DOJ files lawsuit to block JetBlue’s $3.8 billion deal for Spirit

The U.S. Department of Justice on Tuesday sued to block JetBlue’s proposed $3.8 billion acquisition of Spirit Airlines.

The deal, announced in July 2022, would create the fifth-largest carrier in the U.S. and represent the largest airline industry merger since Alaska Air bought Virgin America in 2016 for $2.6 billion. The lawsuit was filed in Massachusetts federal court and includes the states of New York and Massachusetts as well as Washington, D.C. as plaintiffs.

The lawsuit claims the acquisition would harm consumers by eliminating “about half of all ultra-low-cost airline seats in the industry,” predicting that JetBlue would charge higher prices for Spirit flights if the merger is completed. The Justice Department also argues that the combination would “dampen” competition with other airlines because competing airlines would have fewer incentives to offer low prices after a merger.

“On dozens of routes serving tens of millions of passengers each year, JetBlue and Spirit are two of the most significant rivals today, and they have such large combined market shares that the transaction is presumptively illegal,” the lawsuit alleges.

The Justice Department stated it was prompted to file the lawsuit to “preserve Spirit’s unique and disruptive role in the industry, to protect choice and economical access to air travel, especially for millions of cost-conscious Americans, and to prevent hundreds of millions of dollars in annual harm to consumers.”

JetBlue CEO Robin Hayes told “CBS Mornings” on Tuesday that the airline was disappointed, but not surprised, by the government’s determination to challenge the transaction in court.

“We said when we got the offer approved by the Spirit shareholders last year that we didn’t think we would close ’til the first half of 2024, you know, expecting a trial.”

In defending the deal, JetBlue had said the two airlines would overlap on no more than 11% of their respective nonstop routes and would provide more competition for the nation’s “Big Four” carriers: American Airlines, Delta Air Lines, Southwest Airlines and United Airlines.

Some Wall Street analysts think JetBlue will prevail in court despite the antitrust concerns surrounding the transaction.

“While we expect the merger to be challenged, we do not expect it to be stopped, due to JetBlue and Spirit’s low market shares and the entrance of new passenger airlines into the market,” Benjamin Salisbury of Height Securities told investors in a research note.

Securing regulatory clearance to complete the transaction could require JetBlue to divest some of its operations in New York, Boston, and Florida, as well as potentially end its codeshare agreement with American, he added.