JetBlue’s deal to buy Spirit Airlines isn’t just being challenged by the government. There’s a civil suit as well, because why not piggy back on government opposition for a payday? Only lawyers made an oops in redactions – and as a result exposed “internal company estimates of plans to hike fares on Spirit planes by as much as 40%.” And this could make JetBlue’s defense of the deal against government anti-trust charges that much harder.
Those details show that in mapping out the merger’s impacts on its revenues, JetBlue Airways Corp. “modelled for price increases and capacity reductions” by removing an average of 24 seats “from every one of Spirit’s roughly 200 planes.”
“Indeed, JetBlue plans to increase fares on aircraft it acquires from Spirit by at least 24%,” the travelers said in one section that was supposed to be redacted. And, according to the redacted text, JetBlue believes that number “is a conservative estimate, and that fare increases may be as high as 40%. … Thus, there is direct evidence in the form of party admissions that the merger will have anticompetitive effects.”
JetBlue argues that as they grow, they drive down fares. They rely on a narrative about a ‘JetBlue Effect’ that’s decades old. And they suggest that a combined JetBlue plus Spirit becomes large enough to be a real competitor against larger airlines. But that’s not what improperly redacted documents say:
[According to] another nominally redacted section that the impact of the deal will go beyond just passengers on Spirit planes. Instead, they wrote, “JetBlue acknowledges that Spirit’s exit from a route results in market-wide price increases of all other airlines serving that route by 30%.”
That detail is also important for a key argument by the carriers for summary judgment: that the travelers can only claim injury if they fly with Spirit. But the flyers argued in an unredacted section that the merger threatens all airline passengers, regardless of which carrier they pick.
JetBlue also estimates that since Spirit entering into a market “stimulates increases of 18% to 36% in new passengers” and their acquisition of Spirit means that the low cost carrier’s new planes won’t go on the new routes that they otherwise would have, there will literally be people foregoing air travel as a result of the deal.
The plaintiffs in the civil suit are represented by counsel that piggybacks on seemingly every government case against an airline in what’s always appeared to be an effort to extract fees. In over a decade of efforts there’s never been a discernable consumer benefit that I’ve been able to ascertain. But here they at least got something juicy.
Still, this is all supposedly a shocking revelation, a smoking gun. But is it?
- We know that JetBlue’s acquisition of Spirit is meant to add planes, pilots, and gates to the JetBlue operation – that it means taking aircraft out of the ultra-low cost sector, and even retrofitting planes to have fewer seats with more legroom and make seat back entertainment and wifi free.
- That’s probably bad for JetBlue’s shareholders, since it moves assets from a higher margin business model to a lower margin one even after the carrier won a bidding war in which it likely substantially overpaid.
- But it does mean less low fare competition! That much is obvious. That alone doesn’t make it illegal (even though everything violates anti-trust). There’s an argument that more planes with more legroom is good for consumers, just as there’s an argument that fewer planes offering Spirit’s low fares is bad.
It’s certainly possible that these poorly redacted JetBlue documents are embarrassing. People put dumb things in writing! Former American Airlines CEO Doug Parker, when he ran US Airways, once e-mailed the CEO of Delta trying to get them to agree to raise fares! But it’s not clear that these documents tell us anything substantive about what a JetBlue-Spirit merger looks like that we don’t already know from JetBlue’s public statements about its plans.
Ironically we’re already seeing what was entirely predictable in New York, after the federal government won a district court anti-trust case against the JetBlue-American Airlines partnership, where there’s going to be less competition as the two players shrink in size and can’t serve as a force against Delta (and United at Newark), and American shifts attention to Philadelphia.
When if there was a case that an actual merger would raise fares in certain markets, it’s likely this one where JetBlue acquires Spirit. While JetBlue’s leadership can’t admit it, their shareholders would likely be better off if the deal unwinds. The capital being deployed to buy Spirit (that is left – the deal was so generous Spirit shareholders have already partially gotten paid!) would be better invested elsewhere… even just buying a bundle of stocks and broad-based assets uncorrelated to the broader market.
Update: JetBlue Airlines offers,
“Private plaintiffs’ counsel failed to properly redact certain information which, taken out of context, creates a completely inaccurate picture of the facts. We are confident that our merger with Spirit will give a much-needed boost to airline competition in the U.S. and result in more low fares and higher-quality service for customers. We look forward to laying out all of the evidence to support our case this October.”
Update 2: JetBlue shares an additional statement,
Unfortunately, following a filing error by the legal team for a group of consumers that has filed a baseless lawsuit, we are in a position where we need to correct the record.
