Austin Booth – The Biden administration has so far taken a stance against corporate consolidation. In January 2022, the Justice Department and the FTC announced that they were seeking public comment on how current merger guidelines can be updated to better detect and prevent illegal and anticompetitive deals in an increasingly consolidated corporate marketplace. Both agencies stressed the importance of robust competition to the economy, workers, and consumers. To fight against the consolidation of industries, the regulators are working towards adopting a broader definition of anticompetitive conduct.
The Biden administration has singled out the airline industry in its plan to promote broader economic competition. In September 2021, the Justice Department sued to prevent a domestic alliance between American Airlines and JetBlue Airways, arguing that the deal violated federal antitrust law because it would raise prices and reduce competition.
Yet, the recently proposed merger between Frontier Airlines and Spirit Airlines could test the Biden administration’s commitment to aggressive enforcement of the federal antitrust laws. In early February 2022, the boards of Frontier and Spirit Airlines approved a cash and stock deal where Frontier Airlines would control the merged airline with 51.5% of the surviving company’s stock. Meanwhile, Spirit shareholders would receive 1.9126 shares of Frontier stock plus $2.13 in cash in exchange for each share of Spirit Airlines they owned. The combined Frontier-Spirit survivor would constitute the fifth-largest airline in the U.S., and the $6.6 billion merger deal is expected to close in the second half of 2022.
Recently, a group of progressive lawmakers, including Senators Elizabeth Warren and Bernie Sanders, and Representative Alexandria Ocasio-Cortez, urged federal officials to scrutinize the proposed merger over concerns that the combination could prove anti-competitive and hurt consumers and workers. They pointed out that first, airline mergers have been associated with higher ticket prices in the past. Second, the legislators noted that a merger between the two largest budget airlines could reduce competition in the budget airline market. Third, they argued that if the surviving airline abandoned the budget business model, the industry would lose an important check on prices. Finally, the group expressed concern that a consolidation of the budget airline market could give the surviving airline even less incentive to be attentive to customer concerns.
Yet, proponents of the merger argue that the Frontier-Spirit Airlines merger would be good for consumers and that the Justice Department would have a hard time blocking the merger. While there are competitive concerns on the surface–Frontier flew to more than 80% of the airports where Spirit operated in 2021–when individual routes are taken into account, the overlap falls below 40%, and in less than 2% of cases did the carriers compete fiercely for market share. Further, Frontier and Spirit pledged to avoid any job losses, add 10,000 direct jobs by 2026, and deliver $1 billion in annual consumer savings. Finally, the two companies argued that the deal would help consumers by creating a more powerful low-cost competitor to American, Delta, United, and Southwest, which together control about 80% of the U.S. air-travel market.
At the time of publication, the federal government has not weighed in on the proposed Frontier-Spirit Airlines merger. It will be interesting to see whether the Biden administration will focus its antitrust analysis on the proposed merger’s impact on consumers and competition (and how it comes out on that analysis), or whether its aim is to block the consolidation regardless of the proposed merger’s impact on consumers and competition.