A federal judge on Tuesday blocked JetBlue Airways’ proposed $3.8 billion acquisition of Spirit Airlines, a victory for the Justice Department, which said the deal would hurt travelers.
In his 109-page ruling, Judge William J. Young of the US District Court for the District of Massachusetts agreed with the Department of Justice in determining that the merger would reduce competition in the airline business.
The proposed merger would have created the country’s fifth-largest airline. The Justice Department argued that smaller, low-cost airlines like Spirit helped drive down prices and that allowing JetBlue to acquire the company, which tends to charge higher prices than Spirit, would have hurt consumers.
The four largest US airlines – American Airlines, Delta Air Lines, Southwest Airlines and United Airlines – control about two-thirds of the market. The merger would have given JetBlue a 10 percent market share, still less than United, the fourth-largest U.S. airline, which has 16 percent.
JetBlue’s lawyers argued in court last month that the merger would allow it to better compete with the Big Four national airlines, leading to lower prices overall. The Justice Department argued that JetBlue’s larger plane would operate just like its larger competitors while ruling out a lower-cost option for passengers.
Analysis presented during the trial showed that when Spirit introduces a new route, prices go down, including those on JetBlue flights. JetBlue plans to reconfigure its tightly packed Spirit planes to fit its more spacious layout, meaning it will reduce the number of seats.
Judge Young agreed with the government, ruling Tuesday that the merger “would likely further motivate JetBlue to abandon its roots as a maverick, low-cost airline.” He said Spirit played an important role in the market as a small, low-cost alternative to large airlines.
“Spirit is a small airline,” he said in the ruling. “But there are those who love it. To our dedicated Spirit customers, this is the product for you.”
Spirit’s stock price fell 47 percent Tuesday afternoon following the news, while JetBlue’s stock price closed 5 percent higher.
JetBlue shares rose because the rejected merger represented a cost-saving measure for the company worth $3 billion, said Jonathan Handshaw, an airline analyst at CFRA Research. Spirit shares fell in part because the proposed merger would have been a lifeline for the company, which has been plagued by operational problems and has not turned a profit since before the pandemic.
During the pandemic, many domestic airlines took on a mountain of debt “because they were trying to replace older planes with much newer planes,” Handschow said.
As part of the merger agreement, JetBlue agreed to pay Spirit $70 million and its shareholders $400 million if the deal is blocked. In a joint statement on Tuesday, the airlines said they disagreed with the ruling and were evaluating their options.
“We continue to believe that our merger is the best opportunity to increase much-needed competition and choice by providing low prices and great service to more customers in more markets while enhancing our ability to compete with dominant U.S. carriers,” the companies said.
The ruling comes just weeks after Alaska Airlines announced its plans to acquire Hawaiian Airlines for $1.9 billion. If approved, the deal would give Alaska about 8% of the airline market.
In May, a federal judge blocked a partnership between JetBlue and American in Boston and New York after the Justice Department objected to it, saying it weakened competition for flights in the Northeast. Tuesday’s ruling creates a “victory streak” for antitrust officials, said Dylan Carson, an attorney at Manatt, Phelps & Phillips.
“This really helps put the wind in the sails of the Biden administration’s enforcement agenda,” said Mr. Carson, a former Justice Department antitrust lawyer.
Hubert Horan, an aviation consultant, said the proposed merger would have eroded competition in the aviation industry. He said it was low-cost carriers like Spirit, not the Big Four, that had “led most of the operational and marketing innovations in the industry.”
“Instead of competing fiercely, JetBlue has transformed into a smaller version of the legacy carrier,” Mr. Horan said.
Neeraj Chokshi Contributed to reports.