While he blocked the JetBlue-Spirit merger on Tuesday, U.S. District Court Judge William Young said that combining the airlines would provide consumer benefits.
However, preserving Spirit's ultralow-cost business model took precedence. (Under the two airlines' merger plan, the Spirit brand would be phased out.)
The judge said folding Spirit into JetBlue would create the U.S.'s fifth-largest carrier, with an approximate domestic market share of 10%, increasing competition with Southwest, American, Delta and United.
"The defendant airlines have demonstrated that an expansion of all aspects of JetBlue's business -- including network, fleet, and loyalty program -- would allow for more vigorous competition with the Big Four, which carry most passengers in the country," Young wrote in his 109-page order. "The size of an airline, the number of routes it serves, the number of options it offers to consumers -- all of these aspects add to an airline's relevance to consumers."
Ultimately, however, Young concluded that the law required him to block the merger as long as it would harm consumers in any relevant market segment. And making that determination, Young concluded, required analyzing the impact a JetBlue-Spirit merger would have on a route-by-route scale, rather than on a network-wide scale.
The result, he wrote, would be harm to Spirit's budget-conscious customers.
A new benchmark for airline mergers?
Other airlines in the past have routinely -- and successfully -- touted efficiencies of scale when pushing for regulatory approval of mergers and joint ventures.
But now, Judge Young might have set a difficult marker for airlines if efficiencies from proposed mergers don't meet the antitrust legal threshold of assuaging harm to specific consumer segments, said Christine Bartholomew, a professor of law and an antitrust expert at the University at Buffalo.
"In antitrust cases, often times it's the market definition that determines the outcome," she said. In concluding that the market must be defined on a route-by-route basis, Young set a challenging bar for future airline mergers to overcome, Bartholomew explained.
The ruling could also bolster positions commonly taken by consolidation opponents.
"The argument that we've got to get bigger to compete better has never been an argument for a merger," Diana Moss, then the president of American Antitrust Institute, said shortly after JetBlue and Spirit announced their merger deal.
Should they decide to appeal the case, JetBlue and Spirit signaled Tuesday that they would press on with their case that scale benefits consumers.
"We continue to believe that our combination is the best opportunity to increase much needed competition and choice by bringing low fares and great service to more customers in more markets while enhancing our ability to compete with the dominant U.S. carriers," they said.
Spirit not in 'dire' financial shape
In his ruling, Young also said that Spirit's current financial problems are not a reason to allow the merger. Spirit has not been profitable since 2019 and projects a loss of more than $460 million for 2023.
At trial, Spirit and JetBlue argued that the merger would protect consumers from the competitive harm that would come from a weakened or failing Spirit. But Young dismissed those points because the airline is not in a "dire" financial situation and because Spirit executives testified that the carrier has a plan to return to profitability.
In his argument that a JetBlue purchase of Spirit would harm budget travelers, Young said that Spirit comprises 46% of the market of U.S. ultralow-cost carriers and that JetBlue would reduce the total seats on existing Spirit aircraft by 11% as it retrofitted those planes to have JetBlue's more spacious configuration.
Young also cited testimony from an expert witness put forward by the Justice Department, noting that it would take five years for other ultralow-cost carriers to replace Spirit's capacity nationally. Were those carriers to attempt to replace Spirit's capacity specifically on Spirit routes, it would take over 15 years to do so, according to the testimony.