I want to see Spirit Airlines continue as a standalone company. I think that is better for airfares and for diversity in business models.
Contra Brian Sumers, I also don’t think buying Spirit is a good idea for JetBlue. They are operationally challenged to begin with and the complexity of a merger and integration won’t make air travel better. JetBlue is massively overpaying.
As a result I’ve maintained that the JetBlue deal to acquire Spirit is bad for customers and bad for shareholders. However bad business decisions are not in themselves, illegal. So while the Department of Justice has filed an anti-trust lawsuit to stop the merger, it requires some pretty strange claims to suggest it’s an actual violation of antitrust law.
Remember that,
- American and US Airways merged to create the world’s largest airline and the Obama DOJ decided its case was so weak they signed off after just a few slot divestments.
- That was after United-Continental, Southwest AirTran and Delta-Northwest. More recently Alaska acquired Virgin America.
- But it is somehow JetBlue and Spirit that are anti-competitive?
The Biden administration takes a novel view of anti-trust, and in other industries has gotten slapped around by the courts. JetBlue would still be smaller than American, Delta, United and Southwest, after acquiring Spirit and JetBlue has offered not to grow in congested markets like New York as a result of the merger. Where and how do they become a monopoly?
This isn’t an anti-trust problem and the administration is not serious about introducing competition into the airline industry. If their priority were airline competition they would push for:
- Increased air capacity via better air traffic control technology, indeed they’d have been pushing for serious reform (and accountability by having air traffic control managed outside of the agency which regulates it – the FAA shouldn’t regulate itself) long before a string of runway incursions pointed to a serious problem.
- Eliminating slot controls which protect incumbents and replace slots with congestion pricing. Government policy literally locks in and subsidizes incumbent airlines, keeping competitors out of busy markets like New York and D.C. It’s not JetBlue and Spirit that is an issue in New York, it’s the way the government confers a property right on existing flights to the exclusion of others in that market.
- Allow foreign ownership of US airlines. If you want more competition, you wouldn’t make it illegal for airlines around the world to operate inside the U.S.
You can seriously debate each of these ideas but any administration that cares about airline competition would be doing so, not engaging in the distraction of a deal between two small airlines.
Moreover there is quite a bit of tension between the Biden Justice Department’s position in the Spirit-JetBlue anti-trust suit, the American-JetBlue Northeast Alliance suit, and official positions of the Biden administration.
- In the Northeast Alliance, the Justice Department claims that JetBlue is a disrupter and American Airlines will smother that.
- In the JetBlue-Spirit lawsuit, the Justice Department claims that unbundling is an important disruptive force in the economy.
- American Airlines was actually the first legacy carrier to unbundle, adding first checked bag fees in 2008. They’re a disrupter!
- But the position of the Biden administration – outside of this suit – is that such unbundling, not displaying full price at initial search – is harmful to consumers. Eliminating Spirit’s model, under the logic of the President’s statements, an executive order, and a current DOT rulemaking, would benefit consumers rather than harming them (though separately the administration has rejected the traditional standard of consumer benefit or harm for anti-trust).
Reading this DOJ complaint against the @JetBlue / @SpiritAirlines merger is giving me whiplash.
So the feds love ancillary fees now. Someone should probably tell the President. pic.twitter.com/VLIywo7PCI
— Brett Snyder (@crankyflier) March 7, 2023
The government says Spirit’s fee-based model is good,
Spirit has been a particularly disruptive force, growing rapidly, introducing innovative products, and allowing customers to choose which services to purchase.
The government says eliminating Spirit means reducing the supply of seats because JetBlue will offer more legroom on the same planes. The DOJ’s case against this merger is predicated on the argument that it will give customers too much legroom. That’s the only mechanism by which seats are removed from the market, since JetBlue literally wants to fly Spirit’s aircraft as well as their own (“We allege that the proposed merger would lead to fewer seats and higher prices for travelers.”)
Brian Sumers, who is convinced that the DOJ has strong arguments, contends that JetBlue needs to grow to succeed. But that also undermines the DOJ’s argument – since the claim is that JetBlue growth makes them a stronger and more viable competitor to United, American, Delta and Southwest. Even if Spirit is no longer a separate competitor, the combined entity is potentially a stronger competitor against… larger airlines. That’s the opposite of monopoly and a triggering of anti-trust concerns.
Spirit (like Frontier and Allegiant, and to a far smaller extent Breeze and Avelo) functions as a market disrupter. It exerts important downward price pressure on our domestic airline ecosystem.
JetBlue performs no such function. its profile outside JFK, BOS, and FLL is mostly negligible, and it’s not only more expensive than the VLCCs but often more expensive than the Big 4.
