William Young is a federal judge in Massachusetts, and he sounds like a big fan of South Florida’s own Spirit Airlines.
“To those dedicated customers of Spirit,” Young wrote in his lengthy ruling blocking rival airline JetBlue’s $3.8 billion acquisition of the ultra low-cost carrier, “this one’s for you.”
Young’s ruling last week appeared to kill a Spirit-JetBlue merger, but the stock and bond markets quickly demonstrated that they did not share the judge’s affection.
Shares of Miramar-based Spirit, worth more than $60 each in 2019, nose-dived by more than 70% since the last trading day before the ruling as investors reacted to the real possibility of insolvency. Shares rebounded somewhat as Spirit raised its financial guidance for the fourth quarter of 2023, thanks to strong holiday season bookings, and said it would try to refinance its risky $1.1 billion in debt. But this looked to some like what’s known as a dead cat bounce, when a declining stock makes a brief uptick.
Southwest Airlines stock moved in the opposite direction last week as investors bet that it, and its legacy rivals, would be well-served by an involuntary Spirit exit. Judge Young may have fallen victim to the increasingly common peril of unintended consequences.
Loving those low fares
Most fliers love only one thing about Spirit: Low fares. Air travel these days is a joyless, no-frills experience to say the least, and fees abound for every little thing. To buy a ticket on the Spirit website is to run a gauntlet of optional extras. Scenes of chaos at Spirit’s gates, usually featuring irate customers, make regular appearances on YouTube.
Public relations seems an intractable problem for the airline; “Friends don’t let friends fly Spirit” is a common refrain among airline bloggers. It’s a big reason why the carrier has been bleeding cash, along with various other problems, including rising labor costs and the need to replace engines on many of its Airbus jets because of a manufacturing defect. Other low-cost carriers, including Allegiant and Frontier, have better customer service reputations.
People genuinely like JetBlue, which on Jan. 4 added daily, inexpensive nonstop flights between Fort Lauderdale and Tallahassee just as the legislative session got underway. If the deal with Spirit had managed to combine that affection with affordable prices, it could have been a very positive development for air travelers in Florida and elsewhere.
As major airline executives have often said, airfares within the U.S. are not set by actual costs but entirely by the marketplace. So if Spirit is flying somewhere, tickets on other carriers will tend to be lower.
As an example, Spirit offers nonstop flights from Chicago’s O’Hare to New York’s LaGuardia for as little as $45 one-way next month and nonstop to Orlando in February for just $73 on many days. That means fares on other airlines serving those routes have to be competitive, and it explains why American Airlines, for example, has reduced its capacity on the lucrative Chicago-to-New York air corridor. The other carriers can’t make money when Spirit is in that market.
That’s why Young, taking the side of the Justice Department, balked at JetBlue’s plans to rip out Spirit’s crammed seats and make its planes match JetBlue’s more comfortable offering.
There were two problems with the Justice Department’s lawsuit and Young’s ruling. One is obvious: Spirit is in poor financial shape (it hasn’t turned a full-year profit since 2019), and its status as an ongoing concern is in question. The second is more subtle.
Merger mistakes
It’s widely acknowledged that the antitrust authorities permitting Delta’s 2008 merger with Northwest Airlines, forming the then-largest commercial airline in the world; United’s 2010 merger with Continental; and the 2013 combination of American and US Airways, were all various levels of merger mistakes.
We’ve ended up with too few carriers controlling too much pricing power in the U.S., where four carriers account for three-quarters of all passenger traffic. Competition would be better served by allowing another carrier, such as a JetBlue-Spirit combo, to rise up and turn an oligarchy of four (Southwest rarely is cheaper than its competitors now) at least into a more-promising five.
The potential carrier that Young blocked might have lowered fares overall, especially since it would have been obligated to hand off some routes to Allegiant and Frontier. In some ways, Young’s decision, and the Biden administration’s effort to block this merger, are tacit admissions of mistakes by the Obama administration and a desire not to compound them.
But times have changed. Spirit, beloved as it may be by a federal judge in Massachusetts, is in a severely weakened state, albeit with a lot of competitively important slots and routes and hundreds of planes.
By not allowing these two relatively minor players to join forces, the government risks giving the major airlines a yet-tighter grip on our scheduling options and our wallets.
This editorial was adapted from an editorial by the Chicago Tribune. The Sun Sentinel publishes editorials from other publications that generally reflect the views of the Sun Sentinel Editorial Board. The Sun Sentinel Editorial Board consists of Opinion Editor Steve Bousquet, Deputy Opinion Editor Dan Sweeney, editorial writer Martin Dyckman and Editor-in-Chief Julie Anderson. Editorials are the opinion of the Board and written by one of its members or a designee. To contact us, email at .
