Spirit deal loss eases anxiety for everyone else

Turbulent skies. JetBlue Airways’ failed $3.8 billion run at ultra-budget peer Spirit Airlines has a silver lining for everyone else. A judge on Tuesday sided with the U.S. Department of Justice, which had sued to block the tie-up between the sixth- and seventh-largest American carriers, announced 18 months ago. A court loss now heads off a much more disruptive intervention by regulators that could have clouded the industry, while affirming that standard antitrust analysis holds fast. But a nearly 50% drop in Spirit’s stock price underscores the dire position for airlines if mergers aren’t an option.

Unlike with high-profile losses by trustbusters in recent years, where regulators rolled out far-out theories of consumer harm, this case was simple. Spirit is a cheap airline. JetBlue is less cheap. Combining the two would therefore eliminate some of the nation’s cheapest tickets. Judge William Young found that, although the carriers ably argued that they can better compete with giants like American Airlines together, “those who must rely on Spirit” by dint of its bargains would be harmed.

For the DOJ, victory proves its mettle in bread-and-butter cases, especially after court drubbings from Meta Platforms and Microsoft might have dealmakers pitching mergers with renewed vigor. But it’s good for would-be tie-ups, too. Senator Elizabeth Warren had pushed the Department of Transportation, run by Pete Buttigieg, to use its authority over the airlines. To allow a merged company to operate, the agency has to combine certificates for international routes. Had Buttigieg blocked this from happening, it would have plunged proposed mergers into uncharted territory. Avoiding that outcome is good for Alaska Air, currently pursuing a $1.9 billion deal for Hawaiian.

Spirit, though, now looks like a weakened rival. Falling prices, rising fuel costs, and labor and airplane shortages make it a tough time to be a small carrier. Full-year EBITDA is expected to be negative, according to LSEG. Former suitor Frontier’s shares fell a similar amount over the past six months. As Judge Young wrote in his opinion, though, “the courthouse doors remain open” to considering future deals.