December Southwest Airlines debacle fuels anti-merger campaign against industry – Antitrust, EU Competition

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Christmas 2022 was chaos for thousands of travelers as Southwest Airlines canceled 16,700 flights amid severe winter storms that separated passengers from their families, luggage and money. The Wall Street Journal reported that the carrier’s route configuration and the glitch of its crew scheduling software caused the clumsy response.

Massachusetts Senator Elizabeth Warren reacted in a festive tweet by saying the debacle was an example of how airline mergers have been a disaster for consumers. Warren urged regulators to focus on measures to increase competition, a constant theme of the former presidential candidate.

Warren also raised concerns about the JetBlue-Spirit Airlines merger, a deal that would create the fifth-largest airline in the US. The senator said the Department of Transportation should use its antitrust authority to protect travelers by blocking the merger. In a letter to DOT Secretary Pete Buttigieg in September 2022, Warren said that the department had “significantly and historically underutilized authorities to protect competition in the domestic air travel market to ensure that any route transfer is ‘ consistent with the public interest. Warren urged Buttigieg. to use his competition authority in addition to the review now underway at the Justice Department’s Antitrust Division.

Initially, in a deal announced in February 2022, Frontier Airlines and Spirit were combined in a $6.6 billion merger that was also opposed by lawmakers, special interest groups and antitrust specialists who sent comments to the Justice Department. The Spirit-Frontier deal also irritated JetBlue, which in April made a competing offer to buy Spirit. Spirit Airlines shareholders approved the merger in October 2022 despite apparent regulatory concerns. Now that it has won the bidding war, JetBlue has to avoid a challenge from the Justice Department.

“Lasting negative impacts”

The JetBlue deal has sparked a lawsuit from a class of Spirit customers in the US District Court for the Northern District of California seeking to block the deal, alleging that the merger violates Section 7 of the JetBlue Antitrust Act. Clayton because it would “substantially reduce competition and create a monopoly in the passenger airline industry.” (Garavanian v. JetBlue Airways, No: 3:22-cv-6841, ND Calif.).

The lawsuit also alleges that Spirit’s board of directors knew the settlement would “substantially increase rates for consumers” and “have lasting negative impacts on customers.” JetBlue has agreed to pay Spirit $400 million whether or not the deal closes. The lawsuit seeks to strike down the merger contract between the airlines.

For its part, JetBlue’s website says the acquisition would benefit travelers by creating “a customer-focused, low-fare domestic alternative to the dominant ‘Big Four’ airlines.” The airline says it is “highly confident in obtaining all regulatory approvals based on JetBlue’s accelerated expansion and resulting net fare declines, along with the demonstrated ease of continued expansion of other ultra-low-cost carriers and divestitures that JetBlue is ready to start.”

Meanwhile, US District Judge Leo Sorokin in Boston is expected to rule soon on the Justice Department’s challenge to the proposed alliance between JetBlue and American. The decision could materially affect the Justice Department’s review of JetBlue’s proposed acquisition of Spirit.

JetBlue’s proposed alliance with American, North America’s largest airline, involves revenue sharing, exchangeable loyalty programs and gate pooling at airports in New York and Boston. The government argued in a three-week trial in October before Judge Sorokin that the alliance is effectively a partial merger that reduces competition.

As for Southwest, whose holiday debacle serves as Exhibit “A” for the dangers of consolidation in the airline industry, the airline is offering customer refunds, expense reimbursements, 25,000 frequent flyer miles and its apology. The New York Times reports that the company could end up paying customers up to $825 million.

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