The JetBlue-Spirit Drama: For and against merger

In 5th November’s FAN column, Project AeroFlight briefly discussed Spirit Airlines’ intentions to merge with JetBlue Airways in a US$3.8 billion deal. Both low-cost carriers have faced extreme competition from fellow low-cost carrier Southwest Airlines, as well as the Big Three US Airlines: American Airlines, United Airlines, and Delta Air Lines.

By: Gareth

Published On: 17 November 2023, 9.00pm (GMT +8)

JetBlue and Spirit are looking to merge for USD 3.8 Billion. Photo: The Hill (www.thehill.com)

JetBlue and Spirit justified their intentions to a federal court in Boston in early November, with JetBlue CEO Robin Hayes testifying,

“Consolidation among the smaller airlines is inevitable to compete with larger airlines.”

Spirit’s Ted Christie also asserted that a merger between the two would be a “far superior path” for both parties as compared to operating as separate business.

On the surface, the merger between JetBlue and Spirit seems perfectly reasonable. Both JetBlue and Spirit have fleets composed entirely of Airbus A320 family aircraft, meaning that a combined airline would not require staff to undergo training on new aircraft types. The beauty of a homogenous fleet is that pilots and mechanics only have to go through training once on a single aircraft type, which they can fly for as long as they keep their license. A merged JetBlue and Spirit would avoid the classic problem of needing to re-train thousands of staff on newly-acquired aircraft. In addition, a merged airline would have a total of 472 active A320s, easily the largest A320 fleet in the world (ahead of American’s 469). JetBlue-Spirit’s status as the world’s largest A320 operator could possibly allow it to be in a more powerful position to negotiate future aircraft deals with Airbus, potentially putting it at an advantage for the purchase of A330 or A350 aircraft should the airline decide to expand into long-haul routes.

Secondly, JetBlue and Spirit currently operate in very similar markets. Both airlines focus on delivering low-cost domestic flights within the United States, with some destinations in the Caribbean and Latin America. Notably, JetBlue has also begun flying its A321 neo family to European destinations such as Paris CDG and London Heathrow. In addition, both airlines are based primarily on the US East Coast, JetBlue in New York and Spirit in Miami. It is also a happy coincidence that both airlines have similar operating models, with both airlines making use of point-to-point connections using bases, instead of the hub-and-spoke models favoured by the Big Three. The two even share some common bases, including Fort Lauderdale and Orlando in Florida.

However, the Department of Justice and the Federal Trade Commission are unwilling to authorise the merger due to the loss of competition. The unfortunate fact is that, since both airlines compete in the same market now, a combined airline would have a near monopoly in the East Coast (Southwest operates mainly in Texas and the West Coast). The lack of competition in the market would cause the combined airline to lose its incentive to keep prices low, resulting in the opportunity for higher airfares. Federal analysts say that this would cause the low-cost market to lose its value, and is estimated to cost consumers an additional US$1 billion a year in raised airfares.