As a former U.S. assistant secretary of Transportation and a former U.S. undersecretary of Commerce, I have been watching with great concern the federal government’s position on JetBlue’s merger with Spirit Airlines.
The government mistakenly argues that the merger will “hurt cost-conscious travelers.” As this trial gets underway, I feel strongly not only that the government’s position is wrong, but that it will ultimately end up hurting competition at a time when more is needed. The compelling question that this flawed action fails to address is: What will drive change and bring more competition among the big carriers in our country?
The airline industry currently has four dominant carriers that collectively control more than 70 percent of the market. Spirit and JetBlue each sit in the small single digits of market share, holding about 4 percent and 5 percent respectively. If the U.S. government wants to drive change in prices and standards, the airline industry overall needs a more level playing field for competition — and the merger between JetBlue and Spirit would do just that.
The merged company would be a stronger competitor against the big four carriers even though it would still be less than half the size of any of the larger carriers. We would also have a competitor that has consistently offered the traveling public good travel options and decent jobs for its employees.
This merger makes sense not only from the perspective of competition, but — just as importantly — from the standpoint of workers. All three major unions now support the merger. They know that it will help to transition thousands of contractors, particularly at Spirit Airlines, to full-time employment. It will expand salaries and benefits for many more. The merger will also allow JetBlue to make additional investments in equipment, training and personnel.
The Biden administration has argued that having Spirit around will hopefully push other airlines to reduce their fares. Yet, I know from experience in handling these matters at the Department of Transportation that low-cost service has its limits. There are simply not enough passengers in the market who make their travel decisions solely based on price. So, the effect that Spirit can have on larger airlines is relatively limited.
President Biden correctly pointed out during last year’s State of the Union that there are a number of priorities beyond the basic price of an airline ticket when it comes to travel. One is transparency. Americans are tired of airlines that advertise one thing while sneaking in surprise costs. So, let us also account for the fact low-cost carriers like Spirit tend to charge more for luggage, a seat of your choice, Wi-Fi and entertainment. When you factor in all of that, the price of travel on Spirit is not as cheap as it may seem.
Interestingly, in previous lawsuits, the Department of Justice has cited the “JetBlue Effect,” where airline fares go down across the board when JetBlue launches new routes. We should not lose sight of the fact that the New York-based carrier is actually a more inclusive low-cost option. They provide a lot of those amenities that we like to have onboard, such as more room in coach, the ability to sit with your kids, and even a Customer Bill of Rights.
During my time in government, my colleagues and I thought a lot about how to create conditions where companies could compete and thrive, while driving more value and fairness for consumers. While I believe the Biden administration has similar goals, their position on the Spirit/JetBlue merger will fail to bring more competition and better value for the traveling public.
American travelers will lose out if this deal gets blocked. They will be left with the same big four carriers. We need more competition across the airline industry, not less. Let’s hope we get it.
Francisco Sanchez is former U.S. undersecretary of Commerce and former U.S. assistant secretary of Transportation.