I sat in bed last night and read the entire 109-page decision of Judge William Young in US v JetBlue, which blocked the merger between JetBlue and Spirit. Bottom line: I think the opinion represents spurious legal analysis.
Blocked JetBlue-Spirit Merger Based Upon Spurious Logic
Yesterday, US District Judge William Young held that the JetBlue-Spirit merger could not proceed because it violated the Clayton Act. The heart of his ruling:
While it is understandable that JetBlue seeks inorganic growth through acquisition of aircraft that would eliminate one of its primary competitors, the proposed acquisition, in this Court’s attempt to predict the future in murky times, does violence to the core principle of antitrust law: to protect the United States’ markets –- and its market participants — from anticompetitive harm.
The Clayton Antitrust Act of 1914 was meant to curb mergers and acquisitions that tended to create monopolies to the detriment of US consumers. Specifically, §7 of the Act prohibits mergers when “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.”
Seizing on this, Judge Young pointed to specific anecdotes, like “a college student in Boston hoping to visit her parents in San Juan or a large Boston family planning a vacation to Miami that can only afford the trip at Spirit’s prices” to argue, “It is this large category consumers, those who must rely on Spirit, that this merger would harm.”
The close of his opinion reads like the pronouncement of a politician, not a neutral arbiter of the law:
Spirit is a small airline.
But there are those who love it.
To those dedicated customers of Spirit, this one’s for you.
Because the Clayton Act, a 109-year-old statute requires this result –- a statute that continues to deliver for the American people.
The problem is that “love” for Spirit Airlines should not govern whether a merger between JetBlue and Spirit should proceed. Nor should it matter whether customers currently rely on Spirit Airlines for transport, especially when the company is losing millions of dollars, suggesting a business model that is broken.
The key word here is substantial. Would there be a “substantial lessening of competition” because of this merger? I don’t see this proven by the US Government or its expert witnesses. Rather, I see such forecasts as inconclusive and therefore unpersuasive. There remains tremendous competition in the US airline industry. This is not like the only two market entrants are merging into one: there remains robust competition and the idea that a larger JetBlue could challenge American, Delta, United, and Southwest was glossed over by Judge Young.
Ultimately, The Clayton Act is not about maintaining cheap and unsustainable pricing, but about protecting consumers from the nefarious effects of collision aimed at undercutting the market system. Judge Young got it wrong.
JetBlue + Spirit Consider Appeal
JetBlue and Spirit have responded to Judge Young’s ruling with the following statement:
“We continue to believe that our combination is the best opportunity to increase much needed competition and choice by bringing low fares and great service to more customers in more markets while enhancing our ability to compete with the dominant U.S. carriers.
“JetBlue’s termination of the Northeast Alliance and commitment to significant divestitures have removed any reasonable anti-competitive concerns that the Department of Justice raised. We are reviewing the court’s decision and are evaluating our next steps as part of the legal process.”
In short, an appeal is under consideration.
While I was personally opposed to the JetBlue-Spirit merger, I don’t agree with Judge Young’s ruling blocking it. It relies on a series of assumptions and a stretching of the word “substantial” that is not warranted under The Clayton Act or the fact pattern he faced.
No, Spirit Airlines will not liquidate and both carriers will find a way to groan on…likely apart…but one way or the other, the status quo cannot continue if both JetBlue and Spirit continue to lose money.