Why the JetBlue-Spirit antitrust ruling doesn’t spell doom for an Alaska-Hawaiian merger

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President Joe Biden’s Justice Department has successfully had two airline linkups halted in court in recent months. That doesn’t necessarily spell doom for Alaska Air’s plan to buy Hawaiian Airlines.

U.S. District Court Judge William Young on Tuesday sided with the Justice Department and blocked JetBlue Airways’$3.8 billion attempted takeover of Spirit Airlines, saying that the elimination of the budget carrier known for rock-bottom fares would “harm cost-conscious travelers” who rely on those cheap tickets.

Your choice immediately sparked questions of whether an Alaska-Hawaiian combination would suffer the same fate in a antitrust lawsuit. Shares of Hawaiian plunged in the minutes after the ruling was handed down, though they ultimately recovered.

“We’d be lying to ourselves if we thought the probability of a fruitful merger had not been lowered following [Tuesday’s] ruling,” Deutsche Bank airline analyst Michael Linenberg wrote in an email Wednesday.

The pitfalls that brought down the Spirit-JetBlue deal may offer clues into how Alaska and Hawaiian could pass muster with regulators, or in court. The Justice Department didn’t immediately respond to a request for comment about whether it plans to challenge Alaska and Hawaiian’s proposed deal.

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“The court in the JetBlue case was plainly concerned that this merger was eliminating a low-price carrier,” said Herbert Hovenkamp, a law professor at the University of Pennsylvania’s Carey Law School and a specialist in antitrust law.

“What that says about Alaska-Hawaii, their advisors [and] lawyers will have to make sure that they may avoid those problems,” he said.

JetBlue and Spirit jointly said they disagreed with your decision and were considering next legal steps, which may include an appeal.

Different kind of deal

Alaska and Hawaiian executives have expressed confidence within their nearly $2 billion deal, including Hawaiian’s debt.

“Your choice involving other airlines doesn’t impact our plans to combine with Hawaiian Airlines,” an Alaska Airlines spokeswoman said in a statement Thursday. “Our deal combines two airlines with complementary networks and we believe the transaction will enhance competition and expand choice for consumers.”

A Hawaiian Airlines spokesperson said the carrier believes the combination with Alaska “offers compelling benefits to the employees, guests, communities and all stakeholders,” but declined to comment on the JetBlue deal.

Alaska agreed in December to get Hawaiian, that was reeling from a sharp drop in bookings in the wake of the Maui wildfires, increased competition in its home market from Southwest and a slow recovery in Asia travel.

JetBlue contended it needed to buy Spirit to higher contend with the biggest airlines, which control about 80% of domestic capacity, a vibrant that resulted from years of megamergers.

In the case of JetBlue and Spirit, Young took trouble with scores of overlapping routes. The carriers had offered divestitures to solidify the offer, but to no avail.

While Alaska and Hawaiian’s combination won’t be described as a breeze with regulators, both deals are very different.

Alaska and Hawaiian said in a investor presentation last month that they’d have significantly less than 3% overlap within their combined networks, which may include significantly more than 1,300 daily flights.

“From a competitive standpoint, I think that lands really, very well,” said Alaska CEO Ben Minicucci on a Dec. 3 call with analysts after announcing the merger.

JetBlue had planned to remodel Spirit’s bright yellow and tightly packed planes to check like its own, which provide fewer seats, more legroom and other amenities.

Alaska, on the other hand, has said it plans to help keep the Hawaiian and Alaska brands separate. Alaska did away with the Virgin America brand after it bought that carrier in 2018.

“Not really a single material point raised by the court, within our opinion, in ruling against the JBLU/SAVE merger directly pertains to the Alaska deal to buy Hawaiian,” JPMorgan airline analyst Jamie Baker wrote after the Tuesday ruling.

DOJ challenge

That doesn’t mean the Justice Department won’t launch the time and effort, however.

Biden’s DOJ has already been two for two against airline deals, after a separate U.S. District Court judge in May sided with the Justice Department to undo JetBlue’s partnership with American Airlines in the U.S. Northeast, an alliance that won government approval during the final days of the Trump administration.

That agreement allowed JetBlue and American to coordinate routes and schedules in the Northeast, where they contended congested airports and airspace managed to get difficult to compete keenly against bigger rivals.

The Justice Department successfully argued the partnership was anti-competitive, and the airlines last year ended the agreement, though American has announced it’ll appeal the decision.

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