Spirit deal loss eases anxiety for everyone else

Hawaiian Holdings

17/01/2024 14:38

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Jonathan Guilford
       NEW YORK, Jan 16 (Reuters Breakingviews) - JetBlue
Airways’  JBLU.O  failed $3.8 billion run at ultra-budget peer
Spirit Airlines  SAVE.N  has a silver lining for everyone else.
A judge on Tuesday sided with the U.S. Department of Justice,
which had sued to block the tie-up between the sixth- and
seventh-largest American carriers, announced 18 months ago. A
court loss now heads off a much more disruptive intervention by
regulators that could have clouded the industry, while affirming
that standard antitrust analysis holds fast. But a nearly 50%
drop in Spirit’s stock price underscores the dire position for
airlines if mergers aren’t an option.
    Unlike with high-profile losses by trustbusters in recent
years, where regulators rolled out far-out theories of consumer
harm, this case was simple. Spirit is a cheap airline. JetBlue
is less cheap. Combining the two would therefore eliminate some
of the nation’s cheapest tickets. Judge William Young found
that, although the carriers ably argued that they can better
compete with giants like American Airlines  AAL.O  together,
“those who must rely on Spirit” by dint of its bargains would be
harmed.
    For the DOJ, victory proves its mettle in bread-and-butter
cases, especially after court drubbings from Meta Platforms
 META.O  and Microsoft  MSFT.O  might have dealmakers pitching
mergers with renewed vigor. But it’s good for would-be tie-ups,
too. Senator Elizabeth Warren had pushed the Department of
Transportation, run by Pete Buttigieg, to use its authority over
the airlines. To allow a merged company to operate, the agency
has to combine certificates for international routes. Had
Buttigieg blocked this from happening, it would have plunged
proposed mergers into uncharted territory. Avoiding that outcome
is good for Alaska Air  ALK.N , currently pursuing a $1.9
billion deal for Hawaiian  HA.O .
    Spirit, though, now looks like a weakened rival. Falling
prices, rising fuel costs, and labor and airplane shortages make
it a tough time to be a small carrier. Full-year EBITDA is
expected to be negative, according to LSEG. Former suitor
Frontier’s shares fell a similar amount over the past six
months. As Judge Young wrote in his opinion, though, “the
courthouse doors remain open” to considering future deals.
    Follow @JMAGuilford on X
    
    CONTEXT NEWS
    A U.S. federal judge sided with the Department of Justice in
a court case over JetBlue Airways’ proposed $3.8 billion
acquisition of Spirit Airlines, blocking the transaction in a
decision issued on Jan. 16. Spirit shares fell by nearly 50% on
the news.
    Senator Elizabeth Warren had previously urged the Department
of Transportation to use its authority over transferring
certificates between merging airlines to effectively block the
transaction.

 (Editing by Lauren Silva Laughlin and Sharon Lam)
 ((For previous columns by the author, Reuters customers can
click on  GUILFORD/  
Jonathan.Guilford@thomsonreuters.com; Reuters Messaging:
Jonathan.Guilford.thomsonreuters.com@reuters.net))