The US v. JetBlue
The US government's antitrust trial over JetBlue Airways' proposed $3.8B acquisition of Spirit Airlines began yesterday in Boston. The Justice Department, along with six states and Washington, DC, argues the merger would limit flight options and result in higher fares, limiting the "Spirit effect" on the market—when Spirit reduces fares on specific routes, it triggers industrywide price reductions of 17% on average, and when it exits a route, fares increase by 30% on average.
JetBlue argues the merger is necessary for it to compete with the four largest domestic airlines, which comprise more than 80% of the market, and the merger will allow it to offer lower fares in more areas. The airline has proposed to divest routes to address antitrust concerns, saying it will sell flight slots and gates to ultra-low-cost carriers. Critics argue the merger violates sections of the federal Clayton Act designed to prevent mergers that diminish competition or result in monopolies.
If the deal falls apart, JetBlue would need to pay a $470M breakup fee to Spirit and its shareholders. The case follows significant airline industry consolidation in recent years (see visual).