JetBlue Airways and Spirit Airlines announced Monday they have dropped plans to merge, a transaction that would have created the nation’s fifth-largest carrier.
In a statement, JetBlue said that while the two companies still believe in the “procompetitive benefits of the combination,” it was unlikely they would be able to reach the necessary legal and regulatory approvals by July 24 as called for in their agreement.
The two carriers were in the midst of appealing a decision issued this year by U.S. District Judge William G. Young, who blocked the merger on the grounds that it violated antitrust laws. Young’s ruling was a significant victory for the Biden administration, which has sought to block mergers in industries it thinks are too concentrated. It was the second time the Justice Department prevailed in a case involving U.S. airlines.
“This merger would have forced higher fares and fewer choices on tens of millions of Americans,” President Biden wrote on X. “My Administration’s historic success in blocking it is a win for America consumers and competition.”
Even so, executives from JetBlue and Spirit continued to portray the $3.8 billion deal as pro-consumer.
“We believed this merger was worth pursuing because it would have unleashed a national low-fare, high-value competitor to the Big Four airlines,” Joanna Geraghty, chief executive of JetBlue, said in a statement. “We are proud of the work we did with Spirit to lay out a vision to challenge the status quo, but given the hurdles to closing that remain, we decided together that both airlines’ interests are better served by moving forward independently.”
Ted Christie, Spirit’s chief executive, also cited regulatory obstacles as a key factor in his company’s decision to terminate the merger agreement, but he expressed optimism about Spirit’s future, even as it faces significant financial and operational challenges.
“We are disappointed we cannot move forward with a deal that would save hundreds of millions for consumers and create a real challenger to the dominant ‘Big 4’ U.S. airlines” — United, American, Delta and Southwest — Christie said in a statement. “However, we remain confident in our future as a successful independent airline.”
Attorney General Merrick Garland pushed back on the carriers’ view that the merger would have been good for consumers, characterizing JetBlue and Spirit’s decision to drop their plans to merge as a “victory for the Justice Department’s work on behalf of American consumers.”
“The Justice Department proved in court that a merger between JetBlue and Spirit would have caused tens of millions of travelers to face higher fares and fewer choices,” he said in a statement.
JetBlue will pay Spirit $69 million as part of the termination agreement. Spirit stockholders received approximately $425 million in prepayments while the merger agreement was in effect.
Monday’s announcement now leaves the two carriers with the formidable challenge of navigating on their own through a market dominated by four major airlines. Spirit in particular is facing financial and operational challenges. The Florida-based carrier has been forced to ground dozens of its Airbus jets because of a Pratt and Whitney engine issue.
JetBlue has grappled with reductions in the number of flights it operates in and out of the New York area, the result of staffing shortages at a key air traffic control center. The carrier also has a new chief executive in Geraghty, who took over last month after Robin Hayes retired. Hayes had been the architect of the JetBlue-Spirit merger, outbidding Frontier Airlines, which had previously announced plans to merge with Spirit.
Some analysts, however, think JetBlue may ultimately benefit from the failure of the merger.
“Airline mergers are lengthy, messy and complex to execute,” said Henry Harteveldt, an aviation analyst and president of Atmosphere Research. “They distract a lot of the acquiring airline’s management’s time and focus. Now, JetBlue can proceed unencumbered.”
However, Harteveldt said Spirit may continue to struggle.
Last week, the two sides filed a brief in their appeals case outlining why they thought the judge’s decision blocking the merger was flawed. However, JetBlue’s announcement Monday was not a complete surprise. Shortly after Young’s decision, JetBlue executives indicated they might not appeal the case and received strong pushback from Spirit.
In his 113-page decision, Young wrote that while a combined JetBlue-Spirit carrier could put pressure on the four biggest airlines, it would hurt consumers who rely on Spirit’s low fares. He noted that when Spirit enters a market, rival airlines reduce their prices by 7 percent to 11 percent on average.
Consumer advocates said the failure of the JetBlue-Spirit merger would promote airline competition.
“The decision by JetBlue and Spirit to call off their merger is good news for the flying public,” said Diana Moss, vice president and director of competition policy for the Progressive Policy Institute. “The district court opinion backed up DOJ’s strong case for why the merger would raise fares and eliminate important consumer choice. It sets a mark for how further consolidation in the U.S. passenger markets will get close, close scrutiny.”
In December, two other U.S. carriers, Alaska Airlines and Hawaiian Airlines, announced plans to merge.