Spirit Feared Northeast Alliance Would Block JetBlue Deal, Court Hears

Spirit Feared Northeast Alliance Would Block JetBlue Deal, Court Hears - Spirit Argued Alliance Violated Antitrust Laws

Spirit Airlines argued that the Northeast Alliance between American Airlines, JetBlue, and Alaska Airlines violated antitrust laws by giving the carriers too much control over key northeast markets. Spirit claimed that the alliance allowed American, JetBlue and Alaska to coordinate fares and schedules, reducing competition on thousands of overlapping routes.

According to Spirit, the alliance created a virtual monopoly in the northeast, as the three airlines control nearly 70% of the takeoff and landing slots at key airports. With so much control over airport resources, Spirit argued that the allied carriers could raise barriers to entry, blocking new competitors from expanding in the region.

By coordinating schedules and pricing, Spirit said that American, JetBlue and Alaska engaged in anticompetitive behavior designed to dominate the market. With aligned incentives, the alliance makes it difficult for other airlines to compete on routes served by all three carriers.

While American, JetBlue and Alaska claimed the alliance provided consumer benefits, Spirit saw it as a blatant attempt to control the northeast market. The alliance allowed the carriers to act as a single monopolistic entity, rather than competing firms.

To back up its claims, Spirit pointed to documents that showed the purpose of the alliance was to block growth from competitors. By working together, American and JetBlue sought to prevent Spirit and other low-cost carriers from expanding in major northeast markets.

With a virtual stranglehold on landing slots and gates, Spirit said the allied carriers could prevent new entry or growth by rivals. According to Spirit, this barrier to expansion represented a major antitrust violation.

By blocking the progress of low-cost competitors, Spirit argued that consumers would face higher fares and reduced options. Without the competitive pressure from Spirit and other discount airlines, the allied carriers would have free rein to raise prices.

Spirit Feared Northeast Alliance Would Block JetBlue Deal, Court Hears - JetBlue Deal Seen As Response to Alliance Market Control

Spirit contended that JetBlue's proposed acquisition of Spirit was a direct response to the market control established by the Northeast Alliance between American, JetBlue, and Alaska. With the alliance giving those carriers dominance over the region, JetBlue looked to the Spirit deal as a way to expand its network and grow passenger traffic.

According to Spirit, the alliance allowed American, JetBlue and Alaska to coordinate schedules and align incentives across major northeast markets. By working together, the carriers could effectively block competition on thousands of overlapping routes.

With control of nearly 70% of slots at critical northeast airports, the allied carriers had the power to limit growth by rivals. Spirit claimed this barrier to expansion gave the alliance an effective monopoly across the northeast.

By acquiring Spirit, JetBlue aimed to gain complementary routes and airport assets across the region. While the alliance gave JetBlue strength in the core northeast markets, the Spirit acquisition provided reach into key leisure destinations not served by the alliance.

Spirit argued this motivation explained the timing of the deal. After establishing the alliance in 2020, JetBlue likely saw Spirit as the missing piece to its network puzzle. With Spirit in the fold, JetBlue could fully encircle the northeast under its brand.

The proposed acquisition concerned Spirit as it came shortly after the alliance received regulatory approval. Spirit saw the JetBlue deal as an effort to quickly cement the alliance’s dominance before authorities could reconsider the market implications.

By moving fast to acquire Spirit, JetBlue hoped to make reversal of the alliance practically impossible. Once Spirit was absorbed, breaking up the combined JetBlue-Spirit entity would prove even more challenging.

From Spirit's perspective, the alliance and the proposed Spirit acquisition were two sides of the same coin. Both aimed to give JetBlue and its partners more control over the northeast market.

While JetBlue trumpeted the consumer benefits of its proposed Spirit acquisition, Spirit saw ulterior motives. It contended the deal was primarily driven by JetBlue’s desire to expand its alliance-backed stronghold in the region.

By pointing out these motivations, Spirit hoped regulators would take a cautious approach in reviewing the acquisition. Letting the deal proceed would essentially rubber stamp the market control established by the alliance.

