The DOJ Sues to Block the JetBlue-Spirit Merger
March 17, 2023 | Jon Holstein, Associate | [email protected] ?
Last week, the US Department of Justice announced its intention to prevent JetBlue's acquisition of ultra-low-cost carrier Spirit Airlines on the grounds that it violates the Clayton Antitrust Act. This $3.8 billion deal, approved by shareholders in July 2022, would create the nation's fifth-largest airline, with a 9% share of the US airline market. The DOJ argues that it would reduce competition in the ultra-low-cost carrier space that Spirit currently operates in. For many travelers, ULCCs are their only affordable option for air travel, and this merger would lead to Spirit Airlines being integrated with JetBlue's higher-priced model. JetBlue plans to reconfigure Spirit planes from 28" seat spacing to 32", which is the current standard used by JetBlue. This could result in reduced capacity and higher per-person pricing for seats.
JetBlue, on the other hand, maintains that the merger would enable the new company to compete more effectively against the top four airlines in the US market: American, Delta, United, and Southwest. According to JetBlue, flying routes more efficiently and enjoying economies of scale would lead to more competitive pricing, not less.
If the acquisition goes ahead, it would be the first significant commercial airline merger since Alaska Air Group acquired Virgin America for $2.6 billion in 2016, creating the fifth-largest US airline, with a market share of approximately 6%. While the DOJ approved that merger, it required Alaska Air to adjust various codeshare agreements with other airlines prior to being granted final approval.?
As the airline industry enters a phase of full recovery and growth post the COVID-19 pandemic, I expect we will see increased M&A activity throughout the entire aviation ecosystem, including but not limited to manufacturers, distributors, and service providers.