What has long been expected may very well become truth by the time you read this. Bloomberg is reporting that as soon as today, the Department of Justice (DOJ) will sue to block JetBlue’s acquisition of Spirit on anti-trust grounds. More shockingly, Bloomberg says the Department of Transportation (DOT) will “begin a parallel proceeding to block the transfer of Spirit’s airline operating certificate as incompatible with the public interest.” That would be quite the move, and it would not bode well for JetBlue.
I’m doing my best to refrain from commenting directly on these moves since they haven’t actually happened yet. Instead, I want to look at the position that JetBlue has taken over the last few months. It seems like a tortured narrative that talks past the real concerns likely to come out of the federal government.
From the federal perspective, we will learn more specifics in the coming days. But the argument I’d make is that Spirit is an ultra low cost carrier (ULCC) and JetBlue is not. JetBlue taking over Spirit will result in higher fares on Spirit routes and will hurt service options in many markets, especially Florida where the two airlines have multiple overlapping focus cities.
On the JetBlue side, you have a more complex narrative. The Blue Crew says that the big four have too much power and need lower fare competition. Allowing JetBlue to buy Spirit will enable JetBlue to gain the scale it needs to finally fight those big, bad legacy airlines, bringing lower fares than the big guys to customers and providing competition in those markets. It really doesn’t address what the elimination of a structurally lower cost airline like Spirit would mean for Spirit travelers, because well, that probably doesn’t look so great.
To support this position, JetBlue has been going deep to try to sway opinions. Knowing Florida was a big concern, JetBlue summoned some impressive political wizardry to put out a press release full of praise for the airline from right (Gov Ron DeSantis) to left (Rep Debbie Wasserman Schultz).
JetBlue not only announced it would start flying the Tallahassee – Fort Lauderdale route — a guaranteed money-loser but one that those who have to govern from Tallahassee will greatly appreciate —but it also said it would increase the combined airlines’ flying from Fort Lauderdale from nearly 150 departures today (about 55% of which is from Spirit) to more than 250.
It’s entirely unclear how the current plan for the physical footprint at FLL will support this, but if the airport can make it happen, then JetBlue says it’ll fly the airplanes. Not only will it fly them, but it will fly them to 30 new destinations — examples include Antigua, Belize, Cincinnati, Liberia (CR), Minneapolis/St Paul, Memphis, and Savannah along with new Transatlantic flying. It will also increase flying on 30 existing routes.
Florida is happy with this, judging by the glowing quotes in the release, but the feds matter most. It seems very clear that the feds aren’t buying it.
Presumably seeing the writing on the wall, JetBlue yesterday lobbed a last second hail mary with a new press release full of analysis that “adds to a compelling rationale for JetBlue-Spirit combination.”
What is so compelling? I’m glad you asked. The main points are:
- JetBlue is over 3x more effective than Spirit at bringing down competitor fares.
- JetBlue and Spirit primarily compete with other carriers not each other.
- Proposed divestitures materially reduce limited overlap.
- ULCCs are growing rapidly and have expressed high demand for divested assets.
- The combination of JetBlue and Spirit plus the rapid growth of ULCCs will assure increased competition and low fares.
JetBlue is again really trying to focus attention on how bad the big four are and how good JetBlue and Spirit will be at competing with them.
JetBlue LOVES to talk about the so-called JetBlue Effect which suggests airlines bring their fares down when JetBlue enters a market. And now, JetBlue says that it is three times more effective at doing that than Spirit. That may be the case, but what does it say for all those passengers who paid rock bottom fares to fly Spirit?
Those people aren’t going to care if fares are lower than those of the big guys if the fares are still higher than what they paid on Spirit. And fares on the new JetBlue have to rise from Spirit levels because a) they won’t use an a la carte model and b) the seat costs of a JetBlue operation are just a lot higher than at Spirit.
To counter this problem, JetBlue says that it will divest a bunch of assets which other ULCCs will gladly take and use to replace the lost ULCC capacity. It is true that JetBlue has said it will divest all of Spirit’s holdings in New York and Boston along with some in Fort Lauderdale. This was a good, proactive step in trying to curry favor with the feds, but what will ULCCs do with it?
From a ULCC perspective, Spirit tends to serve the bigger markets with more frequent service than anyone else. Frontier is the only airline that looks poised to even try to step into that role, but even that’s not a sure thing. All the remaining ULCCs tend to serve smaller markets infrequently. Just saying that competition will return when other airlines pick up divested assets seems flimsy to me.
Think of it this way. This month, Spirit is flying 4x daily from LaGuardia to Fort Lauderdale. Frontier doesn’t fly that route, but maybe it adds a daily flight. No other ULCC is likely to fly that route, so chances are that low fare seats will suffer. Maybe Breeze picks up a slot and flies to Vero Beach. Or maybe Allegiant decides to go in and fly to Pittsburgh. I can’t say I know what they’d do, but it probably wouldn’t look like what Spirit does today.
It seems that JetBlue is really trying to make the only argument that it can make… putting forward its position in relation to the big guys. But DOJ and DOT apparently aren’t going to look at it that way and have real concerns about the elimination of a large, very low fare competitor in all of this.
I will have more to say when this actually happens, but assuming the Bloomberg report is correct, JetBlue is going to find itself in a very tough spot.