Joe Cavaretta/South Florida Sun Sentinel/Tribune News Service/Getty Images
Spirit Airlines jetliner on the tarmac at Fort Lauderdale Hollywood International Airport on December 26, 2023.
New York CNN –
Spirit Airlines shares plunged 47% on Tuesday after a federal judge in Boston ruled against JetBlue's planned $3.8 billion takeover of the budget airline.
The ruling raised several concerns, including higher airfares, particularly for customers of budget airline Spirit, and significant debt for JetBlue (JBLU).
JetBlue and Spirit told CNN they disagreed with the ruling.
“We continue to believe our combination is the best opportunity to increase much-needed competition and choice by offering low fares and great service to more customers in more markets, while improving our ability to compete with the dominant U.S. airlines “JetBlue and Spirit said in a joint email statement to CNN. “We are reviewing the court’s decision and evaluating our next steps in the legal process.”
JetBlue shares were up 4.9% on Tuesday afternoon.
The U.S. Justice Department sued in March to stop the deal. This was the first time in more than 20 years that the government tried to block a merger of US airlines.
The Biden administration has argued since taking office that there needs to be greater competition between companies, particularly in the airline industry, to drive down costs for consumers. Spirit's (SAVE) low-base fare business model, which charges customers extra for everything including carry-on luggage, encourages larger airlines to offer a percentage of their seats at the lowest possible price.
“Today’s ruling is a victory for tens of millions of travelers who would have faced higher fares and fewer choices if the proposed merger between JetBlue and Spirit had gone forward,” Attorney General Merrick Garland said in a statement on Tuesday. “The Department of Justice will continue to vigorously enforce the nation’s antitrust laws to protect American consumers.”
JetBlue argued that the deal would create a new, stronger competitor to these four larger airlines and work to lower, not raise, fares.
The U.S. airline industry went through more than 20 years of mergers and consolidations before this deal was announced. The 10 major airlines that existed in 1999 were consolidated through a series of deals, often through bankruptcy proceedings, into four major airlines – American Airlines, United, Delta Air Lines and Southwest Airlines. These four major airlines carry approximately 80% of the country's air traffic.
The mergers have resulted in a much more profitable U.S. airline industry, but far fewer choices for U.S. air travelers, which can lead to higher fares.
The Biden administration has taken a much more aggressive approach to combating mergers and consolidations, including in the airline industry. Ahead of this deal, the company filed a federal lawsuit against the alliance between American and JetBlue in the northeastern United States. That alliance was abandoned when JetBlue tried to win approval to purchase Spirit.
The now-blocked JetBlue deal for Spirit came after JetBlue outbid a proposed merger between Spirit and another low-cost carrier, Frontier Airlines. Spirit Management had initially supported the Frontier deal, raising the possibility that regulators would block a deal with JetBlue. But after Spirit shareholders rejected the less lucrative Frontier deal, Spirit management changed course and accepted the deal with JetBlue.
Another merger is currently being pursued in the US airline industry, a proposed $1.9 billion deal to combine Alaska Airlines and Hawaiian Airlines.
Shares of Hawaiian Holdings fell 2% on Tuesday afternoon.
Spirit is a leader in the ultra-low-cost end of the airline market, offering very low fares that also pay passengers for all extras, including carry-on luggage. While this approach has led the country's major airlines to offer a certain number of seats on their planes in a “basic economy” class with a similar fare structure, it has also regularly made Spirit the airline with the lowest customer satisfaction ratings and the butt of jokes on late night television.