigencies of the moment, or the likelihood of being defeated by opposing party in court.” In it’s lawsuit to break up JetBlue’s “North East Alliance” agreement with American Airlines the US government argued JetBlue was a low cost “maverick”, an innovator, a Robin Hood champion of the people delivering big comfortable seats, free TV movies and WiFi, Trans-Con “Mint” service, and a price regulator lowering prices wherever it competed with established industry players/AKA “Big Four”. In the suit attempting to block the Spirit acquisition the government contradicted itself and argued the exact opposite. JetBlue was a huge airline, mean, stingy and in cahoots with the Big Four to raise prices and stick it to the American consumer.
Concerning the antitrust law part of this, there is a gigantic chasm between the actual antitrust law, mainly Clayton and Sherman which is legislated law, that is acts of Congress versus “The Consumer Welfare Principle” which started as pro-business, right-wing ideology in the late 1970’s but has become enshrined as law over time due to the American system of Common Law (case law/precedent). As a lightning quick explainer, traditional antitrust law focuses on market share and competition while actually viewing excessively low prices suspiciously and outlawing below-cost pricing as “predatory”, while Consumer Welfare case law views large firms seeking to become larger based on promises of lower prices favorably even if such marriages would not pass the market concentration smell test of Clayton and Sherman. This yawning chasm is where most of the confusion over antitrust law originates. It’s not an ideal situation and it allows for some very arbitrary and capricious government behavior, fueling government distrust and perceptions of corruption. I personally feel some form of bribery was a factor in this case. Prior to the Biden administration there was a very large idealogical fight brewing in Washington over antitrust enforcement. The camps were split cleanly into two sides. Big Business friendly Consumer Welfare Principle vs. Traditional antitrust law as written and enforced up to the 1980’s. The dividing lines weren’t R vs. D partisan but rather centrist pro-big business politicians against populist Democrats and Republicans from the fringes of each party. The reformers wanting to restore traditional antitrust enforcement according to the law already on the books were referred to as New or Neo Brandesians, referencing anti-monopolist Supreme Court Jurist, Louis Brandeis. Biden appointed Neo-Brandesians to head powerful antitrust enforcement agencies – Johnathan Kanter at DOJ Antitrust Division and Lina Khan at FTC. It seemed traditional antitrust law was ascendant and Robert Bork’s baby, the Consumer Welfare Principle was toast.
JetBlue-Spirit was the first proposed airline merger to cross the desk of “New Brandesian” antitrust enforcer Johnathan Kanter, who wanted a scalp. Unfortunately for Kanter, JetBlue’s very weak market position and their pro-competitive acquisition of Spirit was going to be extremely hard to beat purely on established antitrust law like Clayton and Sherman, but there was a reverse Consumer Welfare Principle argument to be made if Kanter was willing to be a giant hypocrite and a traitor to his anti-Consumer Welfare Standard cause. Kanter did a idealogical 180 and went full Consumer Welfare price mode on JetBlue with a Reganite, Bork acolyte judge and won a tainted victory. Kanter’s hollow and perhaps corrupt victory has perversly secured a less competitive airline landscape for the flying public. I know all of this is extremely confusing for the public but I promise everyone if they read antitrust law; Clayton Act, Sherman Act, Wright Patman amendment, Hartt-Scott-Radino, etc. they will not find anything that preferences a ULCC business model over a LCC business model and if anything they will find lots of law that is prejudicial to Spirit’s bait and switch business model of offering a loss-making low price ticket then attempting to extract a profit through deceptive practices and excessive junk fees. Further more there is nothing in antitrust that says businesses can’t charge more for a superior product. Bigger seats, more leg room, free snacks, free TV and WifI, free carry on and checked luggage? Of course you can and you must charge more for such things. Is it illegal to charge more for a bigger house, a nicer car, etc. etc.? No! Of course not, yet the DOJ claimed JetBlue was engaged in some sort of nefarious plot when they set about to replace Spirit’s crappy consumer offering with their own superior, albeit slightly higher priced product. So much of Judge Young’s decision references bizarre antitrust principles that don’t exist. What in the hell is a “low price enforcer” and what law designates certain US carriers as loss-making “price enforcers”? Sheer madness. There is no government subsidy for ULCC “price enforcers” If Spirit has a crappy product that requires selling at a loss to move seats, then those loss-making fares must be backstopped by investors and/or employees. Once those two groups start to balk, and they have, the next stop is bankruptcy. Spirit Airlines cannot be a loss making “price enforcer” indefinitely and indulging such wild free-market fetishist fantasies makes a travesty of antitrust law and dooms the flying public to one less airline in an already over-concentrated market. Barring an absolute miracle, Spirit will not make it through 2025 without declaring bankruptcy. Expecting CEO’s who have a fiduciary duty to support their company’s stock price to proclaim their company has next to zero chance of surviving financially without a merger is an unfair Catch 22 of epic proportions. Ted Christie could never say just how bleak things were at Spirit during the trial without opening himself up to lawsuits by shareholders. The bankruptcy exception provisions of antitrust ignore these contradictory imperatives facing executives.
I’ve gone on too long, but simply the government cannot improve the competitive landscape in already too-concentrated airline market by punching down, forbidding small, structurally disadvantaged airlines from gaining the scale they need to compete with the giant monopolists the government has enabled since deregulation. “Stay small, but go compete and lose money” is not a serious solution to an over concentrated market but a recipe for more concentration. The DOJ’s actions under Biden only act to help “the big guys pick off the little guys one by one” in the words of Ben Baldanza. The DOJ and Judge Young owe the flying public and JetBlue/Spirit a huge apology. This latest Alaska-Hawaiian non-action action is just more salt in the wound and proof that something is fishy with DOJ antitrust.