Elizabeth Warren Asks DOT To Block JetBlue-Spirit Merger


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Senator Elizabeth Warren asked the DOT to block JetBlue’s proposed acquisition of Spirit Airlines with a very odd basis for her request.


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JetBlue acquires Spirit Airlines

Earlier this summer, JetBlue Airways attempted to thwart a merger between Spirit Airlines and Frontier Airlines that would have created the largest ultra-low-cost airline in the United States and the fifth-largest airline in the United States after the “Big 4,” American, United, Delta and Southwest.

JetBlue made ever-higher bids to buy Spirit after missing a chance to buy Virgin America (which was eventually acquired by Alaska Airlines) a few years ago. The airline wanted an opportunity for growth and by purchasing the airline it was able to immediately grow its aircraft fleet (which aligns with its) as well as hard-to-get flight attendants, pilots and crew.

The acquisition faces significant hurdles for regulatory approval as the DOJ has sued JetBlue and American Airlines over their previously approved codeshare agreement with the Northeast Alliance (NEA). The trial is scheduled to begin on September 26, 2022.

While JetBlue CEO Robin Hayes is reasonably confident that the Spirit deal will be confirmed, there are reasonable doubts given that the DOJ is already taking the airline to court.

Senator Warren is asking the Department of Transportation to block the merger

Instead of going through another Justice Department process, Sen. Elizabeth Warren (D – Massachusetts) has suggested that the Department of Transportation simply say “no” to the transfer of the certificate and invoke an outdated law.

“Senator Elizabeth Warren called on the federal airline authorities to approve the proposed merger of JetBlue Airways Corp. with Spirit Airlines Inc., invoking a little-used authority from the 1950s to argue that the $3.8 billion deal was not “consistent with the public interest.” – Bloomberg

The law waives any need for the DOJ to build a case denying the acquisition, instead simply citing that the public interest would not be well served if JetBlue swallowed Spirit.

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No doubt JetBlue would sue the DOT if that action were taken, not only because of its significant financial investment in the current deal, the infrequent use of the law, but also that the DOT would then have to prove it wasn’t in the best interest the consumer. This shifting of the burden of proof would greatly complicate the DOT’s ability to uphold its decision.

Warren may have the right result, but the logic is wrong

Senator Warren cited some of the reasons for her position in her letter:

“The competitiveness of the airline industry is in free fall and consumers are feeling the consequences. Today, the four largest airlines – American, Southwest, Delta and United – control 80% of the domestic market, more than at any time in the modern history of commercial aviation. This dominance has been achieved through a series of airline mega-mergers that have reduced quality of service and increased fares, and has contributed to the increase in delays, cancellations and involuntary rebookings experienced by passengers today. Consumer complaints to the DOT are up more than 300 percent from pre-pandemic levels, and airfares have outpaced inflation.” — Senator Warren

OK, fair.

However, past airline mergers don’t necessarily mean that JetBlue shouldn’t be able to acquire Spirit. This suggests that just because it’s the last person in the party, JetBlue isn’t eligible. JetBlue would also have a case to sue either the DOT or the DOJ that they should be given at least an equal opportunity to grow as the Big 4.

It’s not just JetBlue and its premium offering that could set Spirit customers apart that has Sen. Warren upset. In March, she argued that the creation of the world’s largest ULCC was just as concerning for US air travelers. The senator also names Delta, United, American, and Southwest — all of which merged or acquired other airlines — but doesn’t mention Alaska Airlines, which did exactly what JetBlue was trying to do years ago with Virgin and now with Spirit.

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This site has mentioned many times in the past that if Airbus had a surplus of A320s available and thousands of pilots and tens of thousands of support staff were available – neither the DOT nor the DOJ could (or should) have any basis for stopping them. prevents JetBlue from including them in its business. If this were a genuine purchase that didn’t knock out a competitor, there would be nothing wrong with this purchase at all.

Sen. Warren also failed to mention that JetBlue had the second most delayed flights in June and was a consistent source of consumer complaints. For the avoidance of doubt, Spirit didn’t make the top 3 on the same list. Alaska, which merged with Virgin, had better rankings for on-time flights (#1) and also had the fewest canceled flights (#2).

What is most puzzling to this author is why Senator Warren essentially expressed support for the status quo, which she is vehemently opposed to. She also opposed expansion, noting that the Frontier-Spirit merger would be bad for consumers because the mergers of traditional airlines had not worked out in favor of customers, even though the proposed deal resulted in a very large ULCC pronounced through takeovers because bigger airlines = bad.

But that keeps the Big 4 big and the smaller five fighting among themselves in an enclosure where the Big 4 don’t play. She keeps the system she despises by taking action against both deals. And if both deals had only resulted in greater customer concentration, how could these airlines expand their position to “more than at any time in modern commercial aviation history”? Perhaps the senator can explain how maintaining smaller airlines, which she says has proven ineffective, will somehow become more effective in the future by continuing the same system.

What I find most shocking about the senator’s actions is that she penalizes a major employer in her constituency. JetBlue recently ceded market share to Delta at Boston Logan International Airport due to temporary cancellations. Still, JetBlue has been a major airline in Boston for years, accounting for about 30% of departures. Wouldn’t it make sense for one of the state’s largest employers, which is trying to grow bigger and oust these mega airlines, to support such a move? Wouldn’t Massachusetts voters want her to fight for the companies that create jobs in her state, not against them?

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While the senator is clearly wrong in her approach to the concerns, I too would like to see Spirit remain independent or form a larger ULCC carrier to challenge the Big 4. However, this is because I see the ULCC market as less homogeneous than network carriers. For example, Spirit has a solid loyalty program, serves business markets and mainly flies to major city airports with a regular flight schedule. Frontier flies less regularly, avoids business markets, has a weaker loyalty program, and chooses secondary airports more often. Allegiant, even less commonly, still serves smaller tertiary markets down to secondary airports (such as Grand Island, Nebraska through Mesa, Arizona) and a limited loyalty program that exerts almost no pressure at all on business markets that price below the big ones Press nosebleed level 4.

Conclusion

Senator Warren has the right answer, but when she shows off her work, it’s a wonder she made it in the end. She suggests that the DOT can simply wave a magic wand to remove the challenge of taking over JetBlue, she suggests fixing a market dominated by a few players by leaving it as it is now and she does so to the detriment of the people it represents. We hold third-graders on math quizzes to a higher standard (rejecting the answer if the way to get there was wrong) than the good Senator. The truth is, if the DOT followed their recommendation, the acquisition could be even more likely to be approved based on full application of a rule not enacted in 70 years that ignores how other companies were allowed to grow, but JetBlue shouldn’t be .

What do you think? Is the senator right? What about their proposed methodology?



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