Spirit Airlines Shares Tumble After Court Blocks JetBlue Merger

Spirit Airlines, the ultra-low-cost carrier known for its cheap fares and frequent brawls, saw its shares plunge 17 percent on Wednesday, a day after a federal judge blocked its planned $3.8 billion merger with JetBlue Airways.

The ruling, which sided with the Biden administration and six Democratic state attorneys general, marked a major setback for Spirit, which had hoped to join forces with JetBlue to create a national low-fare challenger to the dominant Big Four airlines: American, Delta, United and Southwest.

The judge, William Young of the U.S. District Court in Boston, concluded that the merger would substantially lessen competition and harm millions of consumers who rely on Spirit’s lower-priced tickets. He said the deal would eliminate a vital source of competitive disruption along more than 375 routes, causing nearly $1 billion of net harm annually to consumers.

“Spirit is a small airline. But there are those who love it. To those dedicated customers of Spirit, this one’s for you,” Judge Young wrote in his 102-page opinion.

The decision left Spirit facing an uncertain future, as the airline has been struggling with operational and financial challenges amid the pandemic. Spirit is also hindered by necessary inspections and possible replacement of Pratt & Whitney engines on many of its Airbus jets because of a manufacturing defect. The airline has predicted that it will average 26 grounded planes — more than 10 percent of its fleet — during 2024, causing “a dramatic decrease in the company’s near-term growth projections.”

Some analysts have raised the possibility of bankruptcy for Spirit, which has about $2.5 billion of debt and $1.2 billion of cash on hand as of Sept. 30, 2023. The airline reported a net loss of $163 million in the third quarter of 2023, compared with a net income of $97 million in the same period of 2022.

“Spirit is in a very precarious position right now,” said Henry Harteveldt, a travel industry analyst and the president of Atmosphere Research Group. “They have a lot of debt, they have a lot of planes that they can’t fly, they have a lot of unhappy customers, and they have a lot of angry employees. They need to figure out a way to survive on their own, or find another partner that can help them.”

JetBlue and Spirit said in a joint statement that they disagreed with the court’s ruling and were evaluating their next steps as part of the legal process. They said they continued to believe that their combination was the best opportunity to increase competition and choice by bringing low fares and great service to more customers in more markets.

“We are thrilled to unite with JetBlue through our improved agreement to create the most compelling national low-fare challenger to the dominant U.S. carriers, and we look forward to working with JetBlue to complete the transaction,” said Ted Christie, the president and chief executive of Spirit, in a statement on Tuesday, before the ruling was issued.

The merger, which was announced in July 2022, had faced opposition from the Justice Department, which filed a lawsuit in October 2022 to block the deal. The department argued that the merger would reduce the number of major airlines in the U.S. from five to four, and that JetBlue and Spirit were close competitors on many routes, especially in the Northeast and Florida.

The department also said that the merger would undermine JetBlue’s alliance with American Airlines, which was approved by the department in 2020 as a way to counter Delta’s dominance in New York and Boston. The department said that JetBlue had agreed to terminate its alliance with American as part of its deal with Spirit, which would reduce the benefits of the alliance for consumers.

The state attorneys general of California, Connecticut, Massachusetts, Minnesota, New York and Pennsylvania, as well as the District of Columbia, joined the department’s lawsuit. They said that the merger would hurt travelers in their states, where JetBlue and Spirit have significant operations.

The trial, which began on Dec. 6, 2023, lasted for three weeks and featured testimony from executives of JetBlue, Spirit, American and Delta, as well as experts and economists. The airlines argued that the merger would enhance competition and benefit consumers by creating a stronger low-fare carrier that could offer more flights, destinations and amenities. They also said that the merger would help them recover from the pandemic and cope with rising costs, such as fuel and labor.

The airlines also disputed the department’s analysis of the overlap between JetBlue and Spirit, saying that they served different segments of the market, with JetBlue focusing on more affluent and loyal customers, and Spirit targeting more price-sensitive and infrequent travelers. They said that the department had ignored the competitive pressure from the Big Four airlines, which control more than 80 percent of the domestic market.

Judge Young rejected the airlines’ arguments, saying that they were not supported by the evidence. He said that JetBlue and Spirit were indeed close competitors on many routes, and that their merger would result in higher fares, lower quality and less innovation for consumers. He also said that the merger would not generate significant efficiencies or synergies that would outweigh the anticompetitive effects.

He also said that the termination of the JetBlue-American alliance would be detrimental to consumers, as it would reduce the availability of low fares and convenient schedules on many routes. He said that the alliance had provided substantial benefits to consumers, such as more choices, lower fares and better service.

The ruling has implications for another proposed merger in the airline industry: Alaska Air’s $1.9 billion deal to buy Hawaiian Airlines, which was announced in November 2022. The Justice Department has not yet filed a lawsuit to block that deal, but analysts have said that a favorable ruling for the department in the JetBlue-Spirit case would make it more challenging for Alaska to close its transaction.

Shares of Hawaiian and Alaska each fell by more than 3 percent on Tuesday, after the ruling was issued.