In a world of high inflation and ever-increasing costs, Spirit’s announced bankruptcy was another economic blow to working-class Americans.
No-frills airlines offer some of the cheapest fares in the industry, making air travel accessible to millions who otherwise couldn’t afford it. But now one of the cheapest carriers is gone for good. You didn’t have to fly Spirit to benefit from their being around: The funeral for Spirit was barely over before fares jumped, in some markets by up to 218 percent.
The question was hotly debated on social media: Who killed Spirit? Who’s responsible for hurting the passengers who needed cheaper tickets to travel?
People were quick to blame the Biden Administration, claiming that the Justice Department’s blocking of Spirit’s merger with JetBlue in January 2024 killed the airline. The Biden Administration killed it, not the states that also sued (Massachusetts, D.C., California, Maryland, New Jersey, New York, and North Carolina) or the court that ruled against the merger. Never mind that Spirit’s management rejected an offer from Frontier to flirt with antitrust law with JetBlue instead.
Never mind that no “failing firm” defense was raised in the court that ultimately found the merger problematic. The court noted “Although Spirit is struggling, its executives testified that the airline had a long-term plan to return to profitability.” It continued, “Airlines presented no evidence that Spirit was in such a dire financial situation that it had no hope for the future; instead, multiple Spirit executives testified that the airline had a plan to return to profitability.” Never mind that Spirit’s own executives called the merger problematic as well as JetBlue’s management. As Spirit’s CEO said, it’s not good to “treat our shareholder’s money like it’s a lottery.” In short, the attempt to blame the Biden Administration is ludicrous and performative.
Spirit’s own executive point to a different murder weapon: The war with Iran. That war has skyrocketed jet fuel prices—problematic for ultra-low-cost carriers operating on razor thin margins. As Spirit lawyer Marshall Huebner told the bankruptcy judge in May, sharply higher jet fuel prices left “no remaining way out” of bankruptcy. Even JetBlue, the would-be suitor for Spirit, is struggling to survive, cutting capacity and increasing fares. And while its CEO has ruled out bankruptcy this year, bankruptcy filings in the airline industry are common and frequent.
Other events nearly killed the airline industry, and government intervened to mitigate the effects of economic shocks. People forget the times airlines struggled and received government bailouts from the government after 9/11 and during Covid.
Even liberal think tanks are confused
Nonetheless, Neera Tanden, President Joe Biden’s Director of the Domestic Policy Council and CEO of the Center for American Progress, opened the debate with a thought-provoking post on X. Tanden noted:
Given the news today that Spirit Airlines is shuttering and thousands of people are losing their jobs, I think we should honestly assess whether the Garland DoJ stopping the JetBlue merger with Spirit Airlines was the right call. Perhaps it was but any analysis must consider as part of the equation the loss to so many families [t]o decide.
Paraphrasing her point: if the consequence of blocking JetBlue–Spirit is Spirit’s failure and thousands of job losses, we must ask whether that was the right call. Were the practical tradeoffs for consumers and workers fully weighed?
I am always saddened by job loss. But folks like Tanden are sad only when the government blocks a merger and a company goes out of business or gets acquired by the wrong suitor. JetBlue-Spirit and Amazon-iRobot are just recent examples. They types fail to recognize that the merger also would have caused job losses via reconciliation of “overlapping” duties. For some reason, those job losses are celebrated or ignored by the same people who mourned job loss from Spirit’s death. Just as an aside, those same people didn’t mourn the job losses in February. Nor the job losses in January. They did not notice.
Airline mergers are touted as ways for airlines to save jobs by not going out of business. Do layoffs now, the pro-merger crowd exhorts, so that the airline experiences cost savings. Antitrust lawyers and economists (far too often) love these claimed “efficiencies.” But for airlines, those claimed efficiencies give rise to layoffs without much in cost savings. We’ve known this for a while.
Nor do those people seem to mourn the things major airlines do to drive competitors out of business. Airlines add capacity to routes in which low-cost carriers enter on any scale, lowering some fares to drive the low-cost carrier out of business. Then, fares go up. Or as recently noted in The Sling, an airline that dominates an airport can engage in tactics like hogging gates to exclude rivals. Not only does no one seem to care, but people defend those practices as procompetitive.
To defend its merger, Spirit and JetBlue argued that David can’t kill Goliath, and only another Goliath could kill Goliath. Besides preventing a competitor from being eliminated from the marketplace, they claimed the merger would have created a more viable market check to the dominant Big Four airlines, which currently control over 75 percent of all flights. With Spirit-JetBlue entering more routes, the Big Four would have faced more pressure to lower their prices and increase their customer service offerings or else lose business.
There are a few questions that arise before we answer that claim. First, how did we get the Big Four? We got there in part because Obama’s DOJ believed that network size would enhance benefits to consumers, nonstop route competition be damned. In testimony regarding the United-Continental merger, which was announced in 2010, the CEOs argued about network carriers needing to bulk up to battle overseas carriers. We can go back further: Airline mergers beget airline mergers. No one wants to be left without a dance partner. So, the answer to increased concentration is more concentration? How is that working out for us in the airline industry? Or any industry, for that matter?
After the Clinton Administration, DOJ became enamored with systems competition. And the Horizontal Merger Guidelines enabled it. The 1997 Horizontal Merger Guidelines had footnote 36, which described what later became known as “out-of-market efficiencies.” This basically allowed the false notion of systems competition to override very real concerns about nonstop market competition:
Section 7 of the Clayton Act prohibits mergers that may substantially lessen competition “in any line of commerce . . . in any section of the country.” Accordingly, the Agency normally assesses competition in each relevant market affected by a merger independently and normally will challenge the merger if it is likely to be anticompetitive in any relevant market. In some cases, however, the Agency in its prosecutorial discretion will consider efficiencies not strictly in the relevant market, but so inextricably linked with it that a partial divestiture or other remedy could not feasibly eliminate the anticompetitive effect in the relevant market without sacrificing the efficiencies in the other market(s). Inextricably linked efficiencies rarely are a significant factor in the Agency’s determination not to challenge a merger. They are most likely to make a difference when they are great and the likely anticompetitive effect in the relevant market(s) is small.
Obama’s DOJ was also enamored by airline efficiencies, despite the literature suggesting how limited those were in airline markets. To the extent problems existed, the DOJ used slots and gates in a misguided attempt to allow entry into airline fortress hubs.
Regardless, the notion that combining two financially fragile airlines into one big stable airline capable of fending off its bigger rivals assumes a lot of cost savings while ignoring the debilitating force of massive debt. It is this hubristic focus on the positive that is to blame for Spirit dying: Companies pursuing airline mergers have so concentrated the industry they have left little room for survival. As the flying public is increasingly asked to suffer the indignities airlines thrust upon them, from super-cramped seats, excessive fees, surveillance pricing, and the like, the flying public has taken notice.
Too bad Congress has not.
Darren Bush is a Professor of Law at the University of Houston Law Center.