Quiver Quantitative - The U.S. Department of Justice (DOJ) initiated a legal proceeding on Tuesday, seeking to thwart JetBlue (JBLU) proposed $3.8 billion takeover of Spirit Airlines (SAVE), as the antitrust trial commenced in Boston. Spearheading the case, DOJ attorney Arianna Markel argued that such an acquisition would inevitably lead to diminished flights, escalated prices, and decreased seating capacity. Citing internal JetBlue data, Markel highlighted that ticket prices could surge by 30% upon Spirit's elimination as a rival, causing an estimated $1 billion in annual detriment to passengers. Markel underscored, "JetBlue is counting on the fact that eliminating Spirit and the competition Spirit provides will allow JetBlue to raise fares."
JetBlue's representative, Ryan Shores, delineated the case as a flawed objection to the merger of America's sixth and seventh largest airlines, which collectively account for a mere 8% of the domestic airline market. Shores drew attention to the market dominance of four leading U.S. carriers—United Airlines (NASDAQ:UAL), American Airlines (NASDAQ:AAL), Delta Air Lines (NYSE:DAL), and Southwest Airlines (NYSE:LUV)—which collectively command 80% of the domestic market share. This dominance, according to Shores, ensued from several past mergers sanctioned by the federal government. Shores contended that the government is erroneously preventing JetBlue's growth, which could otherwise challenge the supremacy of the top four airlines and rejuvenate a market that's currently unfavorable for competition and consumers.
The trial's commencement coincided with JetBlue's release of below-par third-quarter results. The airline attributed its underperformance to air traffic control disruptions and meteorological setbacks during the summer. Concurrently, the company's stock plummeted 16.7%, nearing its lowest valuation in almost 12 years. To assuage the antitrust apprehensions of U.S. regulators, JetBlue proffered concessions, including selling off Spirit's airport slots and gates in key cities such as New York City, Boston, Newark, and Fort Lauderdale. Nevertheless, the Justice Department deemed these compensations insufficient, contending in a March lawsuit that the merged entity would be detrimental to consumers nationwide by hiking fares and diminishing choices.
This legal confrontation amplifies the Biden administration's overarching strategy to intensify antitrust enforcement—a campaign that has witnessed varied courtroom outcomes. Previously, JetBlue found itself embroiled in an antitrust violation over its Northeast U.S. collaboration with American Airlines. The latter, after a verdict against the alliance, opted for an appeal while JetBlue resolved to terminate the partnership.
This article was originally published on Quiver Quantitative