Stephen Moore: Proposed Airline Merger Would Bring More Competition and Lower Fares

You can see the classic example of how President Joe Biden’s regulatory tendencies have strangled the U.S. Economy and raised prices by looking at the Justice Department’s latest efforts to kill an airline merger which is pro-consumer.

JetBlue is looking to merge with Spirit, a smaller airline that is financially struggling.

JetBlue management estimates that there will be savings of more than $300 million due to the synergies. Spirit’s shareholders, i.e. the owners of the airline, have voted in favor of the merger.

Spirit is like a patient in chemotherapy. According to industry analysts, there is a 50-50 chance that Spirit will go bankrupt without a suitor. The bankruptcy would leave Spirit shareholders bankrupt, and cause thousands of workers to lose their jobs. It also allows other larger airlines to buy its assets and valuable airport landing rights at a fire sale price.

None of these scenarios are good for anyone.

What’s the problem? The Biden Justice Division is holding the marriage up on antitrust grounds.

One strong argument could be made for the merger of two smaller airlines to increase competition and lower costs by creating a larger discount carrier. Today, about 70% of domestic flights are on four carriers — American, Delta, Southwest and United. JetBlue now controls only 6% of this market, while Spirit’s share has dropped to 4%.

JetBlue is unlikely to be allowed to monopolize the market and drive up prices by a merger such as this. The regulators are concerned about ticket prices rising in some markets like Fort Lauderdale (Florida), where the airlines compete directly. Spirit may close without the merger.

JetBlue has been ranked among the top airlines in customer satisfaction. It needs to be able to compete with the big guys more effectively.

JetBlue’s merger plans say that Spirit will be used to schedule 1,700 extra flights to 125 locations in 30 countries. Spirit employees, infrastructure and management will also be leveraged by JetBlue. This benefits — it doesn’t hurt — consumers with more choices.

JetBlue’s market niche was to offer discount prices in crowded markets.

A study done by the Massachusetts Institute of Technology found that JetBlue’s entry into a market reduces airline fares on average by $32 per person.

Biden’s administration doesn’t seem to realize that mergers and acquisitions play an important role in an innovative and entrepreneurial economy. In the hope of launching startups, investors are willing to risk millions of dollars in order to have an exit option and be bought out by larger competitors.

If the feds were to ban the sale of the company, how many people would invest in a startup airline? Or to prevent the company from acquiring assets as it grows.

It was 40 years ago that airline routing and pricing were virtually unregulated, which led to the birth of modern air travel. Airfare, once a luxury for the wealthy, is now affordable to middle- to low-income travelers.

Ironically, if the JetBlue/Spirit marriage is stopped or killed by interminable delays it will be the executives of American, Delta Southwest, Southwest, and United who will uncork the champagne bottles.

The Biden administration might choose to side with the largest and most expensive airlines in the name of consumers rather than the pro-competitive forces that would be triggered by a disruptor and lower-price carrier. It is not clear how this would benefit consumers.

Stephen Moore is an economist at FreedomWorks and a senior fellow with the Heritage Foundation. His most recent book, is “Govzilla: How the Relentless Growth of Government is Devouring our Economy.”

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