The case against Spirit-JetBlue: The loss of a low-cost 'maverick'

The Justice Department’s legal case to block JetBlue’s acquisition of Spirit Airlines relies in part on traditional antitrust considerations about increased market consolidation.

But the ultimate success or failure of the lawsuit, filed on March 7, could also depend upon whether the government is able to gain traction on a less common legal underpinning: Antitrust experts say that by eliminating the nation’s largest ultralow-cost airline, the JetBlue-Spirit merger would reduce fare product innovation in the U.S. airline industry, thereby decreasing consumer choice. 

“They are saying, ‘Even if you do have competition, we won’t have low-cost carrier competition,'” said Joseph Schwieterman, director of DePaul University’s Chaddick Institute of Metropolitan Development, whose areas of expertise include market competition and the airline industry. “That is a whole new way of thinking about airline consolidation that will raise some eyebrows.”

Massachusetts, the District of Columbia and the state of New York joined the Justice Department in the lawsuit, which seeks to block the $3.8 billion merger.

Would JetBlue-Spirit merger harm competition?

The government’s complaint alleges that the merger would violate federal antitrust statutes in the already consolidated U.S. airline market by eliminating competition between JetBlue and Spirit; reducing overall consumer choice; facilitating increased coordination between JetBlue and other airlines; and causing higher ticket prices along with less passenger capacity.

A JetBlue-Spirit merger, the suit adds, would have an anticompetitive impact on more than 150 routes, including 40 nonstop ones that both carriers serve, affecting more than 30 million annual travelers. 

But JetBlue and Spirit contend that a larger JetBlue will benefit consumers by offering a stronger, national, low-fare competitor to American, Delta, Southwest and United, which together control approximately 80% of the domestic U.S. market. Together, JetBlue and Spirit account for approximately 10% of U.S. domestic capacity, according to the Bureau of Transportation Statistics.

JetBlue has offered to divest of five gates at Fort Lauderdale, where both JetBlue and Spirit are especially large, for use by other ultra-low-cost carriers and to divest of all Spirit gates in New York and Boston, cities where JetBlue has a strong presence and an alliance with American Airlines.

The government’s complaint, as it relates to airline industry market consolidation, is the standard approach regulators take in antitrust actions. And on that front, analysts say that the DOJ is on solid footing. 

“It seems like a pretty strong case,” said antitrust specialist Eleanor Fox, a professor emeritus at the New York University School of Law. “It’s a very concentrated market.”

James Speta, a professor and antitrust specialist at Northwestern University’s Pritzker School of Law, offered a more measured critique, calling the government’s case “plausible.”

He said that typically mergers haven’t been thought of as highly anticompetitive when they still leave as many as five major players in an industry. But he said that particular characteristics of the airline industry, such as the high cost of entry and limits to gate space and airport landing rights, could change that analysis.

The value of Spirit’s low-cost business model

The case will hinge upon the specific data that the two sides present related to market concentration, Speta said, as well as the testimony of their economic expert witnesses.

A wild card though, will be the other pillar of the government’s case, which Speta calls the “Maverick Theory.”

In the complaint, the DOJ notes that Spirit accounts for approximately 50% of the ultra-low cost market in the U.S. As the largest such airline, and the one that flies by far the widest array of daily routes in direct competition with the major airlines, Spirit often bucks market fare trends, forcing larger airlines to respond. 

One result, the complaint notes, was the creation of basic economy fare products by full-service airlines, including JetBlue. If Spirit were to merge into JetBlue’s full-service model, such innovations would be stifled, harming competition, the DOJ alleges. 

John Lopatka, a professor and antitrust specialist at Penn State Law, said the maverick argument is an unconventional one. By right, he said, Spirit’s management could change the airline’s business model without regulatory review. Similarly, a company from outside the airline industry could purchase the carrier and change the business model without increasing market concentration. 

As such, Lopatka said he’s unsure what the DOJ’s primary thrust will be as the case moves forward. “It’s not standard merger analysis,” he said. 

Speta, though, said that while the argument is unusual, it’s not unprecedented. The DOJ made similar arguments in 2011 when it filed suit to block the proposed merger of AT&T with lower-cost competitor T-Mobile, he said. 

“It’s one of those things that the Biden administration, with its more aggressive stance on antitrust, is willing to bring forward,” Speta said.

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