Biden Antitrust and the Spirit Airlines Bankruptcy

The Justice Department blocked a merger with JetBlue, and the result will be less competition, higher fares, and laid-off workers

WSJ editorial. 

"Meet the latest victim of Biden Administration antitrust policy: Spirit Airlines. Spirit declared bankruptcy Monday after the Justice Department cut off a lifeline by blocking its merger with JetBlue Airways. Too bad the government won’t compensate the workers, flyers and creditors harmed by its blunder.

Spirit has run up $3.3 billion in debt as it slashed prices to attract customers. The scrappy discount airline last decade spurred more industry competition by unbundling fares, charging more for carry-on baggage, and scrapping amenities. But legacy airlines followed, and Spirit had too few airport gates, pilots and planes to compete effectively.

Its ultra-low fares became financially unsustainable after a new labor agreement boosted pilot pay by some 34% over two years. JetBlue’s $3.8 billion buyout would have rescued Spirit and strengthened both airlines’ ability to go toe-to-toe with legacy carriers. The combined company would have been the fifth largest U.S. carrier, though its market share (10.5%) would still have trailed Delta (17.7%), American (17.2%), Southwest (16.9%) and United (16.1%).

Justice antitrust chief Jonathan Kanter never lets economic reality interfere with his anti-business crusades. DOJ challenged the merger as anti-competitive. Never mind that its argument contradicted DOJ’s claim in its 2021 lawsuit against JetBlue’s alliance in the Northeast with American Airlines.

In January federal Judge William Young sided with DOJ even as he agreed that “an expansion of all aspects of JetBlue’s business—including network, fleet, and loyalty program—would allow for more vigorous competition with the Big Four, which carry most passengers in the country.” He also acknowledged Spirit was struggling financially.

While JetBlue and Spirit initially appealed the decision, they walked away from the merger in March owing to the legal uncertainty that made it difficult to move ahead with other business plans. The Justice Department hailed the deal’s termination as “a victory for U.S. travelers who deserve lower prices and better choices.”

Now passengers can look forward to fewer choices and higher prices as a result of Spirit’s bankruptcy. Spirit furloughed hundreds of pilots this autumn to shave costs. Its Chapter 11 filing will let it restructure debts while continuing to operate, but it’s hard to see how Spirit can emerge in a stronger position to compete with legacy carriers.

Some of its assets including planes may have to be sold to other airlines to pay off creditors. Post-bankruptcy, it will still lack the planes, gates and pilots to go toe-to-toe with the giants. Meantime, JetBlue’s debt this summer was downgraded further into junk status because it is also struggling to compete against the Big Four, especially on the East Coast.

DOJ’s other lawsuit blocking JetBlue’s Northeast Alliance with American has benefited no one other than United and Delta. Call it the Biden antitrust paradox. In the name of protecting competition, regulators are helping big companies get bigger. As usual, consumers and workers will pay."