The merger of JetBlue and Spirit has surfaced novel issues for airline competition in U.S. passenger markets, where concentration is often high and smaller carriers face a high hurdle in getting a foothold. As with previous airline mergers, the prospect of reduced competition following a JetBlue-Spirit merger raises concerns about higher fares and lower quality. But it is also an important case of first impression. If the merger goes through, JetBlue will likely dismantle ultra-low-cost carrier (ULCC) Spirit, cutting budget-conscious travelers’ national U.S. ULCC flying options in half. This is a far cry from European passenger markets that feature many more low-cost carriers. As an important dimension of competition, consumer choice is highly visible in the airline sector. The idea that less choice is bad for consumers does not require the complex fact-finding and analysis that is typical in contested merger proceedings. Rather, it is a practical application of the premise that a substantial loss of competition hurts consumers simply by taking away their options. Viewed through this lens of antitrust “pragmatism,” JetBlue-Spirit could open up bandwidth for new precedent that a loss of choice is as harmful to consumers as higher prices or lower quality. When taken together, these harmful effects make a powerful case for why denying the JetBlue-Spirit merger would maintain competition and protect consumers. To take a deeper dive into how PPI is thinking about consumer choice, antitrust pragmatism, and airline competition, please read on.
The merger of U.S. airline carriers JetBlue and ultra-low-cost carrier (ULCC) Spirit, if it succeeds, will be the seventh major U.S. airline merger in the last two decades. Put another way, at this pace of consolidation, the U.S. will have lost a domestic airline carrier about every 33 months since the mid-2000s. A merger of JetBlue and Spirit would combine the sixth and seventh largest airlines by market share, leapfrogging Alaska to land in fifth place behind the top four: Delta, American, Southwest, and United.
Despite their positioning as smaller domestic airlines, a merger of JetBlue and Spirit highlights two recent shifts in U.S. airline merger enforcement. It is the first time the U.S. Department of Justice (DOJ) has sought a full-stop injunction for an airline merger on the grounds that it will substantially reduce competition under Section 7 of the Clayton Act This stands in contrast to previous airline mergers where the government settled with remedies, such as slot or gate divestitures. The DOJ’s unwillingness to accept a fix in JetBlue-Spirit is another in a series of moves that reveal the Biden administration’s more aggressive stance on reining in consolidation.
The DOJ’s challenge of the JetBlue-Spirit merger is also notable for another reason. JetBlue intends to eliminate Spirit, reconfiguring the trademark yellow planes and raising fares. As one of only two national U.S. ULCCs, the merger eliminates about 50% of this market segment. This is a markedly different landscape than in Europe, which features many more low-cost carriers from which consumers can choose. ULCCs are disruptive players, providing a vital source of choice for budget-conscious travelers. These options will be dramatically scaled back when JetBlue retires the Spirit model. The DOJ’s case tees up consumer choice as an essential element of competition, extending traditional concerns that an airline merger can raise fares and degrade service quality.
The court could look askance at the DOJ’s claim that the loss of Spirit will hurt consumers by reducing consumer choice. Or it could widen the antitrust aperture by giving credence to how a loss of competition manifests harmfully in fewer options for consumers. The case for why a loss of choice is bad for consumers does not require voluminous data and complex economic models. As such, it is by far the most practical application of the premise that mergers that substantially reduce competition are illegal. Viewed through the lens of antitrust “pragmatism,” a positive judicial finding for the government in JetBlue-Spirit on the issue of consumer choice could free up bandwidth for advancing stronger merger enforcement.
