The elongated tussle between the US federal authorities and JetBlue’s recent merger plans for expansion with Spirit Airlines does not seem to take a halt.
As the dynamics displayed by the acquiring airlines with an intent to persuade the judge to let the entity enter into a merger contract, the federal official seemed to be not getting along on the same page as the aviation giant.
Implications of JetBlue-Spirit Merger
The outcome of the $3.8 Billion dollar deal would transcend the US airline industry, creating a pivotal shift for the four eminent industry leaders accounting for a controlling interest of more than two-thirds of the national market and exert dominance over big airports in places like Atlanta, Dallas-Fort Worth and Newark.
The federal authorities were observed to counter the entity’s demand of the billion-dollar merger on the grounds of being unfair to the travelers, as the merger would result a sore in prices in JetBlue’s ticketing arena.
Competition Elimination and Higher Fares
The Justice Department’s lawyer, Edward Duffy, countered that the sale would eliminate a small but important source of competition. He contended that more than 135 million airline passengers a year would suffer if Spirit was no longer helping to push down fares on the routes that those travelers fly.
The Justice Department also argued that Spirit is unusually disruptive, accounting for about half of all service offered by the nation’s lowest-cost airlines. The merger-seeking entity is more inclined on copying the business model of the big four airlines by charging relatively high fares, the department roughly estimates that the deal would ultimately cost consumers $1 billion to $2 billion annually in higher fares.
Additionally, it has been observed by both the aforesaid parties that the aviation market has hereby become very concentrated and dominated by few players with majority share holdings. This isn’t the first time the government has curbed, challenging an airline merger. In 2013, the detail between American and US Airways created the world’s largest airline company American Airlines Group Inc, was challenged but then settled by law authorities in the courtroom.
Striving for Balance
The cases still battling its way out in the courtroom, but if the merger is approved, JetBlue has agreed to transfer Spirit’s gates and some of its own to other low-cost airlines at airports in Florida, Boston and New York. On the contrary, the justice department lawyers argue those concessions aren’t enough to ease antitrust concerns and a larger JetBlue isn’t feasible and necessarily better for the consumers.
While combining JetBlue and Spirit’s operations could allow JetBlue to expand its route network and services to better meet customer needs across different travel budgets, it is important that any merger agreement preserve an affordable travel option for consumers. An integrated carrier should strive to maintain competitive low-cost flight offerings alongside JetBlue’s existing products and services. With careful planning and execution, a merged JetBlue-Spirit could potentially realize efficiencies to benefit both shareholders and travelers through lower average airfare and an expanded choice of travel options.
Of course, regulators would need to ensure any combination of the two airlines still promotes meaningful competition in the industry. Overall, a merger could be mutually beneficial for the companies and consumers alike if it is structured to prioritize accessibility and affordability as highly as operational growth.
