The Justice Department is tossing a giant wrench into JetBlue's quest to acquire Spirit Airlines. Ironically, it was Spirit that predicted this exact thing would happen.
Here's the thing: The DOJ sued to block JetBlue's proposed $3.8 billion deal, arguing that the airline industry needs more competition to lower costs for customers. Attorney General Merrick Garland, in announcing the suit Tuesday, said the tie-up would harm customers with higher fares and fewer choices.
The DOJ said allowing the acquisition would eliminate the "Spirit Effect" —the idea that even if you never fly Spirit, you're benefiting from its existence because its super-low-cost model forces rivals to compete on pricing.
JetBlue, naturally, sees it a little differently.
Once upon a time there were nine large carriers in the US. But over the past two decades, the Justice Department has green-lit a series of mergers that's left us with just four — American, Delta, United and Southwest. Together, they control a staggering 80% of US air traffic.
In JetBlue's eyes, the merger with Spirit would create a more powerful competitor to the Big Four, which would ultimately bring down fares. Since JetBlue and Spirit primarily compete with other carriers, not each other, the combination would not significantly decrease competition, JetBlue argues.
TWISTED SAGA
It's been a long road for Spirit, which became the target of a bidding war last year between JetBlue and Frontier Airlines. Spirit fended off JetBlue's advances for months, favoring a tie-up with fellow low-cost carrier Frontier.
At the time, Spirit argued that a deal with JetBlue faced too many regulatory challenges to be approved because it would raise fares.
"A court will be very concerned that a JetBlue-Spirit combination will result in a higher cost, higher fare airline that would eliminate a lower cost, lower fare airline and eliminate about half of lower cost capacity in the United States," Spirit's board said at the time. Eventually, Spirit gave up the fight and in favor of the more lucrative offer from JetBlue.
Now, that statement is coming back to haunt it, as Garland quoted the board in announcing the DOJ lawsuit.
WHAT NOW?
JetBlue has vowed to press ahead with the deal and hopes to defeat the lawsuit in time to still close its deal with Spirit by the end of the year.
It won't be an easy fight. The JetBlue deal is just the latest large corporate tie-up to face intense scrutiny under the Biden administration's anti-trust regulators.
In December, the Federal Trade Commission sued to block Microsoft's $69 billion acquisition of Activision Blizzard, challenging one of the largest tech acquisitions in history. The FTC is also reviewing Kroger's proposed $24.6 billion acquisition of Albertsons. And last year, the commission helped scuttle Nvidia's attempted acquisition of ARM — which would have been the largest semiconductor deal on record.
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