The Department of Justice let a deadline slip to sue and block the JetBlue-Spirit Airlines merger. Will the DOJ block the combination of the two airlines?
DOJ Misses Self-Imposed Deadline
The Department of Justice missed a self-imposed deadline on February 28th, 2023 to file a suit blocking JetBlue Airways’ acquisition of Spirit Airlines. According to sources known to Politico the DOJ is skeptical that fewer airlines in the market and fewer seats available for sale will lead to lower prices for consumers.
Robin Hayes, CEO of JetBlue Airways, stated that better aircraft utilization will lower consumer prices and open up more options,
“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.” – Politico
There’s nothing that prevents the Justice Department from filing suit at a time of its choosing, however, the later in the process they file the less credibility their case may have.
Many (including Live And Let’s Fly) have speculated that the results of the Northeast Alliance suit will determine the DOJ’s appetite for another challenge. The case in which the DOJ is suing JetBlue and American Airlines for its substantial codeshare agreement is awaiting a verdict.
Most industry insiders believe that if the NEA is struck down as anti-competitive, the DOJ will allow the Spirit acquisition to proceed.
If that verdict does not strike down the alliance, it could make JetBlue too powerful in the Northeast market of the United States with large presences at New York JFK, Boston Logan, and through American’s codeshare agreements on New York LaGuardia, Washington Reagan National, and other key markets.
The possibility that the DOJ wins the NEA lawsuit to unravel the already approved deal and then pursues JetBlue again over Spirit doesn’t yield much support.
Will They/Won’t They?
The prior administration allowed the Northeast Alliance to proceed. Last year, antitrust regulators in the (current) Biden Administration moved against the NEA taking a harder stand against the tie-up. It seems that JetBlue Airways more or less bet that pursuing both might mean a fight on one but not both fronts; either it becomes larger via the codeshare with American or it becomes the fifth largest airline in the US by acquiring Spirit Airlines, the Ultra Low-Cost Carrier.
The Department of Justice has a choice to make in the next few days because of the prior market it had set for making a decision.
Reasons The DOJ Will File
Allowing JetBlue to grow in the Northeast would give the carrier an unfair advantage. It already held a substantial market presence in the Northeast but consolidating so much capacity in Florida at Fort Lauderdale and Orlando makes it worth pursuing.
If the DOJ doesn’t feel strongly about the prospects of its NEA case it may consider filing a lawsuit to stop JetBlue from becoming a much larger carrier in such a short amount of time. It can always drop the suit later or use it to gain concessions.
Initially, a verdict with regard to the NEA case would have been delivered by this point, but as it has not yet been issued, the DOJ is going to have to make a decision. If it chooses to hedge its bets, and file suit to block the deal, it keeps everything on the table and ensures that it will have a better footing to shape the airline industry.
Reasons The DOJ Won’t File
American Airlines already has a large presence in Miami, accounting for more than two-thirds of all passenger traffic including international carriers at the much larger Miami International Airport. Unlike other hubs, such as Chicago for United Airlines which is largely a function of hub traffic, American’s Miami presence has a substantial origin and destination model due to its Latin American network. For the DOJ to block JetBlue’s acquisition it would have to indicate why one airline is permitted to operate a substantial South Florida market presence, but another is not.
If the DOJ is triumphant in the NEA trial, further pushback against JetBlue might be seen as targeted.
Time is another factor. When Frontier Airlines and JetBlue were in a bidding war for the carrier, prepayments were negotiated for Spirit Shareholders, allowing them to receive $.10/share per month to compensate for the long approval process. If the DOJ files late, the trial could go for a very long time damaging JetBlue shareholders. That would weaken DOJ positions because of how costly the trial could make it for average investors in JetBlue. Simply by extending the uncertainty of the acquisition’s success through lengthy proceedings, JetBlue would lose more and more every month while the government would have an unfair advantage of no such time and cost penalty.
Spirit Airlines shareholders would also benefit from a trial that unnecessarily holds up the acquisition through those payments. The deal could also time out in the process if it is extended long enough.
The Department of Justice could be carefully weighing both the potential damages to JetBlue shareholders, and the risk of a completed acquisition. However, the timing appears to more closely coincide with the conclusion of the NEA trial in which the DOJ will be awarded a victory or handed defeat. The longer that deliberation takes, the less likely the DOJ is to file and the acquisition is permitted to proceed unabated.
What do you think? Will the DOJ file suit to block the Spirit Acquisition?