There’s a simple story that’s become conventional wisdom about Spirit Airlines, that is also wrong: that they are failing because the Biden administration stopped JetBlue from buying them.
Spirit Airlines failed because its costs went up, they didn’t have the right product consumers wanted, and larger airlines learned to compete effectively against their low fares. United, Delta and American offered a slightly better product at the same price, so customers chose the better product.
If the Biden administration had allowed JetBlue to buy Spirit Airlines, Spirit’s shareholders would have gotten paid but that wouldn’t have meant Spirit’s planes and pilots continuing to fly as JetBlue. That’s because JetBlue has lost money for six years and is scaling back to try to stem the losses.
- JetBlue paid pilots not to fly and to retire early.
- They’ve scaled back their fleet plans – they wanted fewer planes than they even had coming without Spirit – and they’ve eliminated numerous cities from their route map entirely.
None of this exonerates the Biden administration. JetBlue would have been worse off if they’d succeeded in buying Spirit. The Spirit acquisition became a bad idea, though, because of a different antitrust move by the Biden administration.
- JetBlue needed Spirit in order to grow in Boston, New York and Fort Lauderdale at the same time. They had a partnership with American Airlines that gave them slots to finally expand in New York, but they didn’t have the planes and pilots to take advantage of that without ceding ground elsewhere. Buying Spirit gave them planes and pilots.
- The Biden administration sued to break up the American Airlines-JetBlue partnership that had previously been approved under the first Trump administration. That was legal (DOT entered into a settlement with the two airlines, but that wasn’t binding on DOJ) but it was also a rule of law problem. It meant it was no longer possible to rely on assurances given during one administration once the Presidency changes, and that legal outcomes are dependent on individual policy preferences of the executive. (This has become a familiar theme of late.)
- And it was a bad antitrust theory that treated jointly deciding who would fly where as per se illegal, rather than looking at consumer benefit or total competition in the market.
- When the Biden administration killed the American-JetBlue deal, JetBlue-Spirit no longer made sense. JetBlue management was committed though and stuck with it. The CEO retired for health reasons and then months later became CEO of Airbus Americas.
The American Airlines – JetBlue partnership had JetBlue joining the oneworld alliance, gaining worldwide partnerships that would have elevated its frequent flyer program, letting customers spend their points around the globe including for business class and unlocking airport lounges worldwide. That’s the key to unlocking a lucrative cobrand credit card deal, which is where high margin revenue in the U.S. airline industry comes from.
The Biden administration fought the American Airlines-JetBlue partnership calling JetBlue a pro-passenger disruptor who drives down prices. Then they turned around and claimed that JetBlue was a monopolist who would drive up prices if they bought Spirit. Before it was time to block Spirit, the Biden Justice Department claimed:
- “JetBlue is unique among low-cost airlines.”
- “JetBlue differentiated itself from other low-cost airlines by offering not only low fares, but also high-quality service.”
- “JetBlue’s high quality of service allowed it to compete effectively against the legacy airlines in ways other LCCs and ULCCs could not.”
- “While AA, United, and Delta—‘legacy’ airlines—were busy consolidating, JetBlue was attacking the harms that consolidation inflicted on passengers.”
- “For more than two decades, JetBlue served as the legacy airlines’ foil in the northeastern United States.”
- “JetBlue is a close competitor to legacy airlines and is able to constrain their pricing.”
- “The JetBlue Effect produces lower prices and higher quality service on routes where JetBlue competes.”
- “Consumers benefited from competition between JetBlue and the legacy airlines.”
- “Travelers benefited from the JetBlue Effect whether or not they flew on JetBlue.”
- “In total, competition between JetBlue and the legacy airlines has saved travelers billions of dollars.”
The Department of Justice switched positions because it was convenient to do so, with a goal of blocking all deals. Spirit and JetBlue were small and struggling but that didn’t matter. JetBlue and American represented more competition in the New York market, creating a viable third option to United and Delta. That didn’t matter.