To be very clear, the claims reported by several media outlets did not reflect facts set out in JetBlue documents. Private plaintiffs represented by the merger class action lawyer, Alioto, in a the court filing laying out their arguments opposing our motion for summary judgment, incorrectly redacted sections of text so that it could be read by cutting and pasting into a new document. As we attempted to clarify yesterday, it is important to understand that the redacted text was content written and produced by Alioto in their own court filing, not redactions to JetBlue internal documents. These redactions were in text where Alioto had outlined, in their own words, their argument to the court, and essentially represents the plaintiff’s “spin” on confidential evidence they have reviewed. It’s no surprise a class action attorney would mispresent the facts in a brief to the court to preserve their case.
The factual evidence, when presented in a full and complete picture, will demonstrate that JetBlue intends for the merger with Spirit to increase competition and help lower fares across the board while also bringing JetBlue’s high-quality and much-loved experience to millions more travels.
Pretty bad article. 40% higher fares of what ? $39.
I know how much you hate B6 … good news is your credibility outside of posts about how to spend miles is pretty much garbage.
Gary..answer this.
If the Big 6 were all allowed to merge making the Big 3… in what world can’t 2 airlines come together to try and compete. Maybe Spirit fares aren’t sustainable. Maybe JetBlue is too small to grow out their Int’l network without feed from more aircraft.
Miami is massive in Miami .. JetBlue should get a chance to compete properly.
Let the market and the consumers decide … not the government. Disgusting how much the world wants Uncle Joe to decide your life and your business for you .
Also… none of JetBlues hubs after this merger will be even close to what the government has allowed AA/UA /DL to do.
More evidence B6 is headed for a hostile takeover. JetBlue Airways dba American Airlines is coming. Maybe not now, but it is on the horizon.
Best outcome would be for this deal to fail, current B6 leadership get turfed out and for B6 to get a fresh start with competent management.
B6 Ops performance and their IT is terrible. The only good thing is the onboard experience/staff (despite the best efforts of management)
@SMR – I am not suggesting that this deal should be illegal. Although I think it’s bad business by JetBlue management, who need to be changed by the board.
40% increase of what?
Spirit’s misleading sticker price?
It’s well documented that Spirit makes more than half of its revenues from ancillary (“junk”) fees.
If Jet Blue is nixing Spirit’s junk fees and you’re comparing apple carts to apple carts, a 40% increase in the sticker price is not necessarily a fare increase for a normal passenger with at least a carry-on bag.
There’s also other customer savings to factor in, such as the likelihood of incurring costs of being stranded for days, which is far more likely to happen as a Spirit passenger.
This is JetBlue is evil. Do NOT allow Spirit to be gobbled up by these corporate sharks! Robin Hayes and Joanna Geraghty are horrible people and don’t care about their workers.
This is precisely why the DOJ objects to the merger and why this revelation will likely sink the merger/acquisition.
What people like SMR don’t understand or won’t admit is that the big 3 are completely composed of mergers with other legacy carriers.
JBLU’s proposal with SAVE is to acquire a lower cost and lower revenue airline is unprecedented and not comparable to what the big 3 or any of their predecessors did.
While SAVE’s total price for some passengers could be no different than even some legacy or LCC fares, there is a segment of passengers that will accept the bare bones level of service and financially be harmed by any increase in fares or reduction in capacity which would raise fares even if the SAVE fare structure was maintained.
@michael K
This is why I avoid these headlines on twitter. People see on headline on an article and think it means 40% overall. Doesn’t show in context of the actual pricing model with or without Spirit’s ancillary fees.
Tim Dunn, lower cost of what? Costs at NK are high now and JBLU is outperforming the margins of NK. NK has been losing money quarter after quarter. F9 has reported further erosion of margins. ULCC is no longer anything with value as it once once for shareholders and markets. Lets not forget how many class action lawsuits are currently and previously been filed against anti consumer practices by Nk and now frontier
https://topclassactions.com/lawsuit-settlements/travel/frontier-airlines-class-action-alleges-airline-falsely-advertised-all-you-can-fly-pass/
You think their practice is ok?
And to think your precious Delta and the other big 3 wasn’t trying to raise fares to bolster revenue in their mergers your either being foolish or massively disingenuous.
Jetblue/Spirit needs to take a playbook of the streamlining of Swoop Airlines into forever parent company WestJet in Canada (ongoing through fall). WestJet guaranteed maintaining certain niche routes Swoop operated, and they also committed to offering ultra-low fares on every WestJet flight- meaning routes taken over AND routes formerly not flown by a LCC will now have low fares. In this example, everyone wins. Nicer more comfortable planes, more reliable service, and some availability of low cost fares for customers. At the same time the airline gets what it wanted, and the labor unions of Swoop now get mainline airline pay and benefits.
