The Biden government’s current stance against the absorption within the aviation industry is at stake. As we speak, legal counsel of both JetBlue Airways and the Justice Department are battling it out in court.
The administration has set a legal fight in motion, aiming to overrule JetBlue’s proposed multi-billion-dollar procurement of Spirit Airlines, estimated around a staggering $3.8 billion. The occurrence that follows at Boston’s Federal District Court holds the potential to morph the market landscape for budget carriers altogether. Spirit Airlines, being the top dog of low-cost carriers, and its existence hangs by a thread, only to be cut loose if JetBlue emerges triumphant.
The trial kicked off with opening remarks from both side’s legal consul. Coinciding with this legal battle, JetBlue suffered its largest one-day decline in over three years following the disclosure of a larger than anticipated loss in the third quarter of the fiscal year, and a forecasted additional loss perceived for the fourth quarter.
JetBlue’s top brass refused to respond to any inquiries regarding the Spirit deal. CEO Robin Hayes held his stance that it would be ill-suited to discuss the matter further while court proceedings were underway.
The Justice Department takes pride in their freshly chalked up win in an antitrust lawsuit against a partnership between JetBlue and American Airlines. When one envisions a transgressor in such litigation, JetBlue doesn’t exactly fit the mental mold. As the sixth-largest airline in the United States based on revenue, it’s not unusual for it to have its sights set on acquiring Spirit, the seventh-largest. If successful, the addition of Spirit under its umbrella will leapfrog JetBlue over Alaska Airlines in the rankings, still commanding less than 10% of the American air-travel market.
Should it assimilate Spirit, JetBlue anticipates a growth in fleet by nearly 70%, a complete revamp in Spirit’s aircraft livery, and a promise of an interior cabin overhauling for a more comfortable experience.
The Big Apple-based carrier pitches the idea stating its requirement for an extension in order to contend with larger airlines. JetBlue points to itself as a key disruptor and innovator within the airline industry. Its claim is backed by its ability to bring prices down if it could lock horns with the stronger “Big four.”
The Justice Department sees Spirit as the disruptor that must be preserved, arguing for the consumer benefits associated with an independent Spirit compared to a JetBlue fixed on taking off seats while raising air tickets. Government lawyers have emphasized in their pre-trial brief that the impact of this will hamper the budget-oriented customers more.
JetBlue has posited that any void left by Spirit will be replaced through the expansion of other discount airlines. However, the Justice Department has dismissed this as wishful thinking stating that all airlines have limits to growth due to shortages of aircraft and pilots.
Like many businesses, Spirit Airlines, Miramar, Florida-based “ultra-low-cost carrier,” has its share of critics and skeptics. Its business strategy involves offering rock-bottom fares and charging higher fees for additional services.
In a twist of fate, this isn’t the first lawsuit challenging airline mergers. A similar scenario played out in 2013 as regulators pushed to halt the merging of American Airlines and U.S. Airways. However, the deal went smoothly without a trial as the airlines agreed to give up some landing rights and airport gates.
JetBlue adopted the same strategy only to be snubbed by the government, referring to the informal promises made by Frontier and Allegiant to adhere to Spirit’s current routes.
The Biden administration has shown signs of regret for the mergers endorsed by the Obama administration, rendering the aviation industry devoid of competitors such as Northwest, Continental, U.S. Airways, and AirTran.
On Tuesday, in a meeting held in New York, JetBlue executives attributed the company’s $153 million loss in the third quarter to unfavorable weather conditions, complications with air traffic control, and escalating fuel costs. Projections for the last trimester suggest lower revenues and an adjusted loss of 35 to 55 cents per share, which is significantly higher than the 15 cent loss anticipated by analysts according to a FactSet survey. JetBlue’s shares took a 13% plunge on Tuesday, marking the worst since March 2020 during the advent of the COVID-19 pandemic.
