Future airline mergers face turbulence

The Jan. 16 federal district court ruling that, at least for now, has blocked JetBlue’s planned acquisition of Spirit set airline industry watchers abuzz, wondering about what’s next for each of those carriers.

But I’m also intrigued about the ruling’s potential long-term impact for future airline mergers and partnerships.

Last year, American, Delta, United and Southwest accounted for 79% of domestic seats in the U.S. airline market. The industry reached this state of affairs through a succession of mergers between 2001 and 2013 that folded 10 airlines into what are now the Big 4.

In addition, Virgin America was purchased by Alaska Airlines in 2015. Now Alaska has entered into a contract to purchase Hawaiian Airlines.

We don’t yet know whether the Biden administration’s Justice Department, flush from victories in the JetBlue-American and JetBlue-Spirit cases, will also try to block the smaller Alaska-Hawaiian tie-up. But I do imagine that at Alaska, and also in executive suites across the U.S. airline industry, the Jan. 16 ruling of U.S. District Court judge William Young has raised alarm bells.

At the crux of those likely concerns, according to antitrust experts I’ve spoken with, is Young’s conclusion that the law required him to analyze the competitive impacts of the proposed JetBlue-Spirit merger on a route-by-route basis rather than on a networkwide scale. In so doing, Young determined that the proposed merger doesn’t meet legal muster because it would hurt Spirit’s budget-conscious customers in nearly 300 nonstop and connecting markets around the country. 

Airlines routinely argue that mergers and joint venture partnerships, which act like mergers in specific marketplaces, benefit consumers due to the cost and efficiency advantages of scale. Young himself conceded that by acquiring Spirit, JetBlue would be able compete more vigorously with its four primary foes. But if his ruling ends up guiding the legal analysis in future court cases brought by the DOJ against airline mergers and alliances, the bar for a victory by the carriers will be a high one. 

That could be one school of thought circulating within JetBlue, Scott Wagner, an antitrust attorney at the Miami-based Bilzin Sumberg law firm, told me. As required by contract, JetBlue joined Spirit in appealing Young’s ruling. But the airline has simultaneously raised the possibility that it would disentangle itself from the Spirit agreement.

Already, said Wagner and other antitrust experts, Young’s district court opinion could be cited as persuasive by district-level judges reviewing future merger cases, though they wouldn’t be bound by it.

Indeed, Wagner told me that he believes Young’s opinion will make future merger agreements harder for airlines to defend.

But, he said, if the ruling were to be affirmed at the circuit court level, that appellate opinion would become legal precedent. For airlines arguing merger cases, the damage would be tenfold, Wagner explained. 

Such a scenario wouldn’t mean that other airline mergers couldn’t win the blessing of regulators or a court. As Eleanor Fox of New York University’s School of Law cautioned me, every case is fact-specific and unique.

But JetBlue, an airline that has already tried twice recently to grow quickly via merger or alliance, might not want to risk an appeal and the high merger hurdles that would follow if it failed. 

If JetBlue does stick with the appeal, other U.S. airlines might well be holding their breath and hoping the circuit court finds for JetBlue-Spirit, even though a stronger JetBlue is not in their immediate interests.