Concerns Over Airfare Hikes After Merger
Spirit Airlines Stock Plummets 50%
A U.S. federal court has blocked the merger and acquisition (M&A) of low-cost carrier JetBlue's acquisition of Spirit Airlines. The court sided with the Department of Justice's concerns that the merger would harm market competition, leading to higher airfares and customer detriment. Spirit Airlines' stock, which had been anticipating the merger, plummeted by nearly 50%.
According to the Wall Street Journal (WSJ) and others on the 16th (local time), U.S. District Judge William Young of Massachusetts accepted the Department of Justice's argument that the merger of the two airlines could weaken market competition in his ruling that day.
Judge Young stated, "The airline market has become a more concentrated oligopoly due to a series of M&As, with a few companies controlling the market," adding, "If JetBlue acquires Spirit, one of the few major competitors that have restrained price increases will disappear." He further noted that this would not only reduce the price pressure on major airlines but could also harm consumers who rely on the low-cost models of these airlines.
Earlier, JetBlue announced plans to acquire Spirit Airlines in a $3.8 billion deal. If completed, it would become the fifth-largest airline in the U.S., marking a major deal in the aviation industry. However, under the Biden administration, which has been wary of monopolies through M&As, it was widely expected from the start that the deal would not receive approval from competition authorities. Subsequently, the Department of Justice filed a lawsuit in March to block the M&A, citing expected consumer harm from the merger. The Department of Justice argues that if JetBlue, the sixth-largest U.S. airline, acquires Spirit Airlines, the seventh-largest, airfares could increase by up to 30%.
JetBlue has argued that acquiring Spirit to grow into the top five would weaken the market dominance of the top four competitors?American, Delta, Southwest, and United?but this logic was rejected by both the Department of Justice and the court. WSJ reported, "Under the Biden administration, the Department of Justice has taken a tougher stance on mergers and acquisitions, with the airline industry being a particular focus." The combined market share of the top four U.S. airlines reaches a staggering 80%.
JetBlue and Spirit issued a joint statement on the day, expressing disagreement with the court's ruling and signaling their next steps. The two companies stated, "We continue to believe that the merger of our two companies is the best opportunity to provide more customers in more markets with affordable fares and excellent service, expanding the much-needed competition and choice while enhancing our ability to compete with the dominant U.S. airlines."
With the federal court blocking the M&A, Spirit Airlines closed trading on the New York Stock Exchange that day at $7.92 per share, down more than 47% from the previous close. Meanwhile, JetBlue's stock rose nearly 5% as acquisition risks dissipated.
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