Via 20 years of mergers, the big network carriers have been permitted to consolidate pricing power in a de facto cartel that controls 90’% of airline seats. In this environment B6, AS, and HA don’t matter much but the VLCCs definitely do. It is prudent to think VERY carefully about the wisdom of knocking a big VLCC off the chessboard, which is what this merger would do.
Leave aside the prospect of implementation chaos, in a B6+NK scenario, that would make UA+CO look silky smooth. Leave aside the observation that JetBlue management cannot run the airline it’s got, let alone a bigger one. Prioritize the hard truth that a domestic landscape without Spirit means higher fares and less meaningful choice for a lot of people — even those who don’t fly Spirit but benefit from the “Spirit Effect.”
In this light DOJ’s case against the merger is anything but absurd. Greenlighting higher fares in Spirit markets, and putting Spirit’s lift in the hands of managers already known for erratic, unreliable performance, is clearly not in the best interests of the flying public.
I think the issue is that the government (and most travelers) want JetBlue to become a more viable competitor to Delta, American, United and Southwest without also taking out a truly disruptive, low cost option in Spirit. If there were a competitor like Virgin America still available that provides planes and pilots, it would be less of an issue.
It really is a similar issue in the JetBlue/American thing – in theory, the government wants JetBlue and American to compete with each other, not to collude. Too often, airlines stray away from competition.
Maybe there are ways for the government to reform slot allocations at these airports to make competition more viable. But you can see the argument here.
Anthony wrote: “I think the issue is that the government (and most travelers) want JetBlue to become a more viable competitor to Delta, American, United and Southwest without also taking out a truly disruptive, low cost option in Spirit.”
I agree; I think any two of B6, AS, or HA, maybe all three, could merge without a peep from DOJ . I think F9+NK would go through, creating a coast-to-coast analogue to Ryanair or EasyJet. But the deal on the table here doesn’t do much for JetBlue’s critical mass while dealing a major blow to the important VLCC tier of carriers.
A comment on the Brian Sumers blog made an interesting point. Would the DOJ approve the merger if the combined company…
1) Made the Spirit management team the surviving management team
2) Refit JetBlue planes into the Spirit format / business model / cost structure (not sure if this is even possible with various employee contracts)
3) Enforced airplane, airplane order book and slot divestitures to other ULCC (Frontier, Breeze, etc)
Basically the goal would be to make Spirit bigger, not JetBlue (would be a loss to me as I enjoy Mint and the occasional economy flight on B6)
After the AA merger with US BACK IN 2012, you would expect that after a few gate and slot/slots divestitures here and there, ergo it would be all set to go. However, I’m not so sure anymore. The DOJ seems hellbent on stopping this merger on grounds that seem more moral than financial or even sentimental for that matter. I used to think DOJ was using this as form of pressuring JetBlue into picking or choosing between the NEA or the merger. I’m not so sure anymore. It looks like they’re really aiming at setting an example for other carriers going forward, although I think they’re not being effective at attaining this goal.
You, Gary, either understand the reason why the DOJ is objecting (which can be found on their press release as well as the actual court filing) or you refuse to understand why this is unlike any other merger.
1. No other legacy carrier merger involved buying a lower price/lower cost competitor and removing capacity from EVERY aircraft in the acquired carrier’s fleet as well as eliminating a competitor.
2. No legacy carrier has ever been allowed to merge with the number #1 and #2 carriers in a major market – which is precisely what JBLU wants to do in FLL.
3. JBLU wants to do all of this while still holding onto the NEA with AA, something which also has never been allowed with any other pair of legacy carriers.
As long as you or others fail to understand what is different about the JBLU/SAVE merger and why the DOT is challenging (along w/ multiple states including both FL and NY – homes of both merger partners), you can make all the arguments you want about what the other guys were allowed to do and still miss the point.
But if you are interested in creating clicks, you don’t care about logically making any rational arguments.
@Tim Dunn – I get why you don’t like this, it’s bad for Delta. But it’s also a novel approach to anti-trust, consistent with this Administration’s unique take on the issue. Certainly anachronistic! I understand the arguments that the Biden administration is making. It’s not a failure to *understand*. I understand what they are saying, but it’s an odd take in this broader context.
@Gravelly Point Guy – indeed, to @Tim Dunn’s point about the B6-AA NEA, the Justice Department *should have* made it pick or choose even before going to or at least completing the trial over the NEA. Instead they sued to stop both.
