Spirit picked up 16 slots at Newark this week. Is that a big deal? It’s notable, yes, but more interesting to me was what this says about the Frontier/JetBlue/Spirit love triangle that at last check was still going to be voted on tomorrow. It doesn’t look like DOT has as much love for JetBlue as it used to, and that could be cause for concern for those who back a JetBlue acquisition of Spirit.

Before we get into that, let’s talk about this slot award. When United and Continental merged, the combined airline was forced by the feds to divest some slots to new entrants to lessen the negative competitive impact. Southwest picked those up, but then in 2019 it decided it didn’t like Newark anymore, so it pulled out.

By then, Newark had been downgraded to a so-called Level 2 airport which doesn’t have strict slot requirements. In a Level 2 environment, each airline submits what it wants to fly every season, and the FAA works with the airlines to get to something that’s flyable. Southwest had 16 slots during the peak hours of 2pm to 10pm when the airport was at capacity. The FAA decided to retire those slots (which had effectively become runway timings), effectively reducing allowed capacity during the peak afternoon.

Spirit was angry about this and said it defeated the whole purpose of the divestiture. It went to the courts, there was much arguing, and it was decided that those 16 slots would be reallocated. In the meantime, Newark has lurched toward gridlock as United, JetBlue, and Spirit all fight each other for precious afternoon departure times. It has become so bad and unreliable that the FAA let United cancel 50 daily flights this summer without letting others backfill, because the airport has simply been unable to function.

Now, there are these 16 slots (8 slot pairs) which are being reactivated. And while the airlines have been able to grow their schedules during COVID using ad hoc timings, these slots mark a permanent right to operate during the peak, so they were coveted, at least by three airlines: Alaska, JetBlue, and Spirit. (They would have been coveted by United too, but that obviously wasn’t going to happen.)

In the end, DOT gave the slots to Spirit with two caveats. First, Spirit must fly them all. If they decide to give some back, the DOT can take them all and reallocate. Second, Spirit has to report on customer service metrics every quarter if it wants these slots. This seems to stem from the DOT Secretary’s pet project of trying to improve airline performance. I don’t imagine Spirit is overly concerned about this, because it doesn’t seem to require any thresholds be met. Spirit just has to report the details.

In the decision-making process, Alaska was immediately thrown out, because it only wanted 4 slots, and the DOT wanted to give all 16 to a single airline if one was interested. That left JetBlue and Spirit to duke it out. As we all know, JetBlue has been trying to ruin Spirit’s merger plan with Frontier. With ever-escalating offers, JetBlue has caused Spirit shareholders to pause long enough on the Frontier deal to delay the shareholder vote approving the latter deal twice.

As of now, tomorrow is d-day on whether the Frontier/Spirit merger gets approved or not, but I’m no Charlie Brown. You take the football away from me twice, and I won’t believe you’ll let me kick it next time. We’ll see if the vote happens this time.

Spirit’s board has unequivocally backed the Frontier deal, saying that the merger of two ultra low cost carriers (ULCCs) will only help competition and keep fares low. JetBlue taking Spirit out of the ULCC space entirely — Spirit says — will hurt fares, and the feds aren’t likely to approve that. But is it true?

The feds tend to keep things close to their vest, but in this decision awarding slots to Spirit over JetBlue, it may have tipped its hand just a bit.

In the filing, DOT laid out its rationale in great detail. You can read it if you’d like, but I’ll just pull out the points that may have a deeper meaning for the future.

First, it has to be pointed out that DOT would not consider JetBlue’s application in a vacuum. Not only did it take American’s Newark presence into account thanks to the Northeast Alliance (NEA) between the two airlines, but it also looked at all New York airports. As DOT put it,

JetBlue, together with its joint venture partner American under the NEA, is the largest operator in the New York area, which includes EWR; the NEA operates 32 percent of service in this area, followed by United and Delta each at 23 percent.

As far as DOT is concerned, there is no daylight between the two carriers in the northeast, and there’s no reason to think it won’t feel similarly in a merger analysis.

Now, going back to this decision process, DOT put forth this as its first criteria to evaluate the applications:

Business model and product offering that allow the carrier to effectively compete, including the extent to which offering low fares to large numbers of travelers is core to its business proposition across markets

Low fares are important. And in that regard, DOT goes on further to note this.

Spirit maintains a 32 percent cost advantage over JetBlue, and a 46 percent advantage over United. This will effectively allow Spirit to offer lower fares to more customers while maintaining the profitability necessary to remain an effective competitor at EWR.

This is an important point. JetBlue has relied upon its assertion that while Spirit may have lower fares, JetBlue fares combined with its product offering make it more able to lower legacy airline fares since they feel more compelled to match JetBlue than Spirit with its a la carte model.

DOT doesn’t seem fazed by this argument. It wants lower fares, and Spirit delivers.

As discussed previously, Spirit has the clear advantage in offering lower fares, allowing it to attract a much broader set of passengers, including discretionary travelers whose decision to travel is stimulated by Spirit’s low base fares.

DOT went on to say that operational performance is also important. It flagged Spirit for having a higher level of cancels last year and a really high number of complaints while JetBlue was nailed for more recent cancellation numbers, poor on-time performance, and a bad mishandled bag rate. Though its analysis didn’t come to a clear conclusion on which airline is better, the department was able to impose those extra customer service reporting requirements on Spirit. Spirit’s operation has at least generally trended in the right direction while JetBlue’s poor performance has been the standard for many years.

After looking at all the criteria, the decision was made in favor of Spirit and the rationale was clear.

The Department finds that Spirit’s application will produce greater consumer benefits for a larger
pool of passengers at EWR. Spirit has demonstrated its ability to maintain a significantly lower
cost structure, allowing it to offer lower fares to more passengers, and has a demonstrated history
of entering and stimulating markets (including those dominated by United or other legacy
carriers). The Department concludes that the maximum competitive benefits will be realized by
the award of these timings to Spirit as the carrier best able to achieve the proceeding’s aims of
restoring the competition lost when Southwest relinquished the timings.

Does this mean a JetBlue/Spirit merger can’t happen? Of course not. But DOT seems to rely heavily on fare levels as an indicator of competitive benefit in this decision. A JetBlue acquisition of Spirit would unquestionably raise Spirit fares, eliminating a ULCC from the market. That’s not something the feds appear willing to overlook, and it could cause some concern for those who were hoping for a JetBlue acquisition and easy sailing through the regulatory process.