In 2022, JetBlue and Spirit Airlines announced an agreement to an acquisition of Spirit by JetBlue in a $3.8 billion transaction, mostly involving an exchange of stock. The acquisition would have catapulted JetBlue from a distant #5 in the airline industry (behind United, American, Delta and Southwest) to a near rival, perhaps expanding the Big 4 to a Big 5.
The Antitrust Division of the US Attorney General’s Office moved to block the deal as anti-competitive, and a subsequent appeal to the federal courts by JetBlue failed. The argument of the Biden administration was that an industry with four large competitors (the Big 4) and two mid-sized competitors (JetBlue and Spirit) benefited the consumer more than an industry with five large competitors (the prospective Big 5). The math was simple enough: 6, after all, is greater than 5.
Today—with Spirit hobbled by continuing losses and facing the possibility of bankruptcy and liquidation, and with JetBlue having its own problems (although the company denies it is facing bankruptcy)—the math of the Biden administration looks rather weak: the Big 4 plus maybe one mid-sized carrier is definitely not more competitive than the former prospective Big 5.
Besides, the idea that competition is a simple numbers game—the counting of the number of rivals—is problematic.
Over the years, the drift of anti-trust law has been to limit the number of business practices that are per se illegal and to expand permissible cooperation among businesses and mergers and acquisitions that have the effect of lowering cost and, hence, lowering price to consumers.
In particular, mergers and acquisitions that enable the admittedly-smaller number of surviving companies to be better able to take advantage of economies of scale and in other ways to lower cost have a good chance of passing legal muster. More so during Republican administrations than during Democratic, and more so among Republican-appointed judges than Democrat-appointed.
The trajectory of the airline industry since deregulation in 1978 is illustrative. From ten “trunk carriers” and a variety of regional carriers at the time of deregulation, the number of major carriers has collapsed to four (three of which are survivors of the original ten, and one of which was a regional that muscled its way into the Big 4 of today).
Long gone are names such as TWA and Pan Am, including some of the greatest pioneers in airlines such as Juan Trippe and Howard Hughes. Jets have largely replaced propeller-driven aircraft. “Hub and spoke” operations, once very popular, have mostly given way to “point-to-point” operations. A la carte pricing has been introduced, and airlines now use futures to hedge fuel costs.
The real impetus for cutting costs has been the freedom and opportunity unleashed by deregulation, along with the relative ease of assembling an airline from the needed personnel, equipment and airport slots, often with huge amounts of borrowed money. With regard to financing, the prospect of profits—and not the number of competitors—has been key.
To be sure, covid and the shutdown hurt the entire leisure industry. Geopolitical uncertainties and the recent snafu with the TSA haven’t helped. The airline industry is hurting and there may be some reorganizations and even liquidations. The Trump administration is considering a bailout of Spirit involving use of its “excess” capacity for military purposes. However, the best guarantee of jobs in the industry isn’t subsidies for the losers, but the prospect of profits for the winners. But, on May 2, the company abruptly suspended operations. The best guarantee of jobs in the industry isn’t subsidies for the losers, but the prospect of profits for the winners.