How much of the missing context B6 management alludes to missing is the fact that they will bundle fares differently. This makes a good headline but seems a bit like a nothingburger.
dart…
NK’s system RASM and CASM are well below B6′ or any other legacy carrier. The reason NK and the ULCC sector are not viable is because of high costs (partly attributable to high pilot costs as a result of the rich legacy carrier post-covid pilot contracts) and LCC and ULCC’s inability to grow quickly due to aircraft delivery delays (or engine problems esp. in SAVE’s case).
And B6′ margins are well, well below the big 3 right now. B6 might be marginally better off financially than NK right now but that isn’t saying much Neither have viable and sustainable business models which is precisely why they are trying to merge their way out of their own dark futures.
As for DL, they have the best track record for successful mergers and asset acquisitions and they have done it multiple times. The DL/NW merger was as end to end (no overlap and thus minimal reduction of competition) as two legacy airlines could be and that was also true of DL/Western and DL/NE decades ago. All of those were between legacy carriers – again unlike B6/NK which are trying to “mix” airline types which inevitably eliminates competition and harms consumers.
DL has simply demonstrated the best and most consistent strategic thinking and execution which is why they are consistently the most profitable, highest revenue, and highest market cap airline in the world even though others fly more passengers and more seat miles. If that makes them precious, so be it
@Gary one thing we agree on. JetBlue management is absolutely the worst in the industry… maybe world wide but I still think this merger is more beneficial than most think. In reality there will be more wins than what looks like on paper.
How anyone in Jetblue operations has a job is well beyond my comprehension of how things work.
I have been flying JetBlue for a few years and am happy with both the flights and the cost of the flights. When they take over Spirit, hopefully the rest of the airline will continue like before.
Was it truly an “Oops”?
All mergers in this business are dedicated to consolidating pricing power, narrowing consumer choice, and improving shareholder value.
@SMR
Play the game of Monopoly and see what happens w/o government oversight. Well-regulated capitalism is the only successful form of economy.
As a frequent Flyer who has never and never will fly on Spirit (Meh). As others have said Spirit makes a lot of their revenue on ancillary fares so a rate increase of 40% across board is only part of the picture. Based on the poor behavior of some of Spirits customers it might be a good idea to raise the rates to weed out some of these malcontents.
@Gary, I think the collusion you are attributing to Parker was actually Robert Crandall.
Has as already been alluded to , let the consumers decide not sleepy Joe and gang .
“Well-regulated capitalism is the only successful form of economy.”
“Well-regulated capitalism” is an oxymoron.
@Johhny – Crandall was a call with Braniff’s CEO.
https://qz.com/115789/us-airways-executives-have-been-pretty-obvious-about-their-plans-to-raise-prices
“In 2010, when Delta rolled out a new discount promotion, Parker complained in an e-mail chain with his executives that the move was “hurting [Delta’s] profitability – and unfortunately everyone else’s” and also urged them to bad-mouth Delta to Wall Street. Parker forwarded the whole e-mail chain to Delta CEO Richard Anderson in an effort to get him to re-consider the discounts. Anderson said that was inappropriate and sent the conversation on to his lawyer.”
Tim Dunn,
Your comparing Delta post merger 5x bigger than B6. Why do you think B6 wants the merger? Look at Delta pre merger when they were only a bit bigger than current day jetblue. They were just as meager, in fact they filed for Ch11 and made may years of losses. In the end b6 has made profit, albeit some small losses but is on track to be profitable FY’23 where NK hasn’t;t made a dime in over a year or over the last 5 quarters posted losses. So its disingenuous to compare them. As a matter of fact, showcasing Delta current performance is exactly the argument for jetblue to be bigger and merge.
This fare leak is nonsense. Everyone knows, and even NK said in their last earnings that fares need to go up.
you still don’t get it.
EVERY ONE Of Delta’s mergers has involved TWO legacy carriers. Same business model. End on end combinations – which means that DL and each of its merger partners overlapped on very few routes. DL’s mergers have been the most end on end of any US legacy airlines.
JetBlue is a low cost carrier and SAVE is an ultra low cost carrier. The DOJ objects to the merger because of the very obvious increase in fares and reduction in capacity on every flight that will take place as NK planes are converted to less dense B6 standards, even if they are more comfortable – but that is NOT a DOJ metric. Increase of fares and overlap IS.
And B6 and NK have significant overlap. None of the big 3 airlines resulted from putting hubs by each of the two merger partners in the same airport or even metro area.
You guys are missing the core point of the B6-NK merger which is avenue to higher margins. Every airline aspires to rise up the customer premium ladder or expand network unless you’re the legacies and have been given the industry on a silver platter. Pretty much 40% fuel cost and 40% labor+assets so you’ve only got roughly 20% to play with like a high-stakes multi-decade chess game.