Gary,
given that eliminating a lower cost competitor would help ALL of the big 4, it is hard to understand (yes, understand) how anyone would logically argue that any of the big 4 would be against the merger. add in the chaos of mergers and the fact that they rarely deliver what is promised and it is hard to see how any of the big 4 wouldn’t welcome B6′ attempts to jump into something that will be a costly disaster (B6 is already paying)
Of course, you can logically argue that DL might be opposed to the NEA but being opposed to the merger is simply not logical
and I agree that B6 is in a difficult place trying to pick between the NEA and merger, both of which the DOJ is objecting to – but it is B6′ own fault that they are trying to straddle two initiatives, both of which are opposed by the DOJ, also unprecedented among US airlines
Can we break up DL, UA, AA, and WN while we’re at it.
@Tim Dunn – “Of course, you can logically argue that DL might be opposed to the NEA ”
You don’t have to “logically argue” it, they literally put Amy Klobuchar in play against it!
Tom Dunn conveniently ignores the fact that his beloved Delta has eliminated at least two large competitors, Western and Northwest. But apparently that was okay. Lawsuits are often based on the current situation as if it’s set in stone. The word “statute” comes from the same root as “statue” – the Latin word “sto/stare/stati/status” which means to stand. News flash: Since deregulation, airlines have had the capability to add new routes almost at will. If there’s too much concentration and fares get too high (whatever that is) on a particular route, some carrier (Southwest, Frontier, Avelo, Allegiant, Breeze, etc.) will usually see an opportunity to make money serving that route by undercutting the bloated fares. The airline industry may be mature, but it isn’t static – which is much of the flaw in DOJ’s arguments about airline mergers and partnerships. Of course, if partnerships or mergers benefit Delta, his arguments get shifted.
JetBlue should have bought Virgin America. Maybe now they should merge with Alaska. That would be more competitive.
Gary,
you do realize that Mrs. Klobuchar is on the Sen. Judiciary Committee and is chairwoman of the competition and antitrust subcommittee so, of course she has something to say about national merger and competition issues. If you’d like to believe that Delta set her up in those assignments for its own benefit, the tinfoil hat probably won’t allow anything logical in to convince you otherwise.
Ghost,
You also realize that every one of the big 4 airlines is a product of multiple mergers and acquisitions?
Despite your running around trying to argue that Delta opposes B6/NK with no evidence -and contrary to logic – the DOJ opposes the B6/NK merger for reasons that are unique to that merger and which no other airline including any of DL’s has ever been allowed to do.
@Tim Dunn – no tinfoil hat, just two decades of experience in DC. She’s absolutely acting for Delta there.
Unless all of the ATI agreements that the US3 have are voided and the US3 plus WN are broken up or forced to give up gates/slots at airports where they are operating more than 30% of the flights, there is no logical reason to impede the merger of B6/NK. You can’t be for competition yet set the playing field so that it is impossible for smaller carriers to gain enough market share throughout the country to compete–and give the US3 ATI internationally to impede competition on flights which depart the US for other countries.
Tim can volunteer on behalf of DL to give up half of its gates in Atlanta, half of its slots at LGA/DCA/JFK, etc so that others airlines can compete fairly in those markets. This, after-all would do much more for competition than keeping two small carriers from merging.
In any case, the merger will go through in the end as the government’s argument is extremely weak.
Gary,
whether Klobuchar is helping a major constituent is not really the issue.
The issue is your statement that … “they literally put P she sees for the airline industry because of her role which could be inline with Delta but could more importantly and more likely in line with what the federal government wants from business.
Amy Klobuchar is acting in line with what she does as part of her job which there are far more people in Minnesota that elected her than Delta employees, retirees and everyone else Delta could scare up in the state.
Her values and objectives might align with Delta’s but that hardly means that she is in Delta’s back pocket.
Does Delta have the DOJ in their back pocket because the DOJ filed suit against both the NEA and the merger? Please don’t say “yes”
oops
you stated
“they literally put Amy Klobuchar in play against it!”
Bill
you do realize that there are thresholds over which the JVs of the big 3 – none of which involve 2 US airlines – cannot cross and those JVs might not be renewed if they don’t?
You also realize that the DOT has very strict requirements for airport access and every one of the legacy carrier hubs meet those requirements?
Do you also realize that the DOT approved the NEA which is allowing B6 to use slots which AA itself doesn’t want to use – so they are effectively blocking other competitors?
Let’s just stop with this victim mindset that B6 and you and others that wish to defend them have.
B6 has come up w/ a merger proposal that is proposing to do things that NONE of the legacy carriers have ever been allowed to do and that is also true of the NEA.
Until you accept that reality, you can play the victim card you want but you will miss the point of why the DOJ is suing B6 for both initiatives as well as AA on the NEA.
