Antitrust law: Stupid is as stupid does
A key characteristic of stupidity is that actions hurt oneself and others. No one benefits. That is exactly what U.S. District Judge William Young in Boston accomplished in blocking the buyout of Spirit Airlines by JetBlue on antitrust grounds. The DoJ maintained that the deal between the airlines was anticompetitive and anti-consumer. However, the judge’s decision may ultimately undermine the DoJ’s explicit purpose by weakening competition. It may remove travel options for consumers; it may seal the fate of a no-frills airline business model.
Despite his acknowledgement that the JetBlue-Spirit combination would likely place "stronger competitive pressure" on larger carriers that dominate the domestic airline market, Judge Young emphasized that, “the consumers that rely on Spirit's unique, low-price model would likely be harmed."
So what’s the problem with Young’s judgment?
First, there is already excess industry capacity in the markets that low-cost provider Spirt Airlines serves. Indeed, Spirit is struggling to eke out small losses, let alone a profit, from its no-frills flights. Even a cocooned judge, determined to concoct his own relevant markets and routes, should be able to see the relationship between excess capacity and pricing fundamentals.
Second, is the judge’s ignorance concerning Spirit’s standalone ability to service the cost-conscious consumers he so values. Absent the acquisition by JetBlue, Spirit Airlines may very well experience a hard landing. How is that going to increase competition and help consumers?
That’s not spurious speculation, or the expostulation of someone who’d rather that government pinheads not enforce industrial policy in a free market. Indeed, credit rating agency Fitch discussed Spirit’s “significant refinancing risk” for its debt due in 2025. The company is already exploring restructuring options following the blocked merger. Even after the stock’s price plunged over 60%, analysts at Citi downgraded it to “sell.”
If JetBlue’s acquisition of Spirit imposes “stronger competitive pressure” on larger carriers, then how dare some overzealous bureaucrat question their business plan? Within reasonable business regulations, and strict safety ones, it should be up to airline executives on how to run their business, including upgrading the flawed Spirt Airlines’ business model as markets dictate.
Apparently, presumptuous DoJ lawyers argued that Spirit Airlines will be able to conduct business profitably as a standalone company. Do they know more than the company’s CFO, who was forthright about their debt obligations?
Do they know more than industry analysts, including those from J.P. Morgan, T.D. Cowen, Melius Research, and others? They all question Spirit Airlines’ ongoing ability to operate as a going concern. The stock’s price has plunged since Judge Young’s ill-advised ruling, further diminishing their leverage to conduct favorable financial transactions.
That ought to make Biden’s antitrust regulators happy. Indeed, the DoJ is celebrating a “win.” U.S. Attorney General Merrick Garland seemed downright giddy, describing the ruling as, "a victory for tens of millions of travelers who would have faced higher fares and fewer choices had the proposed merger between JetBlue and Spirit been allowed to move forward."
Biden is always giddy, as his administration recklessly pursues antitrust enforcement. It should be no shock, then, that in response to the judge’s ruling Biden said it is “a victory for consumers everywhere who want lower prices and more choices.” That’s curious, Spirit Airlines specializes in fee-based services, such as charges for luggage, drinks, reserved seats, and probably condiments. I thought Biden was opposed to the types of so-called “junk fees” that Spirt levies on frugal customers.
In his ruling, Judge Young exhorted that, "The removal of Spirit as an option for consumers, therefore, would constitute a cognizable harm." Following his injudicious judgement, Spirit Airlines’ stock is languishing near all-time lows, and some (perhaps many) of its workers may eventually become unemployed as bankruptcy may loom. That’s a lot of cognizable harm, especially to consumers.
It is a pyrrhic victory. If the regulatory harassers have their way, Spirit’s “unique, low-price model” may become extinct. With no white knight to reinvigorate their operations, the consumers whom the judge was trying to protect may have to hop on a Greyhound instead.
Image: Spirit Airlines