Back in early 2023, the Justice Department sued to block the proposed merger between JetBlue and Spirit Airlines, citing the potential to reduce consumer options in the low-fare airline industry. Within a year, regulatory opposition and court challenges had led JetBlue to call the merger off. Thanks to that shortsighted intervention, Spirit has been left to file for bankruptcy protection and faces an uphill battle to survive. It’s all just the most recent consequence of federal regulators who see monopolies everywhere and nuance nowhere.
The Biden administration has empowered an array of antitrust zealots who view large businesses as inherently problematic, whether they are having a negative impact on consumer choice and competitiveness or not. The most notable example of this is Lina Khan, an academic and ideologue who was thrust into a position as chair of the Federal Trade Commission (FTC) on the basis of her written attacks against Amazon.
Under this new cadre of ivory tower antitrust crusaders, the Biden administration has shifted away from the dominant consumer welfare standard that held that antitrust action should be taken only in response to demonstrable harms to consumers — for instance, evidence that market concentration was leaving consumers without options and vulnerable to predatory business practices. In place of this long-established and logical consumer welfare standard, the administration has preferred a “big is bad” standard that seeks to hamper larger businesses at every turn regardless of any actual negative impact on consumers.
It’s in that context that the Justice Department sued to block the merger between JetBlue and Spirit, a merger that would have combined the sixth and seventh-largest airlines in the United States. Even combined, JetBlue and Spirit would make the fifth-largest airline in the nation, with just half the revenue of the fourth-largest airline, Southwest. If anything, it would have enabled JetBlue to more effectively compete with the far larger Big Four airlines.
But the Justice Department argued that the presence of Spirit Airlines’s low-cost fare model reduced fares for competing routes, and that allowing it to be subsumed by JetBlue would enable competitors to raise their fares. That’s a questionable assumption given that most air travelers don’t fly budget airlines — just 20 percent of domestic air passengers flew Allegiant, Avelo, Breeze, Frontier, Spirit, or Sun Country Airlines in the past five years (astute readers will note the five other budget options there besides Spirit).
Beyond that, while Spirit and Frontier are household names for ultra-low-cost, low-amenity fares, they are struggling because mainstream airlines have figured out how to offer no-frills service as well. The major airlines now offer “basic economy” fares on most flights — a change that has hurt the budget airlines, but also one that means that budget airlines aren’t the only game in town for passengers who want low fares and don’t mind sacrificing some conveniences in return.
Fundamentally, whether or not Spirit Airlines routes are a good thing for competition is a moot point. The Justice Department can block a merger between JetBlue and Spirit, but it can’t stop market forces. And the JetBlue-Spirit merger didn’t come out of nowhere — it arose from the fact that Spirit is hemorrhaging money. Spirit has just around $1 billion in assets against $10 billion in liabilities ahead of its bankruptcy filing, and its share prices dropped nearly 95 percent since the beginning of the year.
While airlines have survived bankruptcy in the past, it will mean reduced Spirit presence in at least the short term. Spirit plans to engage in $80 million worth of “cost-cutting measures” (i.e. layoffs), and has agreed to sell 23 airplanes to GA Telesis for $519 million. Spirit will likely seek a merger with Frontier Airlines to save itself — if regulators will deign to allow it.
This episode is an illustrative example of the scope of overactive regulators’ conceit in believing that they can fend off market forces by attacking symptoms rather than causes (or even that they can accurately identify what are symptoms and what are causes). It’s hard to imagine anything more stereotypically bureaucratic than regulators patting themselves on the back for blocking the JetBlue-Spirit merger then leaving Spirit to clean up the mess.
This is the true reason why the consumer welfare standard is important. When academics and bureaucrats are allowed to apply their untested and esoteric theories about what might happen to the real world, all it does is demonstrate how much more complicated things are than they imagined. The government is bad enough at fixing real problems for anyone to want it to try to fix imaginary ones.
