The Unfriendly Skies

E arly last week, a federal judge blocked a proposed $4 billion merger between JetBlue and Spirit Airlines. Antitrust laws are supposed to protect consumers. This decision protects the biggest airlines from greater competition. It’s a case study in the abuse of our antiquated antitrust regulations that hurt consumers more than they help.

The antitrust laws require the government to show a “substantial threat to competition” to prove its case. The reality is the opposite. Merging the sixth- and seventh-largest airlines would have helped create a fifth major airline, reduce costs, and expand Jet Blue’s fleets and routes. This marriage would have enabled JetBlue to compete head-to-head against the “big four”: United, Delta, Southwest, and American. Ironically, the dominant airlines are breathing a sigh of relief.

The claim by the Biden trust-busters and the federal judge that the merger would restrain trade is solidly refuted by the chart below:

The big four control roughly 70 percent of the airline market. A marriage between JetBlue and Spirit might allow these two combined airlines to grab a 10 percent share.

How could a firm with one-tenth of the market and the fifth-largest firm in the industry be any sort of monopoly? The claim is doubly absurd because JetBlue is a cut-rate airline that lowers airfares when it expands or moves into a market. The judge made the whimsical claim that JetBlue might abuse its new size to stop offering cut-rate fares. This isn’t fact. It’s pure speculation. It ought to have been laughed out of the court room.

Regulators fear that some secondary markets such as Fort Lauderdale, where JetBlue and Spirit compete head-on, would see higher prices. Except without the merger, Spirit is likely to go bankrupt. Spirit is known as a “ultra low price” airline — so knocking it out means higher ticket prices.

Spirit’s stock price sagged on the news that the acquisition was in trouble, and it is now in serious jeopardy of bankruptcy. This means that Spirit shareholders got crushed, and if the airline is thrown into bankruptcy its assets will be sold at deeply discounted prices. It also means there will be fewer flights to bid down prices, which raises the question of how this likely outcome is in the interest of frequent flyers. Or shareholders.

Another irony in this case is that the monopolist in the airline industry that is interfering most with healthy competition is the government itself.

The government’s heavy-handed role in the airline industry is a key impediment to innovation. We need more flights, more gates, and more airports, and the government restricts all of these. More supply means lower prices — so maybe the trustbusters should be investigating the FAA and the airport authorities.

This decision is a loser for consumers and for shareholders, but it’s a victory of sorts for the Biden regulators. Lina Kahn at the Federal Trade Commission sees her role as blocking nearly all mergers and acquisitions. She sees phantom monopolies at every street corner. She’d sue the Girl Scouts for price-fixing the cookies they sell if she had the chance. The theory is that companies should only grow “organically,” but most successful firms grow their profits by organic growth and by acquisition. Allowing small companies to be acquired is a stimulant to small-business creation in America.

It’s not surprising that lawyers and university professors who are perched in positions of power in Washington and who never made a profit in their lives don’t understand the vital role of mergers in a free-market economy.

It would seem likely that, on appeal, this federal judge’s decision will be overturned by wiser justices. But this will take many months and many millions of dollars of additional legal fees. By then, Spirit could be down for the count and the airline industry will have contracted. Isn’t this the worst outcome of all?