Bidding for the soul can reduce the power of the four major airlines

When the dust settled in a big round of airline mergers almost a decade ago, four big companies dominated the industry. A new integration scramble could challenge that comfortable arrangement.

A ready fight over the future of budget carrier Spirit Airlines is a credible, albeit still small, one that could rival industry giants. In February, Frontier Airlines and Spirit announced plans to merge, promising to create a national budget airline that would help keep fares low. JetBlue Airways made its own bid of 3.6 billion for Spirit this week, which it said Thursday night it would consider the offer.

Whether Spirit eventually merges with Frontier or JetBlue, the combined company could pose a more formidable threat to the country’s four largest airlines – American Airlines, Delta Airlines, United Airlines and Southwest Airlines – with a 66 percent share in the market. The four operate in a league of their own, especially at their hub airports in cities such as Atlanta, Dallas, Houston and Newark, where they each control a large portion of the gate and flight.

In an example of the one-sided nature of the industry, Alaska Airlines, the fifth largest carrier last year, controlled only 5 percent of the domestic air travel market, while United, the fourth largest, accounted for about 13 percent. A combined Frontier and Spirit will control over 8 percent of the market and JetBlue and Spirit together will control over 10 percent.

“You’re facing American, United, Delta and Southwest with such a huge fleet and market penetration,” said Samuel Engel, a senior vice president at ICF and an airline industry analyst, a consulting firm. “It is reasonable to assume that the No. 5 buffer will form a strong competitor.”

Of course, no agreement is guaranteed, and in combination, executives may struggle to merge businesses. Integrating airlines with their computer systems and the seniority rankings of pilots and flight attendants has never been easier, and this has led to widespread flight cancellations and protracted legal disputes.

Either the proposed merger would require the approval of no-confidence regulators who have dared to challenge the agreements reached under the previous administration under President Biden.

“Both agreements present a new challenge for non-profit organizations,” said Paul Dennis, who represented US Airways’ merger with American Airlines, which closed in 2013. Early in his career, he reviewed consolidation and acquisitions in the judiciary

Mr Dennis said regulators had examined the airline deals and focused on the impact of consolidating historically large, legacy airlines – which have been in business for decades. This review, however, will explore whether there is a “unique competition” between low-cost carriers “worthy of protection” by the judiciary.

Regulators are more concerned with market share. They want to know how a proposed merger affects travelers, including whether the joint venture will be able to significantly increase fares on routes where the two companies previously competed head-on. And the Biden administration uniquely focuses on the impact of corporate agreements on economic inequality, for example, by increasing rents and suppressing wages. Legal experts say it is not always easy to predict the potential impact of a deal.

The merger between Frontier, which is centered in the west, and Spirit, which is centralized in the east, will create a larger national-budget airline that could push larger carriers to reduce fares in more cities. But the deal will eliminate their competition on a competitive route, hurting potential cost-conscious travelers.

In addition, Frontier and Spirit have been criticized for poor customer service, and Colorado Attorney General Phil Weiser, where Frontier-based, warned federal regulators last month that the merger “creates a real and stressful risk” that could make the service worse.

JetBlue is already competing with four major airlines in the city, such as New York and Boston, and could further challenge them if it is able to acquire Spirit’s planes, airport gates and staff. Customers can benefit from a better flying experience for the benefits JetBlue offers. But Spirit’s super-cheap fares may not last as JetBlue shows a trend for more affluent travelers and continues to expand premium services such as business-class seats.

Another factor that could complicate the bid for JetBlue’s soul is that it is already involved in a no-confidence motion brought by the judiciary. The department is seeking to scrap an alliance between JetBlue and Americans in the Northeast, a deal that an official described as “de facto merger” last year. The company said in its lawsuit that American, the country’s largest airline, would use the partnership “to co-opt a uniquely disrupted competitor.” JetBlue and American deny that their agreement is competitive and sues in court.

JetBlu executives said this week that they want to continue the company’s partnership with Northeast Americans. They also said that buying spirits would allow JetBlue to compete more aggressively with the four major airlines.

Some critics of corporate consolidation disagreed, saying airline consolidation could be bad for customers and employees.

Under both agreements, the new larger airline will have more market potential in certain cities, particularly in Florida, a popular destination where the three airlines compete.

Diana Moss, president of the American Antitrust Institute, a left-leaning organization that has long called for strict enforcement of competition laws, has called on the judiciary to block the Spirit-Frontier deal. Ms. Moss and others published a survey in 2013 that concluded that airlines do not offer the benefits they claim through their mergers.

Senator Elizabeth Warren, a Massachusetts Democrat, is another skeptic. “The integration into the airline industry has resulted in higher prices for consumers and lower wages for workers, and the judiciary needs to scrutinize these proposed agreements closely and challenge them if necessary,” he said in a statement to the New York Times this week. Echoes of a letter he and other lawmakers sent to regulators last month.

Since the industry was deregulated in the late 1970s, airlines have gone through a continuous wave of consolidation as they sought regional, national and then international power. William Sowellber, an aviation consultant and research engineer at the International Center for Air Transportation at the Massachusetts Institute of Technology, said financial problems in the 2000s, including bankruptcy, led to the latest wave of large-scale consolidation.

“The last round of consolidation was really about the balance sheet,” he said. “I don’t think these companies will make it individually.”

Current transactions seem to be growing rapidly. Because big airlines have advantages. They can easily hire pilots whose supply is low. Big airlines also get lower prices and better service from aircraft manufacturers. And the easiest way to grow at many airports is to buy another airline with a gate and takeoff and landing slot.

But some analysts aren’t convinced that airlines can easily reap the rewards of aging through consolidation.

JetBlue’s stock has fallen more than 10 percent since the Times reported its offer for Spirit partly because investors are unsure about JetBlue’s ability to take full advantage of the acquisition.

Analysts speculate that JetBlue made its offer in part because it feared losing business to a combined frontier-spirit, which the airline cited in its annual report as a potential risk to its competition. This is not the first time that JetBlue has sought to increase its acquisition by acquiring another airline It tried to buy Virgin America, but lost the deal to Alaska Airlines.

Even under ideal circumstances, airline integration can be difficult. And when there is some overlap between Spirit and JetBlue, for example, in a fleet of similar planes, they work differently. Spirit does everything possible to keep costs down and rent low. It charges extra for seat selection and carry-on luggage and packing nearby seats. JetBlue similarly tries to keep costs low but differentiates itself by offering more legroom on the flight and free wireless internet.

“These are two very different operators with completely different IT structures and completely different company cultures,” said Robert Mann, an industry analyst and consultant.

The Spirit has committed both covenants. It said this week that it was reviewing JetBlue’s unsolicited bids. In terms of numbers alone, JetBlue’s all-cash deals are higher, JetBlue offers Frontier’s real cash and a premium of about 40 percent of the share offer, based on the share price the day before its bid was published.

Frontier can still raise its bid, or change its composition. (According to the regulatory filing, the Spirits board originally preferred a payment agreement for the stock, but Frontier’s shares have declined since the agreement was announced.) . JetBlue Spirit guarantees a reverse breakup fee if its contract is canceled due to distrust concerns.

Some legal experts say the deal could win the support of regulators, including some compromises, such as the agreement to remove some airport gates.

“I still think that at the end of the day, the deal that could possibly be challenged will be approved,” said Kerry Tan, a professor of economics at Loyola University in Maryland. “Whatever challenges DOJ offers, they can be discounted.”

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