Last week, a federal judge handed down a decision barring JetBlue Airways and Spirit Airlines from merging to form a single airline in their current state, citing antitrust concerns. The elimination of Spirit via a merger with JetBlue, the U.S. District Judge William Young ruled, would harm consumers by removing a vigorous ultra-low-cost competitor that had driven other carriers to lower their own fares.?

So, what happens now?

Attorneys for both carriers have said they will appeal the ruling. However, it's worth noting that a terse joint statement issued by the airlines explained that the terms of the merger agreement required them to appeal. The appeal filed by the two airlines also does not lay out any legal rationale for the appeal. Barring any new information not presented at the original trial or some blockbuster accusation of misconduct or other evidence that the parties did not receive a fair trial, the ruling is expected to stand.

If the merger is ultimately not closed, JetBlue owes Spirit¡¯s stockholders $470 Million in reverse breakup fees, but that may come as cold comfort to the stockholders, who were expecting the sale at a share price significantly higher than what is currently trading on the news that the merger is effectively canceled.

For both airlines, which have spent the last year and a half working toward a merger, it would mean a change in strategy. JetBlue cited the aircraft and pilot corps it would acquire with the merger as necessary for future growth that would otherwise be hindered by labor and aircraft shortages. To continue growth, JetBlue must likely now accomplish this without Spirit, leaving options limited. Both Boeing and Airbus have order books that are full until the end of the decade, and consolidation in the U.S. airline industry leaves few carriers left to acquire.

Spirit Airlines hasn¡¯t been profitable since 2019, but has a large fleet of Airbus aircraft that would have been compatible with JetBlue¡¯s existing Airbus fleet. Spirit took on significant debt during the pandemic but hasn't seen the same rebound in financial results that larger network carriers have observed. In 2023, the bulk of that demand growth was in Europe and other destinations not served by Spirit, which only operates in the Americas. However, the debt remains, and Spirit must now seek another buyer or bankruptcy protection.

Judge Young¡¯s court ruling effectively addressed each of the arguments brought by both the U.S. Department of Justice, which filed the suit to block the merger on antitrust grounds, and those of the two airlines. When the carriers argued that Spirit's financial situation had necessitated the merger, the judge ruled that a merger with JetBlue was not the only avenue for relief for Spirit¡ªthey could merge with a smaller carrier, sell assets and attempt to merge with JetBlue in a reduced form, or they could reorganize in bankruptcy.

The airlines also argued that the government had created an environment that made competing with the nation's larger airlines more challenging, each of which had grown through mergers approved by the courts. Today, four airlines¡ªAmerican, United, Delta, and Southwest¡ªcomprise 75% of U.S. air passenger market seats.

JetBlue Airbus A320 in Fort Lauderdale, Florida. (photo via Boarding1Now/iStock Editorial/Getty Images Plus)

The acquisition was initially announced by the airlines in July 2022. Merging the two carriers¡¯ brands and operating certificates would have made them the country¡¯s fifth-largest airline, supplanting Alaska Airlines, and would have given JetBlue increased presence in Florida, Latin America, and several key cities where JetBlue has limited presence, including Dallas, Las Vegas, and Atlanta.

Alaska Airlines and Hawaiian Airlines also announced plans to merge in 2023, but the Justice Department has thus far not made any move to block that proposed merger. Alaska and Hawaiian overlap on fewer nonstop routes than JetBlue and Spirit, and both carriers are similar in cost structure and pricing.

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