Biden administration moving toward blocking JetBlue-Spirit merger

The Justice Department is likely to sue to block a pending $3.8 billion merger between JetBlue and Spirit airlines, five people with knowledge of the matter told POLITICO.

It's the latest anti-monopoly move by the Biden administration, which has also shown increasing interest in policing air travel.

The department could file suit as soon as March, some of the people said, though they cautioned that the investigation is ongoing and no final decision has been made. People in the DOJ's antitrust division have competing opinions about whether to bring a case, according to some of the people interviewed.

If the department goes ahead, a suit would come at a time of immense upheaval for the airline industry, including the December debacle in which Southwest Airlines canceled more than 16,000 flights during the Christmas holidays. That episode helped stoke anger from consumers and regulators, amid complaints that decades of mergers have left passengers at the mercy of a monolithic airline industry.

Federal antitrust regulators have taken a harder line against a range of powerful businesses under President Joe Biden, including a recent DOJ lawsuit aimed at breaking up Google’s advertising business and the Federal Trade Commission’s unsuccessful attempt to stop Facebook’s parent from buying a fitness app.

Justice Department lawyers have been scrutinizing the proposed JetBlue-Spirit merger, which would create the fifth largest U.S. airline, since last summer — interviewing executives, competitors and others to gather evidence for a potential challenge. A separate person with knowledge of the deal said the airlines have long anticipated a DOJ lawsuit, which they argue will crimp their ability to compete against larger U.S. rivals.

In recent weeks, leadership at the DOJ’s antitrust division has been looking to expand the team investigating the merger, with an eye towards filing a lawsuit soon, some of the people said. Earlier this week, Spirit said it expects the department to make a decision in the coming month.

A DOJ spokesperson declined to comment. Spirit did not immediately respond to a request for comment.

In a statement, a JetBlue spokesperson said the merger will create a "long overdue national low-fare challenger" to the other four largest airlines, forcing them to lower fares and improve service. In addition, Joanna Geraghty, JetBlue’s chief operating officer, told Reuters this week that the airlines are still optimistic they can avoid a lawsuit.

A group of state attorneys general will likely join any DOJ lawsuit against the deal, according to some of the people. It’s unclear which states those would be.

Even without Biden’s increased emphasis on promoting competition, the JetBlue-Spirit tie-up would probably draw scrutiny in any administration, according to antitrust experts.

The Obama-era Justice Department drew heavy criticism for allowing the merger between American Airlines and U.S. Airways, one of the last of the major airline deals that led to the U.S. having just four big carriers: American, Delta, United and Southwest. In 2016, Alaska Airlines bought the popular upstart Virgin America after settling with the DOJ.

Among the staff reviewing the JetBlue-Spirit merger, some are at least a bit sympathetic toward the airlines' argument that the deal is needed to stay competitive with the four largest carriers, some of the people with knowledge of the matter said. The companies are arguing in part that in a highly concentrated market that exists due to past DOJ antitrust decisions, the only way to move forward is to be bigger. That argument is not expected to persuade DOJ lawyers, despite acknowledging that past federal decisions contributed to the current merger plans.

But in addition to general concerns around consolidation, the JetBlue-Spirit deal faces several specific hurdles that will make the path to approval even more difficult.

Chief among those is that JetBlue and American are awaiting a ruling from a Massachusetts federal judge on a partnership inked in 2020 between the two on routes originating at several Northeast U.S. airports. DOJ and bipartisan group of states — including Massachusetts, California, Arizona and Florida — challenged that deal in a civil trial last year.

In the JetBlue-American case, which involves an agreement between the two known as the Northeast Alliance, the two airlines are sharing routes, bookings and passengers in airports in Boston and New York City. They say they need the agreement to better compete in the region, while the DOJ says it’s no different from an illegal merger.

At the trial, Spirit Vice President John Kirby testified against the JetBlue-American arrangement. In an internal email from Kirby after the partnership was announced, and referenced at the trial, he wrote that the partnership “will be harmful for competition, further consolidates limited resources, especially in the New York area, and reeks of antitrust collusion with back room deals made on LaGuardia and JFK slots, as well as Los Angeles gates.”

Additionally, Spirit was initially planning to merge with its main low-cost rival Frontier, which lost out after an intense bidding war with JetBlue. During that process, a key argument from those airlines was that a JetBlue-Spirit deal would face insurmountable antitrust hurdles.

DOJ prosecutors latched onto that argument in their case against the JetBlue-American partnership, writing in a court filing that “threatening to compound the anticompetitive effects of the NEA, JetBlue has recently entered an agreement to acquire yet another disruptive airline, Spirit Airlines.”

“That transaction, combined with the NEA, now risks placing not one, but two low-cost airlines under the thumb of AA, neutralizing their disruptiveness and aligning their interests with those of the largest airline in the world,” the prosecutors write before the trial. “The impact of this race to consolidation will fall on the traveling public.”

In that same filing, prosecutors cited a letter from Spirit CEO Ted Christie to JetBlue CEO Robin Hayes — sent before the two companies inked a deal — opposing both the JetBlue-American partnership and the current merger.

“We struggle to understand how JetBlue can believe DOJ, or a court, will be persuaded that JetBlue should be allowed to form an anticompetitive alliance that aligns its interests with a legacy carrier [AA] and then undertake an acquisition that will eliminate the largest ULCC [ultra-low-cost] carrier [Spirit],” Christie wrote to Hayes, according to the DOJ filing.

To appease the DOJ and Transportation Department, which is involved in the merger approval process in an advisory capacity, JetBlue has offered to divest Spirit assets in New York and Boston, as well as some in Florida. DOJ antitrust head Jonathan Kanter has, however, been critical of using settlements to resolve competition concerns in mergers, instead preferring to litigate to stop problematic deals entirely.