Spirit Airlines Success Hinges On Merger, Defendants Contend In JetBlue Trial

BOSTON—Without a merger, Spirit Airlines does not see a path to achieve planned growth.

The remarks were made by Spirit Airlines’ counsel, as the antitrust trial challenging the ULCC’s pending merger with JetBlue Airways kicked off in Boston on Oct. 31. In opening statements, lawyers for the defendants revealed that Spirit has been pursuing a merger since 2016, citing “multiple” merger discussions with carriers including Frontier Airlines and Allegiant Air.

“The government says that but for this deal Spirit will continue to grow as fast or faster than it did in the past,” Spirit attorney Jay Cohen said. “The reality is that Spirit’s financial performance will not permit the growth that Spirit planned for.” He added, “There is no plan ... that will allow Spirit to get big enough on its own to compete more effectively for market share with the Big Four.”

Spirit in the 2023 third quarter (Q3) recorded a net loss of $157.6 million, its eighth consecutive quarterly net loss.  “Spirit lost money in 2020 ... it lost more in 2021 than 2020,” Cohen told U.S. District Judge William G. Young. “It planned to make money in 2022, but it lost even more money in 2022 than in 2021. It budgeted a return to profitability this year, that was the plan ... the reality is that Spirit is losing money for the fourth year in a row.”

The jury-waived trial stems from a U.S. Justice Department (DOJ) suit to block the acquisition on antitrust grounds. In its opening arguments, DOJ maintained that a combination of the two ULCCs would harm competition. The net harm to consumers from eliminating Spirit as a competitor, DOJ projected, would be roughly $1 billion annually.

“At its core, this case is about JetBlue eliminating Spirit, its fastest growing low-cost, low-fare competitor in the United States,” DOJ attorney Arianna Markel said. “With Spirit out of the way, JetBlue intends to use Spirit’s planes to make what they call a bigger turbocharged JetBlue. But bigger isn’t always better ... A bigger JetBlue means fewer planes, fewer seats, and higher fares.”

While DOJ told the court that JetBlue projections indicated that fares would increase by 30% after a merger, JetBlue attorney Ryan Shores countered that “there is no such plan.” Instead, he said, that figure referred to internal estimates on “how much more consumers value the JetBlue experience than the Spirit experience.”

A core tenet of the defendants’ arguments center around an ability to compete. It’s something JetBlue says it would be able to do on a national scale, after combining with Spirit.

“This is the first time the government has ever challenged, in court on antitrust grounds, a merger of two airlines this small,” Shores said. “After this merger, JetBlue would go from about a 5% player to just over a 7% player in this country—it would still be less than half the size of the smallest Big Four airlines.”

JetBlue first declared intent to acquire the ULCC in April 2022, ultimately winning a bidding war with Frontier Airlines, which two months prior had announced its own merger agreement with Spirit. At the time, the South Florida-based airline asked its shareholders to vote down JetBlue’s proposal. Following opening arguments, prosecutors questioned Spirit CEO Ted Christie on concerns voiced in 2022, which DOJ said included apprehensions that a JetBlue acquisition would eliminate Spirit’s lower-cost, lower-fare model.

“We were concerned that this would be raised by regulators and wanted to point it out,” Christie said. Though initially “skeptical” of JetBlue’s proposal, Christie said “that has changed over time.”

JetBlue Q3 Financials Down

JetBlue has projected its combination with Spirit would yield annual revenues of approximately $11.9 billion. Coinciding with day one of the trial, the New York-based carrier reported its Q3 results, posting revenues of $2.4 billion, down 8.2% year-over-year, on a 3.5% uptick in operating expenses to $2.5 billion. The airline recorded a Q3 net loss of $153 million, reversed from the year-ago quarter’s net income of $57 million, citing several challenges including the wind-down of its Northeast Alliance with American Airlines, jet fuel costs, air traffic control-related delays, disruptive weather, and a shift in post-pandemic customer demand.

“We strongly believe our combination with Spirit is the best opportunity to disrupt the industry by increasing competition and choice, creating a lot overdue national low-fare challenger for the dominant Big 4 airlines,” JetBlue CEO Robin Hayes told investors on the morning earnings call. “Assuming a successful outcome, we remain on track to close the transaction in the first half of next year.”

Among JetBlue’s Q3 expenses were $25 million in costs related to its proposed acquisition of Spirit. The airline also made an aggregate of $33 million in prepayments to Spirit shareholders during the quarter, part of regular payments being made until the transaction is closed or terminated.

Court adjourned for the day around 1 p.m. ET and is set to continue at 9 a.m. on Nov. 1. The trial is currently scheduled to conclude during the first week of December.