JetBlue, Spirit push low fare merger narrative to skeptical DOJ

JetBlue Airways and Spirit Airlines are making a last-minute pitch for their merger, arguing that combining the two airlines will force fares down across the industry — but they still need to convince a skeptical Justice Department, which is preparing to sue to block the deal.

In a joint interview Thursday with POLITICO, JetBlue CEO Robin Hayes and Spirit CEO Ted Christie both argued that the deal would mean lower prices for people who want to fly. But the Justice Department, which has been investigating the proposed merger since summer, remains unconvinced that removing ultra-low-cost carrier Spirit from the market would not cause fares to rise, according to two people familiar with the matter who were granted anonymity in order to speak freely.

On Wednesday Hayes and Christie met with the leadership at the Justice Department’s antitrust division as part of a final bid to convince the government to not challenge the deal, according to the people.

When asked for details about how the merger could drive down prices, Hayes said fares are a “function of capacity” and that Spirit flights will adopt JetBlue’s seat configuration. Though that means fewer seats, he argued that customers would still save because planes in the new, combined airline will spend more time in the air and less time on the ground.

“One of the benefits of bringing these two airlines together is we can increase the utilization of the airline,” Hayes said. “You have more options to fly that next route to increase the length of time in the day that you’re flying.”

Christie acknowledged that fares on some routes could increase if the merger is approved. But he argued that the new airline would lead to decreased fare costs overall.

Fares are “based on booking patterns happening at that particular time. So you could probably derive individual circumstances where you may see modest changes in fare,” Christie said. “But what’s more important to focus on is the aggregate effect of the larger airline,” he said. “I think hundreds of millions of dollars will be saved.”

However, because the combined airline will ultimately end up removing seats, Justice Department officials are not convinced that the new company won’t be forced to raise prices to recoup those losses, people with knowledge of the matter said.

DOJ’s decision coming soon

DOJ has a little more than a week to make a final call on whether to sue. The parties had previously agreed on a deadline of Feb. 28, but one of the people familiar with the matter now says that date is expected to slip. Hayes on Thursday also noted that those agreements can always be extended.

He added that JetBlue has been in discussions “with a number of state [attorneys general] as well.” And he also said that there will be “over the next week or two, a very significant amount of political bipartisan support for this transaction.” Hayes declined to comment on any specific meetings with the DOJ.

The companies’ argument before DOJ is essentially that they must merge in order to compete with the big four legacy airlines, Delta Air Lines, American Airlines, Southwest Airlines and United Airlines. Once merged, the new entity would be the fifth biggest, behind that group.

DOJ antitrust head Jonathan Kanter, who has an aggressive mandate to fight corporate deal-making, is unlikely to buy that argument.

Kanter however has recused himself from the case because his former law firm, Paul Weiss, represents Spirit, according to one of the people. That would leave the decision in the hands of his deputy, Doha Mekki, and practically it would have little impact.

A DOJ spokesperson did not immediately respond for comment.

Hayes has said several times in the past two weeks that the companies intend to fight for their deal in court, if necessary.

Airlines’ offer to grease the skids

To address DOJ’s concerns, JetBlue has offered to sell off the entirety of Spirit’s operations at Newark Liberty International Airport, LaGuardia Airport and Boston Logan International Airport, as well as five slots at Fort Lauderdale-Hollywood International Airport.

Those were picked amid DOJ concerns that JetBlue’s Northeast Alliance with American Airlines reduces competition and consumer choice, said JetBlue Senior Vice President of Government Affairs Robert Land.

Land said the companies are in “advanced” talks with potential buyers for all the assets up for sale, adding that the four largest airlines are not part of the divestiture talks.

Not currently on the table is an offer to abandon the alliance, which the DOJ challenged in court last year and is currently awaiting a ruling from a federal judge in Boston.

“Let’s wait and see what the judge’s verdict is. If we lose the NEA, right, the NEA is off the table,” Hayes said, “If we win the NEA, we won the NEA because it’s pro-competition. Frankly, we can use a number of slots leased to us by American to help JetBlue be bigger.”