Senator Elizabeth Warren asked the DOT to block JetBlue’s proposed acquisition of Spirit Airlines with a very strange basis for her request.
JetBlue’s Spirit Airlines Acqusition
Earlier this summer, JetBlue Airways attempted to thwart a merger between Spirit Airlines and Frontier Airlines that would have created the largest Ultra-Low-Cost Carrier in the US and the fifth largest airline in the United States after the “Big 4”, American, United, Delta, and Southwest.
JetBlue made ever-increasing bids to buy Spirit after missing out on a chance to buy Virgin America a few years ago (which ultimately was acquired by Alaska Airlines.) The carrier wanted an opportunity to grow and by buying the carrier, it could instantly increase its aircraft (that align with its) fleet, as well as hard-to-come-by flight attendants, pilots, and crews.
The acquisition faces significant hurdles to regulatory approval due to the DOJ suing JetBlue and American Airlines over its prior approved Northeast Alliance (NEA) codeshare agreement. The trial is set to begin on September 26th, 2022.
While JetBlue CEO, Robin Hayes, is rather confident the Spirit deal will be affirmed, reasonable doubt exists based on the fact that the DOJ is already taking the carrier to court.
Senator Warren Asks Department of Transportation To Block Merger
Rather than go through yet another Department of Justice suit, Senator Elizabeth Warren (D – Massachusetts) has suggested the Department of Transportation simply say “no” to the transfer of certificate citing an antiquated law.
“Senator Elizabeth Warren urged federal airline regulators to block JetBlue Airways Corp.’s proposed merger with Spirit Airlines Inc. by invoking a rarely used authority from the 1950s to argue that the $3.8 billion deal isn’t “consistent with the public interest.” – Bloomberg
The law forgoes any need for the DOJ to build a case denying the acquisition and instead citing simply that the public interest wouldn’t be well served by JetBlue swallowing Spirit.
Without doubt, JetBlue would file suit against the DOT if this action was taken, not only for its significant financial investment in the current deal, the rare use of the law, but also that the DOT would then have to prove that it was not in the best interest of consumers. This burden of proof transfer would make the DOT’s ability to uphold its decision significantly more difficult.
Warren Might Have The Right Result, But Wrong Logic
Senator Warren cited in her letter some of the reasoning behind her position:
“Airline industry competitiveness is in free fall, and consumers are feeling the consequences. Today, the four largest airlines—American, Southwest, Delta, and United—control 80% of the domestic market, more than at any point in the modern history of commercial aviation. This dominance has been achieved through a series of airline mega-mergers that have reduced service quality and increased fares, and has contributed to the increase in delays, cancellations, and involuntary rebookings that airline passengers experience today. Consumer complaints to DOT have increased more than 300 percent from pre-pandemic levels, and air fares have outpaced inflation.” – Senator Warren
However, prior airline mergers don’t necessarily mean that JetBlue shouldn’t be able to acquire Spirit. That suggests that solely by being last to the party, JetBlue is ineligible. JetBlue would have a case in this instance as well to sue either the DOT or DOJ that they should be given at least the same opportunity to grow in the way that the Big 4 have.
It’s not just JetBlue and its premium offering that might price out Spirit customers that has Sen. Warren up in arms. In March, she argued that creating the world’s largest ULCC would be just as concerning for US air travelers. The Senator also names Delta, United, American, and Southwest – all of which merged or acquired other carriers – but fails to mention Alaska Airlines which did exactly what JetBlue attempted to do years ago with Virgin, and now with Spirit.
This site has mentioned many times in the past that if Airbus had a surplus of A320s available, and thousands of pilots, and tens of thousands of support staff were all available – neither the DOT nor DOJ could (or should) have any basis for stopping JetBlue from adding them to its business. If this was a true purchase that didn’t eliminate a competitor, there would be nothing wrong with this purchase at all.
Sen. Warren also failed to mention that JetBlue had the second most delayed flights in June, and was a consistent source of consumer complaints. Spirit, for the avoidance of doubt, did not make the top 3 on the same list. Alaska, who merged with Virgin, had better on-time flight rankings (1st), fewest cancelled flights (2nd) as well.
What is most confusing to this writer is why Senator Warren has essentially voiced support for the status quo for which she vehemently opposes. By suggesting that the Frontier-Spirit merger would be bad for consumers because airline mergers of traditional airlines have not gone in the customers favor, despite that proposed deal making a very large ULCC, she has also opposed expansion by acquisition because bigger airlines = bad.
But that just keeps the Big 4 big and the littler five fighting amongst each other in a pen that the Big 4 don’t play in. The system she despises, she is keeping as-is by coming out against both deals. And if both deals would have only led to more customer concentration, then how have those carriers been able to grow their position to “more than at any point in the modern history of commercial aviation?” Perhaps the Senator can explain how maintaining smaller carriers, which by her own words has proven ineffective, will somehow become more effective in the future by continuing the same system.
What I consider most shocking about the Senator’s approach is that it disadvantages a significant employer in her constituency. Due to temporary cancellations, JetBlue only recently ceded marketshare to Delta at Boston Logan International Airport. Still, JetBlue has been a huge carrier for years in Boston, and holds about 30% of departures. For one of the state’s largest employers trying to get bigger and edge out these mega-airlines, wouldn’t it make sense that she back such a move? Wouldn’t Massachusetts voters want her to fight for companies that provide jobs in her state, and not against them?
While the Senator is clearly misguided in her approach to the concern, I too would like to see Spirit stay independent or form a larger ULCC carrier to challenge the Big 4. However, this is because I see the ULCC market as less homogenous than network carriers. For example, Spirit has a robust loyalty program, it serves business markets, and flies primarily to large municipal airports with a regular schedule. Frontier flies less regularly, dodges business markets, has a weaker loyalty program, and chooses secondary airports more often. Allegiant, even less frequent, serves still smaller tertiary markets to secondary airports (like Grand Island, Nebraska to Mesa, Arizona) and a limited loyalty program, applying almost no pressure at all to the business markets that push prices to nosebleed levels amongst the Big 4.
Senator Warren has the right answer, but when she shows her work, it’s a miracle she got there in the end. She suggests that the DOT can simply wave a magic wand to make the challenge of JetBlue’s acquisition go away, she proposes remedying a market dominated by a few players, by keeping it the way that it is now, and she does so at the detriment of the people she represents. We hold third graders to a higher standard on math quizzes (rejecting the answer if the path to achieve it was wrong) than we do the good Senator. The truth is, if the DOT followed her recommendation, the acquisition could be even more likely to be approved based on the unqualified use of a rule that hasn’t been enacted in 70 years and ignoring how other companies were permitted to grow but JetBlue should not be.
What do you think? Is the Senator right? What about her proposed methodology?