A federal judge on Tuesday blocked JetBlue Airways’ proposed $3.8 billion takeover of Spirit Airlines, a victory for the Justice Department, which argued the deal would hurt travelers.
In his 109-page ruling, Judge William G. Young of the US District Court for the District of Massachusetts sided with the Justice Department in ruling that the merger would lessen competition in the airline business.
The proposed merger would have created the country’s fifth largest airline. The Justice Department argued that smaller low-cost airlines like Spirit helped drive down fares and that a takeover by JetBlue, which tends to charge higher prices than Spirit, would hurt consumers.
The four largest US airlines — American Airlines, Delta Air Lines, Southwest Airlines and United Airlines — control about two-thirds of the market. The merger would give JetBlue a 10 percent market share, still far behind United, the fourth-largest U.S. airline, which has 16 percent.
JetBlue’s lawyers argued in court last month that the merger would allow it to better compete with the big four national airlines by lowering prices across the board. The Justice Department argued that a larger JetBlue would act just like its larger competitors while taking away a low-cost option for travelers.
Analysis presented in the trial showed that when Spirit introduces a new route, fares, including JetBlue flights, drop. JetBlue planned to reshape the tightly packed Spirit planes to match its own more spacious layout, meaning it would reduce the number of seats.
Judge Young agreed with the government, ruling Tuesday that the merger “will likely provide an incentive for JetBlue to abandon its roots as a rogue low-cost carrier.” He said Spirit has played an important role in the market as a small, low-cost alternative to major airlines.
“Spirit is a small airline,” he said in the ruling. “But there are those who love it. To those dedicated Spirit customers, this is for you.”
President Biden hailed the decision as a victory for consumers in a post on the social media site X and said his administration would aggressively enforce antitrust laws. “Capitalism without competition is not capitalism – it is exploitation,” he said. “Today’s decision is a win for consumers everywhere who want lower prices and more choices.”
Spirit’s stock price fell 47% by Tuesday afternoon after the news, while JetBlue’s stock price closed down 5%.
Jonnathan Handshoe, an airline analyst for CFRA Research, said JetBlue shares rose because the rejected merger represented a $3 billion cost-savings measure for the company. Spirit shares fell in part because the proposed merger would be a lifeline for the company, which has been struggling with operational issues and hasn’t turned a profit since before the pandemic.
During the pandemic, many domestic airlines took on a mountain of debt “because they were trying to replace older aircraft with much newer ones,” Mr Handshoe said.
As part of the merger agreement, JetBlue agreed to pay Spirit $70 million and its shareholders $400 million if the deal is blocked. In a joint statement on Tuesday, the airlines said they disagreed with the decision and were evaluating their options.
“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 companies said.
The decision comes just weeks after Alaska Airlines announced plans to buy Hawaiian Airlines for $1.9 billion. If approved, this deal would give Alaska about 8% of the airline market.
In May, a federal judge blocked a partnership between JetBlue and American in Boston and New York after it was challenged by the Justice Department, which argued it limited competition for flights to the Northeast. Tuesday’s decision creates a “winning streak” for antitrust officials, said Dylan Carson, an attorney at the firm Manatt, Phelps & Phillips.
“It really helps put the wind in the Biden administration’s enforcement agenda,” said Mr. Carson, a former Justice Department antitrust lawyer.
Hubert Horan, an aviation consultant, said the proposed merger would have eroded competition in the airline industry. Low-cost carriers like Spirit, rather than the big four, had “led most of the industry’s operational and marketing innovations,” he said.
“Instead of competing aggressively, JetBlue has morphed into a smaller version of a legacy carrier,” Mr. Horan said.
Niraj Chokshi contributed to the report.