Latest / The Acquisition Talk with Fexingo: Mergers, Buyouts, and Business Sales for Operators / How the FTC Blocked the JetBlue Spirit Merger
Transcript
- Lucas: So in March of 2024, JetBlue and Spirit Airlines walked away from a deal that had been in the works for nearly two years. The government had sued to block it, a federal judge in Boston agreed, and rather than appeal, the two carriers just... gave up. The question is: did the FTC save consumers money, or did it kill the only credible challenger to the big four? Luna: And the interesting thing is that the government didn't just argue that prices would go up. They had a much more specific theory about what gets lost when an ultra-low-cost carrier disappears. Lucas: Exactly. The core of the FTC's case was about what they call 'elimination of a disruptive competitor.' Spirit's entire business model is built on being the low-cost provider. Their average fare in 2023 was about $52. JetBlue's was around $200. The government's economic experts modeled what would happen if Spirit's pricing pressure went away, and they estimated consumers would lose about $2 billion a year in higher fares and fees. Luna: And JetBlue's defense was basically, 'We won't raise prices that much, we promise.' But the judge didn't buy it. Lucas: Right. Judge William Young looked at internal documents where JetBlue executives talked about redeploying Spirit's planes to higher-revenue routes and 'de-commoditizing' the product. That's code for raising fares. And he also noted that JetBlue had a history of promising not to raise prices after mergers and then doing exactly that. He cited the 2013 US Airways-American Airlines merger, where the DOJ sued and settled, and prices still went up. Luna: But wasn't there also a precedent set just a few months earlier? The JetBlue-American Airlines Northeast Alliance case? Lucas: Huge precedent. In May 2023, the DOJ won a case against that partnership, which was essentially a codeshare and slot-sharing arrangement in Boston and New York. The judge ruled that it was anti-competitive because it allowed the two carriers to coordinate capacity. That ruling made it much harder for JetBlue to argue that acquiring Spirit would somehow be pro-competitive. The government's winning streak in airline antitrust cases is now three for three this decade. Luna: And that's notable because historically, the government lost a lot of airline cases. The Northwest-Republic merger in the 80s went through. The Continental-United merger in 2010 went through. It wasn't until the american us Airways merger in 2013 that they even got a settlement. So something has clearly shifted. Lucas: The shift is partly personnel and partly theory. Lina Khan at the FTC and Jonathan Kanter at the DOJ have been aggressive about challenging mergers in concentrated industries. But also, they've revived a legal argument that had been dormant for decades: that a merger between two firms that aren't direct competitors in every market can still be anti-competitive if it eliminates a disruptive player. That's the theory they used successfully here. Luna: Let's talk about the numbers. Spirit's cost per available seat mile is about 6.5 cents. JetBlue's is around 10.5 cents. So Spirit's entire edge is being leaner. If JetBlue absorbs them, that cost advantage disappears. Lucas: And the government's argument was that even if JetBlue kept some Spirit planes flying, they wouldn't operate them the same way. Spirit packs 228 seats into an Airbus A320. JetBlue puts 150 seats in the same plane. That's a 50% capacity difference. Less capacity means fewer low fares available. And Spirit generated about 30% of all ultra-low-cost capacity at the airports it served. The judge agreed that losing that capacity would harm consumers. Luna: One thing I found interesting: the merger was originally valued at $3.8 billion in stock and cash, but by the time the judge blocked it, Spirit's stock had fallen so much that the deal was worth less than $2 billion. The market was basically pricing in a loss before the ruling. Lucas: And after the ruling, Spirit's stock crashed further. It's now trading under $4, down from $27 when the deal was announced. The company is in serious financial trouble. They had $3.1 billion in debt at the end of 2024, and they've been losing money every quarter. Some analysts think bankruptcy is a real possibility. Luna: So the FTC may have saved consumers from higher fares, but it also left Spirit in a position where it might cease to exist altogether. Is that a win? Lucas: That's the tension. The government's job is to preserve competition, not to keep individual companies alive. If Spirit fails, that's a market outcome. But what worries me is that if Spirit disappears, the next disruptor might not emerge. Barriers to entry in airlines are huge — you need planes, gates, slots, pilots. And the big four have been very effective at keeping new entrants out. Luna: There's also a question of whether the same scrutiny applies to legacy mergers. Delta merged with Northwest in 2008. United merged with Continental in 2010. Those deals made the big four even bigger. Yet the government hasn't tried to unwind them. Lucas: And that's a fair criticism. The government's position seems to be that legacy mergers are old news and the current structure is the baseline. They're focused on preventing further consolidation. But critics argue that the consolidation that already happened is why airfares have been rising faster than inflation for the last decade. If you look at the Herfindahl-Hirschman Index of airline concentration, it's well above the threshold for 'highly concentrated' in most markets. Luna: One last point on the legal strategy: the government used a 1934 law — the Clayton Act — but also cited the 2021 Executive Order on Promoting Competition. That order explicitly called out airline consolidation as a problem. So there was a political mandate behind the lawsuit. Lucas: And that's why this case matters beyond airlines. It signals that the government will use all available tools to block mergers in concentrated industries, especially when one of the merging parties is a price disruptor. The Biden administration's antitrust enforcers have now successfully challenged mergers in airlines, publishing, defense, and tech. The message is clear: the era of rubber-stamping consolidation is over. Luna: You know, speaking of the show — we've been doing this for a while now, and we talk a lot about how deals get done and what they mean for consumers. It's interesting that we never run ads. This is entirely listener-supported. Lucas: Yeah, and that's because a small group of people chip in monthly through Buy Me a Coffee at buy me a coffee dot com slash fexingo. It's not a huge number, but it literally covers the hosting costs and the time we put into researching episodes like this one. Luna: If these conversations have helped you think about a deal or a market in a new way, that's the whole goal. And if you ever want to be part of keeping it going, the link is easy — buy me a coffee dot com slash fexingo. All lowercase. No pressure, just a heads-up that that's how it works. Lucas: Anyway — back to the antitrust question. Looking ahead, the next big frontier might be vertical integration in travel tech. Booking Holdings owns Kayak, Priceline, and OpenTable. Expedia owns Vrbo and Orbitz. If those companies tried to acquire a supplier like a hotel chain or an airline, you'd see the same legal theories applied. Luna: And there's already some noise about that. In December 2024, the DOJ filed a civil antitrust suit against a major hotel chain for allegedly colluding with online travel agencies to fix room prices. So the scrutiny is expanding beyond horizontal mergers. Lucas: The takeaway from the JetBlue-Spirit case is that antitrust enforcement is back, and it's more sophisticated than it's been in decades. The government isn't just counting market shares — they're modeling competitive effects and they're winning in court. For operators thinking about M&A, the regulatory risk is real and you need to plan for it. Luna: That's a good place to wrap. Next episode, we'll look at a deal that actually got approved — and why — because not all regulators are created equal. Lucas: Exactly. We'll talk about the difference between the FTC and the FCC, and how some industries have a friendlier path to consolidation. See you then.