LaGuardia International Airport Terminal A for JetBlue and Spirit Airlines in New York.
Leslie Josephs | CNBC
A federal judge blocked Tuesday JetBlue Airwayshis market Spirit Airlines after the Justice Department sued to stop the merger, saying the deal would raise fares for price-sensitive consumers, driving the discount carrier out of business.
JetBlue’s proposed $3.8 billion purchase of discounter Spirit would have created the nation’s fifth-largest airline, a deal the airlines had said would help them grow better and compete with larger rivals such as Delta and United.
“JetBlue plans to convert Spirit’s planes to the JetBlue layout and charge JetBlue’s higher average fares to its customers,” U.S. District Court Judge William Young wrote in his ruling. “Eliminating Spirit would hurt cost-conscious travelers who rely on Spirit’s low fares.”
The ruling, issued Tuesday, marks a victory for a Justice Department that has aggressively sought to block deals it deems anticompetitive.
“Today’s decision is a victory for tens of millions of travelers who would have faced higher fares and fewer choices if the proposed merger between JetBlue and Spirit had been allowed to proceed,” Attorney General Merrick Garland said in a statement. “The Department of Justice will continue to vigorously enforce the nation’s antitrust laws to protect American consumers.”
The DOJ alleged in its lawsuit, filed in March, that JetBlue’s takeover of the budget airline would force many passengers to pay higher fares by eliminating Spirit and “approximately half of all ultra-low-cost airline seats in the industry.”
Spirit has grown rapidly in recent years, offering cheap fares and fees for everything from seat assignments to carry-on bags, a no-frills model that has become a favorite of late-night comedians.
“Spirit is a small airline. But there are those who love it,” Young wrote in his decision. “To those dedicated Spirit customers, this is for you.”
Shares of Spirit tumbled after the decision and fell more than 50%, while JetBlue stock gained about 5%.
Spirit’s market capitalization as of Friday’s close was $1.66 billion, less than half of JetBlue’s proposed purchase price. The Miramar, Florida-based airline is struggling with grounded planes due to an engine manufacturing problem and lower-than-expected travel demand.
Shares of Spirit Airlines and JetBlue Airways rose after a federal judge blocked the carriers’ proposed merger.
JetBlue and Spirit said in a joint statement that they disagree with the decision and are evaluating next steps.
“We continue to believe our combination is the best opportunity to increase much-needed competition and choice, bringing low fares and great service to more customers in more markets, while strengthening our ability to compete with the dominant US carriers.” , the carriers said.
A different U.S. District Court judge in Massachusetts sided with the Justice Department last year to block JetBlue’s regional alliance with American Airlines in the Northeast, a partnership that allowed the carriers to coordinate routes and routes.
JetBlue and Spirit said Tuesday that “JetBlue’s termination of the Northeast Alliance and commitment to significant divestitures have removed any reasonable anticompetitive concerns raised by the Department of Justice.”
Hard won deal
JetBlue fought hard for Spirit. A hostile takeover bid was launched weeks later Frontier Airlines and Spirit have agreed to merge in a cash and stock deal. Frontier’s business model is more similar to Spirit’s, and both airlines have similar fleet configurations, unlike JetBlue’s full-service model that contrasts with Spirit’s discount strategy.
After Spirit’s board rejected JetBlue’s initial takeover bid, Spirit CEO Ted Christie said in May 2022 that he did not believe a JetBlue deal would be approved by regulators, citing American Airlines’ cooperation and JetBlue’s plan to remove seats from the market.
“It’s not going to happen in our opinion and that’s why our board rejected it, and to suggest otherwise again, we think that’s offensive,” he told CNBC’s “Squawk Box” at the time.
Spirit shareholders ended up rejecting the Frontier deal and months later approving a sweetened JetBlue proposal in October 2022.
New CEO
Judge Young’s ruling leaves New York-based JetBlue grappling with next steps, tasking incoming CEO Joanna Geraghty with steering the airline down a new path. Geraghty was announced as the successor to CEO Robin Hayes after he said earlier this month that he would retire.
JetBlue has argued that access to Spirit’s similar fleet of Airbus aircraft would allow it to grow quickly when planes and pilots are in short supply, growth it said it needs to compete with larger airlines. The carrier operates in large airspace in New York and other cities and had planned to use Spirit as a way to gain access to more routes and travelers.
Years of previous consolidation left United, Delta, American and Southwest controls about three-quarters of the domestic market.
JetBlue planned to remodel Spirit’s yellow planes by removing branding and seats from the tightly packed jets to offer more of a full-service model.
“Although Spirit’s yellow aircraft will not be immediately repainted as JetBlue aircraft, at the time the merger is completed, Spirit and JetBlue will no longer be competitors,” Young wrote in his decision.
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