The JetBlue cases are coming at a time of upheaval in the airline industry, which survived on federal bailout money for much of the pandemic before a surge in travel enthusiasm exposed vulnerabilities in its operations. The cases are the latest examples of the Biden administration efforts to fight consolidation after challenging proposed mergers in industries ranging from publishing to health care and technology.
In one case, JetBlue is pushing back against Justice Department efforts to unwind the carrier’s alliance with American Airlines — an agreement that allows the two carriers to coordinate schedules and share revenue on selected routes in the Northeast. In arguments before a U.S. district court judge last fall in Boston, the airlines characterized the arrangement as an alliance, but the government called it a de facto merger. A decision on the case is pending.
At the same time, JetBlue is awaiting word on whether the Justice Department will move to block its $3.8 billion merger with Spirit Airlines. Experts say a decision is possible any day, although the Justice Department declined to comment.
“These are really concerning cases on their own, but they’re even more concerning because they’re both on deck at the same time,” said Diana Moss, president of the American Antitrust Institute, a nonprofit that seeks to promote competition.
The outcomes could have significant implications for the industry, clearing the way for more attempts at consolidation or making airlines think twice before trying to merge. Experts are watching both cases closely.
“I think you can make the case that we are at an inflection point,” said Joe Brancatelli, editor of the JoeSentMe business travel website. “If JetBlue gets away with one or possibly even both of these moves, it will start the wheels moving again.”
Some lawmakers and consumer advocates have recently cited a lack of airline competition for pandemic-era service problems, such as Southwest Airlines’ decision to cancel more than 16,700 flights around Christmas and an uptick in consumer complaints surrounding refunds and customer service. The industry was a source of frustration last summer as flight delays and cancellations tested the patience of travelers, lawmakers and regulators.
The two cases also signal JetBlue’s determination to grow through partnerships with other airlines in an industry dominated by larger carriers. The crux of JetBlue’s argument in both cases is that getting bigger is the only way it can compete with larger rivals American Airlines, United Airlines, Delta Air Lines and Southwest Airlines, which carry about 80 percent of domestic air travelers.
“It’s not sustainable to have everyone else that’s out there with a 20 percent share and expect everything just to carry on,” JetBlue chief executive Robin Hayes said in an interview with The Washington Post. “These smaller airlines are going to have to combine and get together in some form in order to be successful over time.”
Experts say the Biden administration’s challenge to the Northeast Alliance, as well as other cases brought by the Justice Department, show how its approach to antitrust issues differs from those before it.
Florian Ederer, an associate professor of economics at the Yale School of Management, said that unlike previous administrations that tended to act on cases they were almost certain to win, the Justice Department under President Biden is taking a different tact.
“Losing makes people unhappy, but if you’re only challenging the big and very obvious cases, you’re not doing much deterrence,” Ederer said. “What they’re doing here is really pushing the envelope. Some of these cases might not be that easy to win, but they will make companies think twice about engaging in such behavior.”
A wave of airline mergers in the years after the Sept. 11, 2001, attacks brought the disappearance of Northwest Airlines, Continental Airlines and US Airways. The last airline merger occurred in 2016, when Virgin America was acquired by Alaska Airlines, which outbid JetBlue.
Moss said blowback from those deals may have prompted carriers to refrain from additional consolidation, until February 2022, when Frontier Airlines announced plans to acquire Spirit. The transaction would have would have brought together two carriers known for offering cheap fares with few frills.
But last April, JetBlue announced a surprise bid for Spirit, which delayed a shareholder vote four times as it scrambled to salvage its deal with Frontier. Among its arguments: A merger with JetBlue was unlikely to win regulatory approval. In the end however, JetBlue prevailed after winning approval from Spirit shareholders in July. Spirit did not respond to requests for comment this week on the merger.
Sen. Elizabeth Warren (D-Mass.) is among those pushing back against the transaction. In a letter last fall to Transportation Secretary Pete Buttigieg, she wrote: “Airline industry competitiveness is in free fall, and consumers are feeling the consequences.” She said carriers have not won customers by offering better services but through “a series of airline megamergers that have reduced service quality and increased fares.”
Hayes acknowledged criticism from Warren and others but said that since the merger was announced, he’s had hundreds of positive meetings with lawmakers.
Labor unions are split on the merger. The Association of Flight Attendants-CWA, which represents 50,000 flight attendants at 19 carriers, including 5,600 at Spirit, favors the deal. But the Transportation Workers Union, the nation’s largest airline union — whose members include flight attendants at JetBlue and passenger service agents at Spirit — has called on Attorney General Merrick Garland and Buttigieg to stop the deal.
A merger would bump JetBlue from the nation’s sixth-largest carrier to fifth, and bring it more aircraft and pilots, both of which have been in short supply industry-wide. Carriers have scrambled to rebuild their operations after more than 50,000 workers left during the worst of the pandemic.
Some experts are skeptical of Hayes’s argument that merging with Spirit is the best way to improve the flying experience for consumers.
“The argument that JetBlue has advanced toward a merger with Spirit is that it’s going to upgrade the quality, and yes, you may get higher quality, but you’ve also just eliminated a low-cost competitor — one that consumers wanted,” Ederer said. “Those who want to fly cheap want to have a low-cost competitor.”
Even if it merges with Spirit, JetBlue will still be significantly smaller than the big four carriers, said William Swelbar, chief industry analyst at the Swelbar-Zhong Consultancy, a commercial aviation analysis and research company. JetBlue has also said it plans to reduce the number of seats on Spirit’s airplanes, which would mean fewer seats and translate into higher costs for consumers, Swelbar said.
Moss said a win for the government in both cases would be wins for consumers and labor. Two losses, however, would be devastating for consumers who could see airfares rise and for labor unions who could see lower wages and job losses, she said.
Regardless of the outcome, Hayes said, JetBlue will continue to fly and compete with the industry’s dominant players but noted the obstacles to growth within an industry that has consolidated in the past two decades.
“We can survive, but if we want a more competitive industry, you have to empower the smaller airlines to do more, more quickly,” he said. “And this is the best way of doing that.”