LaGuardia International Airport Terminal A for JetBlue and Spirit Airlines in New York.
Leslie Joseph | CNBC
A federal judge on Tuesday blocked JetBlue Airways' purchase of Spiritual airlines after the Justice Department sued to stop the merger, saying the deal would raise fares for price-sensitive consumers by driving the discount airline out of the market.
JetBlue's proposed $3.8 billion purchase of discounter Spirit would have produced the nation's fifth-largest airline, a deal the airlines had said would help them grow better and compete against larger rivals such as Delta and United.
“JetBlue plans to convert Spirit aircraft to the JetBlue design and charge JetBlue's higher average fares to its customers,” U.S. District Court Judge William Young wrote in his decision. “Eliminating Spirit would hurt cost-conscious travelers who rely on Spirit's low fares.”
The decision, handed down Tuesday, marks a victory for a Justice Department that has aggressively tried to block deals it considers anticompetitive.
“Today's ruling is a victory for tens of millions of travelers who would have faced higher fares and fewer options if the proposed merger between JetBlue and Spirit had been allowed to move forward,” Attorney General Merrick Garland said in a statement. “The Department of Justice will continue to vigorously enforce the nation's antitrust laws to protect American consumers.”
The Justice Department alleged in its lawsuit, filed in March, that JetBlue's acquisition of the budget airline would force many passengers to pay higher fares by eliminating Spirit and “approximately half of all cost airline seats.” ultra-low in the industry.
Spirit has grown rapidly in recent years by offering low fares and fares for everything else, from seating assignments to carry-on luggage, a simple model that has become a favorite joke of late-night comedians.
“Spirit is a small airline. But there are those who love it,” Young, who was appointed by former President Ronald Reagan, wrote in his ruling. “For those dedicated Spirit customers, this one's for you.”
Spirit shares plummeted after the ruling and ended the day down 47%, while JetBlue shares gained about 5%.
Spirit's market capitalization at Friday's close was $1.66 billion, less than half JetBlue's proposed purchase price. The Miramar, Florida-based airline has been struggling with grounded planes due to an engine manufacturing issue and weaker-than-expected travel demand.
Shares of Spirit Airlines and JetBlue Airways after a federal judge blocked the airline's proposed merger.
JetBlue and Spirit said in a joint statement that they disagreed with the ruling and were evaluating next steps.
“We continue to believe that our combination is the best opportunity to increase much-needed competition and choice by offering low fares and excellent service to more customers in more markets, while improving our ability to compete with dominant U.S. airlines.” , the airlines said.
Another Massachusetts District Court judge sided with the Justice Department last year in blocking JetBlue's regional alliance with american airlines in the Northeast, an association that allowed carriers to coordinate routes and schedules.
JetBlue and Spirit said Tuesday that “JetBlue's termination of the Northeast Alliance and its commitment to significant divestitures have eliminated any reasonable anticompetitive concerns raised by the Department of Justice.”
Agreement achieved with a lot of effort
JetBlue fought hard for Spirit. It launched a hostile takeover weeks later Border Airlines and Spirit agreed to merge in a cash and stock deal. Frontier's business model is more similar to Spirit's, and both airlines have similar fleet configurations, unlike JetBlue's more full-service model, which contrasts with Spirit's discount strategy.
After Spirit's board rejected JetBlue's initial acquisition offer, Spirit CEO Ted Christie said in May 2022 that he did not believe regulators would approve a deal with JetBlue, citing the partnership with American Airlines and JetBlue's plan to take seats off the market.
“In our opinion, this is not going to happen and for that reason our board rejected it and to imply otherwise again, we think is an insult,” he said at the time on CNBC's “Squawk Box.”
Spirit shareholders ended up rejecting the Frontier deal and months later approved an improved JetBlue proposal in October 2022.
New CEO
Young's decision leaves New York-based JetBlue grappling with next steps, and tasks incoming CEO Joanna Geraghty with guiding the airline down a new path. Geraghty was announced as the successor to chief executive Robin Hayes after he said earlier this month that she would retire.
JetBlue argued that access to a similar fleet of Spirit's Airbus planes would allow it to grow quickly when there are shortages of planes and pilots, growth it said it needs to compete against larger airlines. The airline operates in highly congested airspace in New York and other cities, and had planned to use Spirit as a way to gain access to more routes and travelers.
Years of prior consolidation left United, Delta, American and South west It controls approximately three quarters of the domestic market.
JetBlue planned to remodel Spirit's yellow planes by removing branding and cramped plane seats to provide a more full-service model.
“Although the yellow livery of Spirit's aircraft would not be immediately repainted as JetBlue aircraft, at the time the merger is consummated, Spirit and JetBlue would no longer be competitors,” Young wrote in his decision.
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