JetBlue and Spirit Airlines Merger: Legal Turbulence Ahead for JetBlue’s Acquisition

Written by: Michael C. Mayor

JetBlue Airways Corporation, one of the largest airlines in the United States, recently announced its plan to acquire Spirit Airlines, Inc. for $3.8 billion. The acquisition would have positioned JetBlue as the second-largest airline in the US by passenger traffic, behind only Southwest Airlines, and would have allowed JetBlue to significantly expand its presence in the ultra-low-cost carrier (ULCC) market. ULCC airlines operate with a low cost business model, meaning consumers get tickets for a much lower cost.

The $3.8 billion deal was met with legal challenges from the United States Department of Justice (DOJ) and several states, alleging that the acquisition would reduce competition and lead to higher airfare prices for consumers.

JetBlue’s proposed acquisition of Spirit Airlines would have been a significant move for the airline. Spirit Airlines, the largest ULCC in the US, is known for its low-cost fares and has a strong presence in several major US cities. The acquisition would have allowed JetBlue to tap into Spirit’s existing customer base and expand its reach in the US market.

Section 7 of the Clayton Antitrust Act prohibits mergers, acquisitions, and certain joint ventures that have the effect of substantially lessening competition in any line of commerce or activity affecting commerce in any part of the US. The Clayton Act has been the preeminent law governing mergers and antitrust complaints in the US since it was enacted in 1914. Section 7 is particularly relevant to this case, as it prohibits mergers that may substantially lessen competition or tend to create a monopoly. Mergers and acquisitions that meet statutory reporting requirements must be filed with both the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice before closing. The DOJ and several states filed a complaint challenging JetBlue’s acquisition of Spirit, arguing that it would reduce competition in the airline industry.

The DOJ complaint notes that consolidation has been a trend in the industry, with the four largest airlines in the US dominating approximately 80% of flights. The complaint also argues that the acquisition would eliminate head-to-head competition between JetBlue and Spirit on routes where they currently compete or have plans to enter, reducing the incentives for both airlines to keep their prices low.

The DOJ’s complaint was filed on March 7, 2023, in the US District Court for the District of Massachusetts, and was joined by the attorney generals from the Commonwealth of Massachusetts, the State of New York, and the District of Columbia. The complaint alleges that the proposed acquisition would violate Section 7 of the Clayton Act.

JetBlue will proceed by answering the complaint, and the court will determine whether to grant the DOJ’s request for a preliminary injunction to block the merger. If the merger is allowed to proceed, the parties will also have to address any potential divestitures or conditions that the court may require before the merger can proceed. Divestiture is the partial or full disposal of an asset by a company, which is commonly used by courts to resolve antitrust concerns.

JetBlue anticipated a legal challenge to the acquisition and have hired top antitrust lawyers from Shearman & Sterling to represent the company. JetBlue’s defense will likely focus on showing pro-competitive effects of the acquisition and argue that JetBlue and Spirit primarily compete with other carriers, not each other. JetBlue has also offered upfront divestitures to ensure ULCC growth, which could potentially address some of the concerns raised by the DOJ and states.

JetBlue will likely argue the following rationales for the merger: (1) JetBlue is 3x more effective than Spirit at bringing down competitor fares; (2) JetBlue’s award-winning customer experience will reach more customers; (3) The merger will unlock long-term opportunities to add more destinations and routes that otherwise would not be possible; (4) JetBlue and Spirit together will still be much smaller than any Big Four airline carrier; (5) JetBlue and Spirit primarily compete with other carriers, not each other; (6) JetBlue has offered unprecedented upfront divestitures to ensure ULCC growth; and (7) JetBlue will expand sustainability leadership.

The parties will also likely rely on U.S. v. Philadelphia National Bank, a landmark antitrust case that set the standard for evaluating mergers under the Clayton Act. In that case, the Supreme Court held that the relevant market for evaluating a merger’s effects on competition should be defined by the products or services sold, the geographic area in which they are sold, and the customers who buy them.

The court’s decision on whether to allow the merger will have significant implications for the airline industry and consumers. If the merger is allowed to proceed, it would create a major player in the ULCC market and potentially lead to increased competition with the Big Four airlines. However, if the merger is blocked, it would signal the DOJ’s commitment to enforcing antitrust laws in the airline industry.