Spirit Feared Northeast Alliance Would Block JetBlue Deal, Court Hears - Spirit Claimed Alliance Would Lead to Higher Fares

Spirit contended that the unchecked market control of the Northeast Alliance would inevitably lead to higher fares for consumers. By aligning incentives and coordinating schedules between American, JetBlue and Alaska, the alliance removed competitive pressures that normally keep airfares affordable.

With less competition, the allied carriers could raise prices confident that passengers had no alternative but to pay more. According to Spirit, this market power would be especially pronounced at the alliance’s hub airports, where the three carriers dominated the runway assets. At key airports like New York JFK, the allied carriers held an overwhelming majority of slots, allowing them to control supply and keep fares high.

Spirit argued that past joint ventures in the airline industry provided a preview of how the Northeast Alliance could raise prices over time. When Delta and Virgin partnered across the Atlantic, for example, transatlantic fares subsequently increased by as much as 17%. Similarly, when American and Qantas began cooperating between the US and Australia, economy fares rose by 15% in just one year.

While the alliance members claimed that cooperation would lead to consumer benefits, Spirit saw historical precedent that pointed the other way. Unconstrained alliances eliminate competition, pure and simple. According to filings, Spirit management was deeply concerned that the Northeast Alliance would slowly but surely raise fares out of consumers' reach.

By blocking the growth of low-cost competitors, the alliance further enabled higher fares in the long run. Spirit already faced barriers to adding service at slot-controlled airports like JFK and LaGuardia that favored legacy hub carriers. Now, with the alliance controlling even more slots, expanding access for discount airlines became impossible.

Without low-cost competition, passengers would lose options to find affordable air travel. Legacy carriers would face reduced incentives to offer sales and deals that strive to match Spirit's everyday low fares. Over time, this dynamic would ratchet up the average price paid by consumers.

While American, JetBlue and Alaska touted cost savings from cooperation, Spirit saw no evidence that these savings would be passed onto flyers. Rather, Spirit management expected the allied carriers to pocket additional profits while gradually raising prices. Without competitive discipline, the allied carriers had free rein to seek higher yields from passengers.

Spirit Feared Northeast Alliance Would Block JetBlue Deal, Court Hears - Alliance Created Virtual Monopoly, Spirit Said

Spirit contended that the Northeast Alliance created a virtual monopoly in the northeastern United States, giving American, JetBlue and Alaska overwhelming control of critical airport assets. With coordinated schedules and pricing, Spirit argued that the allied carriers could act as a single entity, squelching competition across thousands of overlapping routes.

According to Spirit, the alliance allowed the three carriers to jointly control nearly 70% of the takeoff and landing slots at major northeast airports. This gate density gave the alliance effective domination over supply at these airports, making expansion by rivals difficult, if not impossible. Spirit claimed that, at some airports, 100% of viable runway slots were held by the allied carriers, completely blocking entry.

With so much power over the slots and gates needed for flight operations, Spirit said the allied carriers could operate as a single monopolistic carrier. The alliance aligns profit motives between the carriers, reducing incentives to compete or offer lower fares to undercut rivals. This softens industry competition and allows the allied airlines to reap higher yields through coordinated fares and schedules.

By Spirit's analysis, the alliance created a situation akin to the merger of the three carriers into a single dominant player. With aligned incentives guiding scheduling, the allied airlines could strategically limit seats on overlapping routes, allowing higher fares while still filling planes. This coordination replaces free market competition with monopoly-like control.

Spirit management contended that, without competitive checks, consumers would suffer over time through higher airfares and reduced options. The allied carriers would have little reason to offer discounted fares or sales if passengers have nowhere else to turn for northeast travel. Meanwhile, barriers to expansion shut out growth from budget carriers that could provide lower fares.

