JetBlue, Spirit wrap court push for merger before judge decides

JetBlue Airways Corp. and Spirit Airlines Inc. are wrapping up testimony at an antitrust trial over their proposed $3.8 billion merger, a deal US regulators want to block as part of a crack down on industry consolidation.

Over more than a week, the airlines presented evidence from experts and executives to support their claim that combining the low-cost carriers would allow them to better compete with major airlines and provide better service for customers. Closing arguments for both sides are slated for Tuesday in Boston.

The US Justice Department spent about three weeks presenting evidence earlier in the trial seeking to prevent the deal, which regulators claim is anticompetitive and will boost fares. 

US District Judge William G. Young has been presiding at the trial without a jury and will decide the case. It’s not clear how long it will take for him to rule, but his decision could reshape the competitive landscape for low-cost carriers and inform future antitrust enforcement as the industry seeks further consolidation.

Here are the key points from the airline’s trial arguments so far:

Growth Needed

• Decades of industry consolidation mean American Airlines Group Inc., Delta Air Lines Inc., United Airlines Holdings Inc. and Southwest Airlines Co. control about 80% of US ticket revenue.
• The only way Jet Blue can compete with the Big Four is to get bigger through mergers, JetBlue Chief Executive Officer Robin Hayes told the judge. “You’d never, ever get to the size they are based on organic growth.”
• JetBlue and Spirit are the sixth- and seventh-largest US airlines. Combined, they’d become fifth, leapfrogging Alaska Airlines. But they would still control just 8% of the market.
• “The government’s choice to put a stake in the ground on this merger, after blessing all the mergers leading to the dominate Big Four airlines, is particularly misguided,” said Ryan Shores, an attorney representing the airlines.

Low-Cost Rivals

• Spirit is the largest US ultra-low-cost carrier, but others are poised to grow in that market once Spirit is acquired by JetBlue, lawyers for the airlines argued.
• Frontier Airlines Group Holdings Inc. CEO Barry Biffle said he anticipates a frenzy of competition to replace Spirit — especially on highly desirable routes or at key airport gates JetBlue plans to divest.
• Also, larger legacy airlines have started offering “basic economy” fares in recent years in an effort to compete on price with ultra-low-cost carriers like Spirit.
• Andrew Nocella, the chief commercial officer at United, testified that such fares are a key feature of the airline’s business plan after the pandemic. “We look forward to competing even more aggressively in that space in the future,” he said Nov. 28.

Uncertain Future

• Spirit’s future as a standalone airline is uncertain, due to the carrier’s poor financial performance and growing competition for price-sensitive customers, lawyers for the airline said.
• Spirit CEO Ted Christie said the carrier is on track for its fourth consecutive annual loss and has been in pursuit of a merger for years, due to its performance. The company discussed possible mergers with Allegiant and Frontier before JetBlue made an offer.
• Low-cost US airlines have been forced to slash their already low prices, as they continue to add seats they can’t draw passengers to fill.

JetBlue ‘Disruptor’

• The government focused on the “Spirit-effect” at trial, explaining how the ultra-low-cost carrier helps drive down prices on routes it enters. But lawyers for JetBlue contend that there is a similar “JetBlue-effect” that would benefit more consumers in broader markets if the deal goes through.
• Nicholas Hill, a consultant with Bates White and a former analyst for the DOJ’s antitrust division, provided expert testimony for the airlines and said his analysis showed that JetBlue is a “more effective competitor” than Spirit.
• “So routes on which Spirit is competing today and JetBlue is not, when we replace Spirit with JetBlue, it’s likely to increase benefits to consumers,” he said during testimony on Nov. 27.

The case is US v. JetBlue, 23-cv-10511, US District Court, District of Massachusetts (Boston).