The Biden administration went after JetBlue-American and that is what killed the chance for Spirit, as much as killing JetBlue’s deal to buy them. And the JetBlue-American antitrust action was worse because it wasn’t just an example of government trying to mold the market the way they wanted to see it and failing – they wanted Spirit’s 200 planes all flying in an ultra-low cost model, even Spirit’s optimistic plan now has 60% of those planes gone – and it wasn’t just an example of bad antitrust law that shifted away from the consumer.
It was a shot against the rule of law, where government signoff in one administration can no longer be relied upon in the next.
But it’s opposition to the American Airlines – JetBlue “Northeast Alliance” that was the Biden administration’s “original antitrust sin” in the airline industry that meant an acquisition wouldn’t effectively save Spirit – not just the simple story of opposing the deal itself.
A rescue of Spirit does not make sense because there’s no plausible legal basis for it, because Spirit is still losing so much money it’s unlikely to save them, and because it pushes other airlines closer to the brink – Frontier is losing money, and Spirit is their primary competitor, and Spirit and JetBlue are the two biggest competitors in Fort Lauderdale.
Already low cost carriers are lining up for government handouts in the form of a suspension of the excise tax on domestic airline tickets and the fee that funds air traffic control. And a government takeover of Spirit creates conflicts of interest for the government as Spirit’s regulator.
The rescue effort is a bad idea. But blaming the supposed need for a rescue on blocking a deal for JetBlue to buy Spirit is too simple a story. Simple stories work better of course. And ‘Biden killed Spirit’ is popular on the right, while ‘Actually, something else happened in the Biden administration that set things up to fail’ isn’t going to be popular on the Left… even if it’s true.
Why was Alaska and Hawaiian approved and not put under the microscope like B6 and NK ? Sounds like a double standard.
The more interesting takeaway is how little margin for error exists when an airline is built around extreme utilization and thin pricing bands. Once operational disruptions start pulling aircraft out of service and reliability slips, the entire revenue engine weakens at the same time costs become less flexible. At that point, scale and network depth matter far more than nominal fare levels, because they determine who can actually absorb volatility and still fill planes at acceptable yields. That dynamic, not any single transaction outcome, is what ultimately separates carriers that can withstand shocks from those that cannot.
@Dan There was a fair bit of concern about the impact at FLL where the combined airlines would have had about half of the market share. No such issue with Alaska-Hawaii.
What people also seem to miss is that B6 would be bankrupt right now if they had acquired NK. Their CEO has already signaled that they are staring down a decision in 2027. Seems like buying a failing airline that’s bleeding revenue would have accelerated that spiral.
@Dan brings up a good point. Alaska-Hawaii approved; Spirit-jetBlue not. Sure, it would be convenient to just over-simplify, and conclude: Democrats-bad (or whatever is the ‘TDS’ equivalent for the other side), but anti-trust is far more nuanced than mere partisanship. As for Spirit, they’ve been restructuring for a while, and could still reemerge, but the fuel shock, caused by the war of choice is more to blame for where they are recently.
I love how all these travel bloggers turned financial experts are criticizing Trump for potentially bailing out Spirit. Yet these same folks conveniently forget that Intel was in a similar boat not too long ago.. and look how well Intel (and the government) is doing now with a much bigger bailout.
Where were these same folks when the lefties in office broker $150 billion in sanctions relief to a well known org to fund terr0rist causes?
@John L – a stock going up has nothing to do with whether it was good policy. at least with intel there was a plausible story about how it was legal, using funds authorized by congress (though it was stretching what was intended to be done with those funds).
The Governor and other top politicians in Hawaii backed the Alaska merger. They understood that Hawaiian standalone wasn’t sustainable and this was their best path to ensure existing flying between the islands. The Hawaii market is unique – remember that Hawaiian and Aloha were even once granted antitrust immunity.