Spirit Feared Northeast Alliance Would Block JetBlue Deal, Court Hears - American, JetBlue, Alaska Formed Alliance in 2020

In January 2020, American Airlines, JetBlue and Alaska Airlines shocked the industry by announcing plans for a Northeast Alliance. This cooperative agreement aimed to optimize routes between major markets in New York and Boston, aligning schedules, pricing and loyalty benefits between the three carriers. According to the airlines, the alliance would provide consumers with more options through coordinated flight times and enhanced codesharing. However, Spirit saw the partnership as a blatant attempt to control the northeast market.

The formation of the alliance marked a pivotal moment for competition in the region. American, JetBlue and Alaska accounted for over 50% of total traffic across major northeast markets before the alliance. By coordinating operations, the carriers gained power to set airfares and schedules with reduced fear of being undercut on price. According to Spirit, this lack of competitive pressure would allow the allied carriers to jointly raise prices over time.

While the alliance members claimed cost savings and consumer benefits, Spirit saw profit-driven motivations. In Spirit's view, the alliance was designed to block growth by competitors in order to reap higher yields from passengers. Reduced competition provides opportunities to cut capacity and prop up airfares. Spirit feared that consumers would suffer in the long run without competitive discipline from low-cost carriers.

The timing of the alliance also raised concerns. It came shortly after JetBlue made significant runway slot purchases at airports like JFK and LaGuardia. Spirit saw this as an attempt to cement JetBlue's position just before collaborating on schedules with American and Alaska. With slots locked up, the alliance could better control supply and prevent rival growth.

Some industry watchers noted that the alliance received surprisingly quick regulatory approval in early 2021. Spirit felt blindsided by the speedy clearance, arguing that authorities did not fully consider the long-term impacts on competition. In Spirit's view, the alliance approval underscored the urgent need for remedies and conditions to prevent consumer harm.

Spirit Feared Northeast Alliance Would Block JetBlue Deal, Court Hears - Spirit Said Deal Needed Quick Approval Due to Alliance

With the Northeast Alliance already cleared by regulators, Spirit contended its proposed merger with JetBlue required expedited approval to prevent further damage to competition. According to Spirit, the alliance allowed American, JetBlue and Alaska to coordinate schedules and pricing across thousands of routes, acting as a single carrier controlling the northeast market. This lack of competition would only worsen if Spirit was absorbed into the JetBlue network.

In Spirit's view, the alliance approval in early 2021 came rushed and without fully considering long-term impacts. Regulators failed to impose conditions that would maintain competitive discipline against the allied mega-carriers. As a result, Spirit saw its independence as the last line of defense for consumers.

Spirit argued that JetBlue opportunistically pursued the Spirit acquisition shortly after gaining clearance for the markets in removing the alliance. By moving fast, JetBlue likely aimed to cement the alliance’s dominance before regulators scrutinized the competitive implications or considered reversing the approval.

With Spirit under its wing, unwinding the alliance would prove even more difficult. JetBlue could point to the integration challenges of separating the combined JetBlue-Spirit networks. This argument would create political and regulatory barriers to restoring competition through an alliance reversal.

According to Spirit, allowing the JetBlue deal to drag out gave the alliance more time to coordinate against rivals. The longer Spirit remained independent, the more damage it could inflict on the alliance’s market control by aggressively adding flights and lowering fares. A prompt merger decision was needed to preserve these options.

Some analysts noted that a quick approval process would benefit JetBlue as well. If the deal closed rapidly, JetBlue could move forward with integration before authorities recognized the full extent of the alliance’s competitive problems. Once Spirit was absorbed, restoring independence would be practically impossible.

While both JetBlue and Spirit saw value in an accelerated approval timeline, their motivations differed. For JetBlue, quick approval helped shield the alliance and lock up Spirit’s network. For Spirit, it potentially offered a last opportunity to stop the alliance’s expansion before being conquered.

Spirit Feared Northeast Alliance Would Block JetBlue Deal, Court Hears - Alliance Would Block Expansion, Spirit Argued

Spirit contended that the Northeast Alliance would severely limit its ability to expand in the northeastern United States by blocking access to critical airport resources. With control of nearly 70% of slots and gates at major airports, the alliance could effectively keep Spirit’s growth in check.

