Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS NEWS: Post-trial briefs submitted to the court following the JetBlue-Spirit merger trial, (Dec 14, 2023)

By Kenneth H. Ryesky, M.B.A., J.D.

Counsel for government and airlines each impugn the validity and consistency of their opponent's expert testimony, and dispute the applicable legal standards for proof.

Following the trial in the Boston federal district court of a lawsuit brought by the Department of Justice and several states (collectively, the government) seeking to block JetBlue Airways’ proposed $3.8 billion acquisition of Spirit Airlines, the parties have submitted post-trial briefs. The government’s post-trial brief urges that the proposed merger be permanently enjoined, while the airlines’ post-trial brief advocates that the proposed merger proceed with specific antitrust issues being narrowly addressed by the court's equitable powers. The labor union representing the flight attendants also filed an amicus brief in support of the proposed merger (U.S. v. JetBlue Airways Corp., Case No. 1:23-cv-10511-WGY).

Background. The proposed acquisition by JetBlue Airways Corporation (JetBlue) of Spirit Airlines, Inc. (Spirit) has been vigorously opposed by the Department of Justice Antitrust Division following its proposal in July 2022. The attorneys general of California, the District of Columbia, Massachusetts, Maryland, New Jersey, New York, and North Carolina joined the Justice Department in its lawsuit to block the acquisition A bench trial in Boston before Judge William G. Young began on October 30, 2023, and concluded on December 5, 2023. Post-trial briefs were filed on December 13, 2023 by (1) the government plaintiffs—the Justice Department’s Antitrust Division several state attorneys general; (2) the defendants JetBlue and Spirit; and (3) the Association of Flight Attendants-CWA, AFL-CIO (AFA) labor union as amicus curiae.

The government brief. The government’s post-trial brief, supported by a lengthy Proposed Findings of Fact pleading, argues that the proposed acquisition, if consummated, would result in "higher fares, fewer seats, fewer options, and less innovation" that would harm the airline industry and the public. Spirit, asserts the government, is a "crucial disruptor" ultra low-cost carrier (ULCC) whose activities in the airline industry put downward pressure on air fare prices and create an innovation-friendly environment; Spirit's exit from the market would result in increased prices and decreased output. The government insinuates that JetBlue's motive in absorbing Spirit is to cause the market prices to increase and the options available to travelers to decrease, thereby enabling JetBlue to eventually increase its ticket prices in a market where the effects of Spirit's competition have been eliminated.

There is no dispute that the relevant product market is scheduled air passenger service. The government contends, however, that the relevant geographic markets are individual routes between two locales – effectively, submarkets. In this regard, the government brief points out that a traveler from Boston who wishes to go to Miami for business or pleasure would not consider a flight to a different destination as an alternative choice.

The government’s brief contends that reduced number of passenger seats per aircraft that would result from JetBlue's plan to reconfigure the seat layout would put upward pressure on airline ticket prices by decreasing the supply of available seats; this seat deficit, argue the government attorneys, would be unlikely to be compensated by increased numbers of flights as JetBlue's expert suggests.

The government seeks a permanent injunction to bar consummation of the proposed acquisition, citing authority that where the remedy to a proven illegal transaction is in question, all doubts must be resolved in the government's favor. The government questions the likelihood that other ULCCs will in fact fill the voids created by Spirit's exit from one or more of the relevant individual routes. The government also points out some practical problems with JetBlue's proposed divestiture of some of its current flights, including the "perimeter rules" of various airports, which purpose to ease traffic and personnel congestion by excluding nonstop flights.

The defense brief. JetBlue and Spirit argue in their joint post-trial brief, also supported by an extensive Proposed Findings of Fact pleading, that the proposed acquisition would make JetBlue "a viable, long-term, national challenger" to the established "legacy" airlines such as Alaska Airlines, American Airlines, Delta, and United; the combined entity would be able to compete with the "legacies" in ways Spirit alone and the other ULCCs cannot.

In contrast to the government's position, JetBlue and Spirit assert that the relevant geographic market should be national, and not the origin-to-destination submarkets argued by the government. In doing so, the defendant airlines criticize the government's geographic market definition as too narrowly focused on the passengers and as giving insufficient regard to the airline operations. Specifically, the brief spotlights the physical transferability of the aircraft from one route to another, noting that airplanes have "among the most mobile capacity imaginable," thereby enabling an airline to rapidly respond to the changes and fluctuations in the market.

The brief also defends JetBlue's plans to reduce the number of passenger seats in the cabins of the Spirit planes it would acquire. The planned reconfigurations would give passengers additional leg room and comfort, and a higher quality of service which can enhance competition for the air traveler market.

JetBlue and Spirit also argue that the government, having improperly defined the geographic market as a collection of paired origin-to-destination submarkets instead of the national market, overstates the market entry barriers for competitors. Moreover, the government's "backward-looking" analysis has overestimated Spirit's future competitive viability in light of Spirit's more recent performances, including an estimated loss of more than $400 million for 2023.

JetBlue and Spirit insist that the merger, being overall beneficial to the public, should be permitted to go forward, and that any specific concerns as to its adverse effects upon competition are narrow and should be addressed through narrow measures short of the permanent injunction urged by the government.

The amicus brief. In a break from its previous positions opposing other airline mergers, the Association of Flight Attendants (AFA) supports the proposed transaction with enthusiasm in their amicus post-trial brief. The reconfiguration of the cabin seating would improve not only the comfort of the passengers, but also the working conditions of the flight attendant personnel who share the same closed quarters as their workspace. This will enable the merged entity to better attract competent and qualified personnel as flight attendants, which would be consistent with better service to the customers, which would better posture JetBlue to profit and offer good compensation packages and working conditions to its employees. Flight attendants, says the AFA, "are airlines' first responders, charged with the safety, health and security of the passengers."

The AFA's amicus brief notes the so-called "two-tier flying" practices of the legacy airlines, whereby some flights the legacy airlines book are actually operated by subcontracted or subsidiary entities whose employees are not covered by the AFA's collectively bargained labor agreements. The AFA sees the proposed transaction as one that will eliminate such contractual inequalities in the merged entity, and thereby promote the AFA's goals as a labor union.

Attorneys: Edward William Duffy, U.S. Department of justice, for the U.S. William Margrabe, Office of the Attorney General, for District of Columbia. Morgan J. Feder, Office of the Attorney General, for State of New York. Beatriz Mejia (Cooley LLP) for JetBlue Airways Corp. Andrew C. Finch (Paul, Weiss, Rifkind, Wharton & Garrison) for Spirit Airlines, Inc.

Companies: JetBlue Airways Corp.; Spirit Airlines, Inc.

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