JetBlue Airways eventually won over Spirit Airlines in a $3.8 billion takeover deal. Now it must win over antitrust regulators.
The New York-based airline snapped up Spirit from Frontier Airlines with a cash offer that torpedoed the cash and stock deal the two low-cost carriers had entered into earlier this year. Hours after Spirit and Frontier said they were calling off their merger agreement, which lacked shareholder support, Spirit said it agreed to sell itself to JetBlue.
JetBlue said it expects to win regulatory approval in the fourth quarter of next year or the first three months of 2024. The carriers expect the deal to close in the first half of 2024.
If regulators opt out, it will mean the end of Spirit, a brand that has become a punchline about the indignities of cheap air travel, where passengers trade conveniences like standard legroom, snacks and free carry-on bags for a bargain.
Will regulators allow an ultra-low-cost airline to be absorbed under the hottest inflation streak in decades and remade into JetBlue’s image, more akin to major airlines?
The regulatory barrier is high. President Joe Biden’s Justice Department has vowed to challenge any deal that could harm competition. Last year, it sued to block JetBlue’s alliance with American Airlines in the Northeast. A trial is due to start at the end of September.
JetBlue is optimistic. The DOJ lawsuit alleges American could overpower JetBlue and says the alliance, which allows American and JetBlue to coordinate routes at busy airports serving New York and Boston, constitutes a “de facto merger.”
JetBlue CEO Robin Hayes said a combined Spirit and JetBlue, which would become the nation’s fifth-largest airline, would create a strong competitor to the big four U.S. airlines: American, Delta, United and Southwest. After more than a decade of consolidation, these carriers control about three-quarters of the US market.
“The best thing we can do to make the industry more competitive is to create a truly high-quality national low-cost airline to compete on a more national scale with these legacy airlines,” Hayes said in an interview. “By joining JetBlue and Spirit together, we’re able to do it much faster than we would alone.”
American declined to comment. The Justice Department did not immediately respond to a request for comment, but the agency’s antitrust chief, Jonathan Kanter, has promised a tough stance on competition.
“It’s no secret that many settlements are failing to preserve competition,” Kanter said in a speech in Chicago in April. “Even sales may not fully preserve competition across all its dimensions in a dynamic market.”
The Ministry of Justice has signed up to airline mergers, but not without some legal battles. For example, the 2013 combination of American Airlines and US Airways was approved at the end of that year after the department sued to stop the deal.
But that would likely require JetBlue and Spirit to divest some of their assets in the process, said John Lopatka, a law professor who specializes in antitrust law at Penn State Law.
Without it, “there would be a public perception of it [the Justice Department] just the cave,” he said.
Regulators will study fares and overlapping routes, especially in places like Florida where airlines have large operations.
“I think they’re up against a lot,” Lopatka said of JetBlue and Spirit. “I think there is almost no chance that they will be able to complete the merger without some concessions.”
The Department of Transportation, which also had to opt out, did not immediately comment.
Airlines have drawn scrutiny this year from high-profile lawmakers, including Sen. Bernie Sanders, I-Vt., as passengers faced an increase in flight cancellations and delays, driven in part by staffing shortages.
“I am carefully reviewing the JetBlue-Spirit merger for its impact on consumers and workers, and I expect that the Department of Justice and the Department of Transportation will also conduct an objective investigation,” said Sen. Ed Markey, a Democrat who represents Massachusetts, where JetBlue has a major operation. it in a statement