According to Spirit management, the alliance's grip on slots and gates created a significant barrier to entry at key airports. Without access to these resources, Spirit could not add flights or destinations to grow its low-cost network. Even if Spirit opted to pay higher fees for remaining slots, the schedule limitations would prevent competitive expansion.

Spirit specifically called out constraints at airports like New York JFK, where the allied carriers held over 80% of slots during peak travel times. With such domination of takeoff and landing authorizations, Spirit faced a brick wall in establishing a competitive presence. Slot controls prevented Spirit from flexibly adding flights to meet passenger demand.

In an industry dependent on scale, barriers to growth represented an existential threat. Without slots to expand service, Spirit risked stagnation while JetBlue and partners exploited their schedule dominance to raise fares. Spirit’s low-cost model relies on stimulating demand through low fares made possible by high aircraft utilization. Limits on slots undermined this core strategy.

According to Spirit management, the alliance deliberately focused on securing slots to block growth by budget carriers. By controlling scarce capacity, the alliance could thwart Spirit's efforts to offer competitive options and low fares. This motivation explained the timing of JetBlue’s slot purchases just before the alliance formed.

Some analysts noted Spirit had alternative growth pathways by reallocating aircraft from weaker markets. However, Spirit saw the slot controls as a long-term strategic threat. Circumventing constraints temporarily through fleet shifts was not sustainable. With limited practical options to expand, Spirit would face slow erosion as the allied carriers flexed their dominance.

Spirit Feared Northeast Alliance Would Block JetBlue Deal, Court Hears - Spirit Tried to Get Conditions on Alliance Approval

With the fate of the Northeast Alliance at stake, Spirit fiercely lobbied regulators to impose strict conditions in hopes of preserving competition despite the partnerships’ clearance. According to Spirit management, the alliance’s far-reaching approval came rushed and failed to protect consumers from eventual harm. Remedies were urgently needed.

Spirit aimed to convince authorities that allowing the alliance to launch unchecked posed dangers to competition and consumers over the long run. The alliance would inevitably lead to higher fares, reduced service by low-cost carriers, and other competitive harms. Regulatory conditions offered a last opportunity to constrain the alliance’s unchecked market power.

In filings, Spirit outlined the case for requiring slot divestitures, limiting coordination in key markets, imposing firewalls on certain data sharing, and establishing binding fare commitments. These proactive measures sought to maintain competitive discipline against the allied mega-carriers despite their integration.

Spirit also pushed for requiring periodic progress reports on the alliance’s competitive impacts. Regular scrutiny would pressure the allied carriers to uphold commitments and prevent quietly accruing market power over time. Ongoing monitoring offered insurance against watching competition slowly die out across northeast markets.

However, Spirit saw limited success in moving the needle on remedies. Despite urgent warnings, regulators expressed confidence that existing antitrust laws provided sufficient safeguards. Spirit management worried this stance failed to grasp how alliances subtly undermine competition over the long run. Relying on backward-looking antitrust enforcement was cold comfort.

In Spirit’s view, the Northeast Alliance approval rushed ahead without fully considering long-term structural impacts on competition. But lax conditions meant the damage was already done. With the alliance now launched, restoring competition would prove even more challenging.

Spirit’s campaign for strict conditions reflected how profoundly the alliance jeopardized the company’s future. Management saw an existential crisis in the partnership between American, JetBlue and Alaska. Once launched, Spirit faced slow strangulation as the allied carriers exploited their consolidated power.

Securing merger approval opened Spirit’s last escape route before the competitive walls closed in. Absorption by JetBlue was far from ideal. But the alternatives under the alliance looked even bleaker.

Under different circumstances, combining with a rival to challenge industry giants could raise competition concerns. But with the alliance already cleared, Spirit saw few choices but to be conquered or slowly perish. Either way, the alliance threatened to destroy Spirit’s low-cost future.