These razor-thin avenue to higher margins is the reason why Southwest fares are so high now comparable to legacies and Spirit can’t keep doing it’s ultra low cost thing even adjusted for inflation. Allegiant will eventually end up in the same boat as Spirit and someone else will enter the top 10 queue from the bottom. I can almost guarantee even Ryanair won’t be the ULCC Ryanair in 10 years as they plateau out in their sector of customers.
The very nature of the business is few airlines or no airlines exist in this competitive landscape. It’s like gravity where particles coalesce eventually. Most countries only have 1-2 carriers of which 1 is a heavily-subsidized flag carrier.
Can you imagine 100 airlines in the US? In what world would those even survive with 3-4 dominating 80%? That’s what the DOJ is asking for as an alternative.
In summary, stop speculating this early on in the multi-decade chess game about the 6th biggest merging with the 7th biggest. Wouldn’t even be an issue in any other industry except you fools are worried about your trip prices or are emotional about your investments. Stop or speculate on the few streaming services or the few internet companies that dominate instead maybe…
@tim Dunn.
Fine you obviously don’t like the merger which is fine. My question for you is, play devils advocate for a minute. If you were JetBlue, how would you get this deal DONE?
The issue is not figuring out how to get the SAVE/JBLU merger over the finish line.
JBLU’s problem is that it has not been able to figure out how to compete against other carriers within what the law allows.
Ideally, ALK and JBLU would make great merger partners but there was all kinds of bad blood because of the bidding war over Virgin America – which probably would have ended up better with JBLU than ALK.-
There just aren’t enough low cost carriers – excluding the ULCCs – for JBLU to merge with. LUV is too big to merge with anyone else just as is true with AAL DAL and UAL.
The best thing JBLU could do to be viable as a standalone airline is to run a better operation. No repeat flyer is going to book JBLU if DAL – which runs a much better operation is an option and remotely cost competitive. It is mind-boggling that JBLU continues to think that running a consistently bad operation is acceptable. And, no, just operating in the NE Is not the reason. DAL and UAL both run much better operations in those airports because they have backup assets – crews and aircraft – and do not wind their operation quite so tightly.
IF the point is to make JBLU/SAVE get over the finish line, the best alternative is to probably operate SAVE as a brand within a brand for a period of 5 years or so and retain their pricing and service, allowing competitors to move into JBLU/SAVE markets. plus the usual divesting of assets – which should NOT Involve NYC because SAVE is relatively small there. It was stupid for JBLU to agree to divest SAVE’s NYC assets and was done solely because JBLU was trying to also hold onto the NEA which is now history.
Saw this on MT news today. looks like there is more information about the redactions that wasn’t made available at the time the news headlines picked it up.
https://t.co/1W4b75aDAd
JetBlue Airways said Friday that media reports it may raise fares
SAVE are based on a flawed after its planned merger with Spirit Airlines
interpretation of facts in internal documents.
The media reports said, quoting court documents filed by lawyers
representing consumers who are suing the airline to block the deal, that
JetBlue may raise prices on some routes by up to 40% if it’s successful in
buying low-cost rival Spirit.
“Unfortunately, following a filing error by the legal team for a group of
consumers that has filed a baseless lawsuit, we are in a position where we
need to correct the record,” a JetBlue spokesperson told MT Newswires in
an emailed statement. “To be very clear, the claims reported by several
media outlets did not reflect facts set out in JetBlue documents.”
“Serial private plaintiffs represented by Alioto law firm, in a […] court
filing laying out their arguments opposing our motion for summary
judgment, incorrectly redacted sections of text so that it could be read by
cutting and pasting into a new document,” the carrier said.
“As we attempted to clarify yesterday, it is important to understand that
the redacted text was content written and produced by Alioto in their own
court filing, not redactions to JetBlue internal documents,” JetBlue said.
“These redactions were in text where Alioto had outlined, in their own
words, their argument to the court, and essentially represents the
plaintiff’s ‘spin’ on confidential evidence they have reviewed. It’s no
surprise a class action attorney would mispresent the facts in a brief to the
court to preserve their case,” it added.
“The factual evidence, when presented in a full and complete picture, will
demonstrate that JetBlue intends for the merger with Spirit to increase
competition and help lower fares across the board while also bringing
JetBlue’s high-quality and much-loved experience to millions more travels,”
JetBlue said.
MT Newswires
The “Jet Blue effect?” Could you be referring to the term coined to support the Airline Deregulation Act of 1978 by Lamar Muse as “the Southwest Airlines effect?”
@One Trippe – JetBlue uses the phrase in support of this deal, which is nonsense