- The Justice Department on Tuesday sued to block JetBlue Airways' $3.8 billion proposed takeover of budget carrier Spirit Airlines
- Spirit agreed to sell itself to JetBlue Airways last summer.
- President Biden's Justice Department has vowed a hard line against consolidation.
The Justice Department on Tuesday sued to block JetBlue Airways' $3.8 billion proposed takeover of budget carrier Spirit Airlines, the Biden administration's latest attempt to prevent industry consolidation.
Spirit Airlines agreed to sell itself to JetBlue last summer after a long battle for the carrier between JetBlue and Frontier Airlines. New York-based JetBlue's acquisition of Spirit faced a high hurdle with regulators from the start, and the airline on Monday said it expected DOJ action this week.
JetBlue's takeover of Spirit would create the fifth-largest airline in the country and also eliminate Florida-based Spirit, with its business model of rock-bottom fares and fees for everything from carry-on baggage to seat assignments.
"JetBlue's plan would eliminate the unique competition that Spirit provides—and about half of all ultra-low-cost airline seats in the industry—and leave tens of millions of travelers to face higher fares and fewer options," the Justice Department said in its complaint, filed in a Massachusetts court on Tuesday. "Spirit itself put it simply: 'A JetBlue acquisition of Spirit will have lasting negative impacts on consumers.'"
At a Tuesday press conference, Attorney General Merrick Garland underscored that the merger would be particularly harmful for "working and middle class Americans who travel for personal rather than business reasons and must pay their own way."
The DOJ cited Spirit's own internal documents that show that when the airline starts flying a route, average fares fall by 17%.
JetBlue has argued the combination would allow it to better compete with large airlines that dominate the U.S. market. The deal would also give JetBlue access to more Airbus jetliners and pilots, which are both in short supply as travel demand remains strong.
JetBlue plans to remodel Spirit's bright-yellow planes with packed-in seats to JetBlue's, which include seatback screens and more legroom.
"JetBlue competes hard against Spirit, and views it as a serious competitive threat. But instead of continuing that competition, JetBlue now proposes an acquisition that Spirit describes as 'a high-cost, high-fare airline buying a low-cost, low-fare airline," the DOJ said.
New York, Massachusetts and Washington, D.C., also joined the suit.
JetBlue and Spirit said in a joint statement Tuesday that they will "continue to advance our plan to create a compelling national challenger to the Big Four airlines."
"We believe the DOJ has got it wrong on the law here and misses the point that this merger will create a national low-fare, high-quality competitor to the Big Four carriers which – thanks to their own DOJ-approved mergers – control about 80% of the U.S. market," JetBlue CEO Robin Hayes said in a statement.
Spirit CEO Ted Christie said his airline will "vigorously defend" the merger against the DOJ's suit.
"Together, we intend to democratize flying for travelers across the country – a goal we believe is worthy of the government's support," he said in a statement.
A JetBlue-Spirit combination would be the first major U.S. airline merger since Alaska Airlines' takeover of Virgin America in 2016. The Justice Department at the time required Alaska to scale back its code share with American Airlines to clear the deal.
The Justice Department also sued to block American Airlines' 2013 merger with US Airways but settled, forcing American to sell dozens of gates and slots at congested airports like Washington Reagan National Airport.
The Biden administration has vowed a hard line against deals it considers to be anti-competitive and has sued to block other mergers, such as Penguin Random House's failed attempt to buy rival publisher Simon & Schuster. Yet the administration has failed to stop several deals, such as one last year in the sugar industry and UnitedHealth's merger with Change Healthcare.
The administration has also taken aim at the airline industry after a host of travel disruptions over the past two years, even after carriers received $54 billion in payroll aid to weather the Covid pandemic.
Separately, JetBlue is awaiting a ruling on its Northeast partnership with American Airlines, which the Justice Department sued to undo in 2021.
—CNBC's Rebecca Picciotto contributed to this report.