@Tim As usual, you selectively choose your historical reference.
“1. No other legacy carrier merger involved buying a lower price/lower cost competitor and removing capacity from EVERY aircraft in the acquired carrier’s fleet as well as eliminating a competitor.”
LOL…People’s Express, AirTran, Virgin America and several other carriers would beg to differ.
“2. No legacy carrier has ever been allowed to merge with the number #1 and #2 carriers in a major market – which is precisely what JBLU wants to do in FLL.”
The market you reference is South Florida. Last I checked AA was the biggest carrier at MIA which is part of the same market. FLL does not have barriers to entry and B6 is willing to give up some gates. So what exactly are you arguing? Seems like this is a perfect case for DL to divest assets from ATL since they obviously have gained too much market power–with no alternative airports in easy driving distance. Sounds like anti-competitive behavior to me.
“3. JBLU wants to do all of this while still holding onto the NEA with AA, something which also has never been allowed with any other pair of legacy carriers.”
And your point is? NK is not even present at JFK and has a very small presence in BOS/LGA/EWR. Combined with AA, they are still just barely comparable to UA/DL in the NY area. They will be larger in BOS but DL is a strong competitor there and continues to add flights.
Bill,
first, you do realize that the DOJ has sued to block the merger, not me. And the DOT has said, for the first time since deregulation that they would not transfer the certificates. Feel free to beat the keyboard but I really have no influence in the issue other than to explain to you and others why the DOJ did what they have done. If you don’t like it, you need to get on the court agenda and not mine.
Second, you do know that AirTran and Southwest were both low cost carriers?
People Express was cobbled together as part of Frank Lorenzo’s airline organization that included a ragtag bunch of airlines. It was only under CO years later that the conglomeration was translated into a true legacy carrier that competed with the big boys. etc etc
Regarding FLL, even you have to admit by your own statement that B6 is trying to do what no other US legacy carrier has been allowed to do.
You also realize that ATL has ALWAYS had gates available for new entrants and has accommodated the ability of even existing airlines to grow? DL acquired its gates in ATL the same way AA did at DFW and UA has at DEN – through organic growth and construction projects all of which have been under the eye of the government and over long periods of time.
You still want to believe that B6 is the victim of changing rules when you have been repeatedly told that you simply don’t know airline industry history and are refusing to accept that B6 is doing what other airlines simply have not been allowed to do.
see point 1. Your argument is with the DOJ, not me.
Personally, I would NEVER AGAIN fly on Spirit Airlines, they have to be by far the worse airline in the USA. Spirit attracts the low budget traveler who travels with no luggage cause anyone who is a serious traveler would never fly on them by choice. The manner in which Spirit nickel and dimes you from the time you check in and find out that your bag must be placed in checked baggage at an enormous fee to having to pay for some water on the flight you may as well have purchased a ticket on the big four and be allowed that carry on bag/suitcase.
I’ve only flown on Spirit from Los Angeles to Santo Domingo via Fort Lauderdale and back and on 2 of the 4 legs the Police had to be called to break up fights on board the aircraft (and according to Police Officers I know, Spirt has more calls for Police assistance than the big 4 all put together).
If Jet Blue wants to take over Spirit, I say let them, I really don’t think they will be any competition for the big guys and by the time you pay for all of their up charges they are no cheaper than United or American.
I see this discussion has decended into silliness. But the antitrust issue here is incredibly simple. It is not government’s role to micromanage competition in an industry. There is an important but very limited role for antitrust law. Left to their own devices, corporations might buy out most of their competitors to achieve monopolistic control over an industry — especially an industry where there are great barriers to entry. If reasonable competition would remain following a corporate merger, there is no antitrust issue. Merging smaller players into a larger company that can better compete with other large companies is actually a good thing for competition. It is laughable to suggest that creating the 5th largest company in an industry raises an anttrust issue. The Biden administration is simply embarrassing itself with this absurd argument.
chopsticks,
you might WISH that the DOJ operated the way you described but it not only does not based on clear law but it has not under multiple administrations.
@Gary: Right on the details but you veered away from the question – what is the Biden regime’s antitrust theory?
The answer is that it is the wacky ideas of a law scholar who is a total economic illiterate. Her ideas have never received serious acceptance in the economics profession and are actually anti-consumer. They seek to bailout select industry sectors deemed as somehow ‘more deserving’, even if that means higher prices and less choice for consumers.
Expect more Antitrust breakups as lunatic as this.
i just don’t get what legs the DOJ has here. a lot of their case is circumstantial. “jet blue MAY, spirit MAY.”
seems like a lot of pearl clutching by the DOJ here.