(CN) — JetBlue Airways announced on Monday that it is dropping its plans to purchase Spirit Airlines amid recent antitrust challenges by the Biden administration. The proposed $3.8 billion acquisition was revealed by the airline in 2022, but it hit a major snag in January after a Boston judge ruled that it would violate antitrust law.
“We are proud of the work we did with Spirit to lay out a vision to challenge the status quo, but given the hurdles to closing that remain, we decided together that both airlines’ interests are better served by moving forward independently,” said JetBlue CEO Joanna Geraghty in a statement. “We wish the very best going forward to the entire Spirit team.”
JetBlue still owes Spirit, however. The terms of the deal entitle Spirit to a breakup fee of $69 million and an additional $400 million for Spirit’s shareholders.
Monday’s announcement means that JetBlue will not seek to overturn U.S. District Judge William Young’s ruling to block the acquisition, despite previously filing an appellate brief to do so.
In January, Young sided with the Department of Justice in ruling that the merger would “further consolidate an oligopoly by immediately doubling JetBlue’s stakeholder size in the industry.”
“The proposed acquisition, in this court's attempt to predict the future in murky times, does violence to the core principle of antitrust law: to protect the United States’ markets — and its market participants — from anticompetitive harm,” Young wrote in a 110-page ruling.
Under Biden, the Justice Department has been vocally critical of consolidation in the air travel industry. Four airlines — United, American, Delta and Southwest — have approximately 80% of the market share. JetBlue would have become the nation’s fifth largest airline, leapfrogging Alaska Airlines, if the Spirit purchase had gone through.
Justice Department officials celebrated Monday’s news, calling it a win for U.S. travelers “who deserve lower prices and better choices.”
“Today’s decision by JetBlue is yet another victory for the Justice Department’s work on behalf of American consumers,” said Attorney General Merrick Garland in a statement. “The Justice Department proved in court that a merger between JetBlue and Spirit would have caused tens of millions of travelers to face higher fares and fewer choices.”
JetBlue claimed that the merger was worth pursuing because it would have spawned a “low-fare, high-value competitor” to the so-called “Big Four airlines.”
But critics of the acquisition say it would have been a blow to low-fare consumers, who may have been stuck with one less option in the budget airline space with Spirit’s absorption. Young acknowledged as much in his order.
“Summing it up, if JetBlue were permitted to gobble up Spirit — at least as proposed — it would eliminate one of the airline industry’s few primary competitors that provides unique innovation and price discipline,” he wrote.
Young conceded that JetBlue and Spirit joining forces would “likely place stronger competitive pressure on the larger airlines in the country.”
“At the same time, however, the consumers that rely on Spirit’s unique, low-price model would likely be harmed,” he wrote. “The defendant airlines currently compete head-to-head throughout the country, and that competition, particularly Spirit’s downward pressure on prices, benefits all consumers.”
JetBlue had already indicated that it might bail on the deal following Young’s ruling, but Monday’s announcement could still have dire effects on Spirit. The company hasn’t been profitable since before the Covid-19 pandemic, and sought the acquisition to keep itself afloat.
JetBlue suffered another antitrust blow last spring, when U.S. District Judge Leo Sorokin ordered that it must end its partnership with American Airlines. In 2020, the two companies agreed to coordinate schedules, share revenue and offer reciprocal frequent-flier benefits on flights between New York City and Boston.
Sorokin ruled that this agreement “undermined” federal antitrust law.
“Whatever the benefits to American and JetBlue of becoming more powerful — in the northeast generally or in their shared rivalry with Delta — such benefits arise from a naked agreement not to compete with one another,” Sorokin wrote. “Such a pact is just the sort of ‘unreasonable restraint on trade’ the Sherman Act was designed to prevent.”
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