Back in early 2023, the Justice Department sued to block the proposed merger between JetBlue and Spirit Airlines, citing the potential to reduce consumer options in the low-fare airline industry. Within a year, regulatory opposition and court challenges had led JetBlue to call the merger off. Thanks to that shortsighted intervention, Spirit has been left to file for bankruptcy protection and faces an uphill battle to survive. It’s all just the most recent consequence of federal regulators who see monopolies everywhere and nuance nowhere.
The Biden administration has empowered an array of antitrust zealots who view large businesses as inherently problematic, whether they are having a negative impact on consumer choice and competitiveness or not. The most notable example of this is Lina Khan, an academic and ideologue who was thrust into a position as chair of the Federal Trade Commission (FTC) on the basis of her written attacks against Amazon.
Under this new cadre of ivory tower antitrust crusaders, the Biden administration has shifted away from the dominant consumer welfare standard that held that antitrust action should be taken only in response to demonstrable harms to consumers — for instance, evidence that market concentration was leaving consumers without options and vulnerable to predatory business practices. In place of this long-established and logical consumer welfare standard, the administration has preferred a “big is bad” standard that seeks to hamper larger businesses at every turn regardless of any actual negative impact on consumers.
It’s in that context that the Justice Department sued to block the merger between JetBlue and Spirit, a merger that would have combined the sixth and seventh-largest airlines in the United States. Even combined, JetBlue and Spirit would make the fifth-largest airline in the nation, with just half the revenue of the fourth-largest airline, Southwest. If anything, it would have enabled JetBlue to more effectively compete with the far larger Big Four airlines.
But the Justice Department argued that the presence of Spirit Airlines’s low-cost fare model reduced fares for competing routes, and that allowing it to be subsumed by JetBlue would enable competitors to raise their fares. That’s a questionable assumption given that most air travelers don’t fly budget airlines — just 20 percent of domestic air passengers flew Allegiant, Avelo, Breeze, Frontier, Spirit, or Sun Country Airlines in the past five years (astute readers will note the five other budget options there besides Spirit).
Beyond that, while Spirit and Frontier are household names for ultra-low-cost, low-amenity fares, they are struggling because mainstream airlines have figured out how to offer no-frills service as well. The major airlines now offer “basic economy” fares on most flights — a change that has hurt the budget airlines, but also one that means that budget airlines aren’t the only game in town for passengers who want low fares and don’t mind sacrificing some conveniences in return.
Fundamentally, whether or not Spirit Airlines routes are a good thing for competition is a moot point. The Justice Department can block a merger between JetBlue and Spirit, but it can’t stop market forces. And the JetBlue-Spirit merger didn’t come out of nowhere — it arose from the fact that Spirit is hemorrhaging money. Spirit has just around $1 billion in assets against $10 billion in liabilities ahead of its bankruptcy filing, and its share prices dropped nearly 95 percent since the beginning of the year.
While airlines have survived bankruptcy in the past, it will mean reduced Spirit presence in at least the short term. Spirit plans to engage in $80 million worth of “cost-cutting measures” (i.e. layoffs), and has agreed to sell 23 airplanes to GA Telesis for $519 million. Spirit will likely seek a merger with Frontier Airlines to save itself — if regulators will deign to allow it.
This episode is an illustrative example of the scope of overactive regulators’ conceit in believing that they can fend off market forces by attacking symptoms rather than causes (or even that they can accurately identify what are symptoms and what are causes). It’s hard to imagine anything more stereotypically bureaucratic than regulators patting themselves on the back for blocking the JetBlue-Spirit merger then leaving Spirit to clean up the mess.
This is the true reason why the consumer welfare standard is important. When academics and bureaucrats are allowed to apply their untested and esoteric theories about what might happen to the real world, all it does is demonstrate how much more complicated things are than they imagined. The government is bad enough at fixing real problems for anyone to want it to try to fix imaginary ones.
