A federal judge on Tuesday blocked JetBlue Airways’ proposed $3.8 billion acquisition of Spirit Airlines, a victory for the Department of Justice, which argued that the deal would harm travelers.
In his 109-page ruling, Judge William G. Young of the U.S. District Court for the District of Massachusetts sided with the Justice Department in determining that the merger would reduce competition in the airline business.
The proposed merger would have created the nation’s fifth-largest airline. The Justice Department had argued that smaller, low-cost airlines like Spirit help reduce fares and that allowing the company to be acquired by JetBlue, which tends to charge higher prices than Spirit, would have hurt consumers.
The four largest U.S. airlines — American Airlines, Delta Air Lines, Southwest Airlines and United Airlines — control about two-thirds of the market. The merger would have given JetBlue a market share of 10 percent, still shy of United, the fourth-largest U.S. airline, which has 16 percent.
Attorneys for JetBlue argued in court last month that the merger would allow it to better compete with the four large national airlines, bringing prices down overall. The Justice Department argued that a larger JetBlue would act just like its larger competitors.
Judge Young agreed with the government, ruling on Tuesday that the merger would “likely incentivize JetBlue further to abandon its roots as a maverick, low-cost carrier.” He said Spirit plays an important role in the market as a small, low-cost alternative to large airlines.
“Spirit is a small airline,” he said in the ruling. “But there are those who love it. To those dedicated customers of Spirit, this one’s for you.”
Spirit’s share price tumbled by more than 50 percent by Tuesday afternoon following the news, while JetBlue’s share price climbed 4 percent.
As part of the merger agreement, JetBlue agreed to pay Spirit $70 million and its shareholders $400 million if the deal were blocked. In a joint statement on Tuesday, the airlines said that they disagreed with the ruling and were evaluating their options.
“We continue to believe that our combination is the best opportunity to increase much-needed competition and choice by bringing low fares and great service to more customers in more markets while enhancing our ability to compete with the dominant U.S. carriers,” the companies said.
The ruling comes just weeks after Alaska Airlines announced plans to acquire Hawaiian Airlines for $1.9 billion. If approved, that deal would give Alaska about 8 percent of the airline market.
Santul Nerkar and Niraj Chokshi contributed reporting.
