Antitrust Merger Knowledgeable Says Spirit Acquisition By Frontier Or JetBlue Probably To Be Accredited

Due to my enterprise relationships and inventory holdings with each Spirit and JetBlue, I have not been writing in regards to the proposed Frontier-Spirit and JetBlue-Spirit mergers over the previous few months. It is a scorching subject proper now so I believed it could be nice for Forbes readers to listen to from somebody shut on the matter.

The general public statements from Frontier and Spirit recommend they imagine their deal has a 100% of approval and {that a} mixture with JetBlue has a 0% probability. This did not appear proper to me, so I wished to get the opinion of an knowledgeable. Glenn Pomerantz is a Harvard Regulation graduate and has served as lead trial counsel for the federal government in high-profile merger challenges. He was lately introduced on by JetBlue to offer a perspective on the regulatory panorama. On this Q&A with me, he shares ideas on how the US Division of Justice (DOJ) may view additional trade consolidation.

Glenn, it is nice to be chatting with you at present. Inform me somewhat bit about your expertise.

Thanks Ben. I have been in follow for nearly 40 years. I am one of many few personal attorneys who has been requested by DOJ and quite a few State Attorneys Common to function lead trial counsel for the federal government in high-profile merger challenges, together with the AT&T/T-Cell merger. Antitrust litigation has all the time been a core skilled curiosity of mine.

Many individuals assume it is robust for any airline merger proper now. Do you agree?

The present administration has stated that it desires to see a special stage of enforcement on massive mergers, together with within the airline sector. It’ll be tougher for any merger than it was a couple of years in the past. Nonetheless, I believe the regulatory hurdles for both a Frontier Spirit or JetBlue Spirit deal are extraordinarily comparable. In any occasion, it is a courtroom, and never DOJ, that has closing say. I believe each offers have a greater than 50% probability of closing.

For those who had been representing JetBlue with the DOJ, what would your place be?

I’d remind the DOJ of their very own phrases. Of their courtroom submitting for the JetBlue’s Northeast Alliance, the DOJ effusively praises JetBlue for the “Jet Blue Impact” and its skill to “problem the foremost airways” with decrease fares and nice service. So when JetBlue enters a market, the foremost airways scale back their charges. The DOJ goes on to speak about JetBlue being “uniquely disruptive” and the way necessary its progress is for competitors within the US It is fairly clear they see JetBlue’s progress as factor, they usually consider JetBlue’s aggressive influence as distinctive amongst present airways, together with extremely low value carriers. That is as a result of the legacy airways do not reply in the identical approach when ultra-low-cost carriers enter new routes. Extremely-low-cost carriers do not provide service corresponding to JetBlue, which is what makes JetBlue such a aggressive menace to the legacy airways. What JetBlue’s try to merge with Spirit suggests to me is that they’re targeted on increasing this JetBlue Impact throughout the nation and disrupting the enterprise of the legacy carriers.

So are you saying the DOJ suing JetBlue truly helps a JetBlue-Spirit mixture? That is not what Spirit would have you ever assume.

Sure, I am saying that the DOJ’s reasoning within the NEA litigation helps a JetBlue-Spirit mixture. Past that, simply because the DOJ is suing you on one matter does not imply they might routinely sue you on one other matter. It isn’t a private factor. The Northeast Alliance problem will get resolved in that present litigation. They might take a look at a tie up between JetBlue and Spirit individually, by itself deserves.

If Spirit shareholders point out they might moderately go together with JetBlue, what is the greatest problem that mixture goes to have with regulators?

As I stated, any merger goes to have a more durable time getting DOJ’s approval proper now given the present administration. Particular to JetBlue Spirit, the DOJ will assess the influence of a low-cost service shopping for an ultra-low-cost service, and the way JetBlue’s distinctive impact on fares and high quality of product components in. They will additionally take a look at the enlargement and repositioning of different ultra-low-cost carriers. Each the JetBlue mannequin and the ultra-low-cost mannequin profit vacationers, however the advantages are completely different. JetBlue argues that their profit is way broader and extra impactful than the ultra-low-cost mannequin. That is the sort of profit a courtroom would weigh rigorously if DOJ determined that it wished to problem this merger.

Do you assume the DOJ would like a Frontier-Spirit mixture?

I do not see it that approach. Folks have not targeted on the truth that Frontier and Spirit have a variety of route overlaps throughout the nation – way more than JetBlue and Spirit – and the DOJ in my expertise will consider issues like that. Additionally, the DOJ has stated in courtroom they actually just like the JetBlue Impact. I have not seen them on file in regards to the first and second largest ultra-low-cost carriers merging collectively. This concern was raised earlier than JetBlue even got here within the image.

Some declare a single ultra-low-cost service can be a stronger competitor to the big airways. What’s your view?

I do not see something additive for customers by placing collectively the 2 largest ultra-low-cost carriers. You might make a case that the efficiencies assist them hold low fares in place, but it surely’s not a recreation changer and you may find yourself eliminating competitors between Frontier and Spirit on a complete bunch of routes. The financial information I’ve seen reveals that JetBlue is way more disruptive to legacy service pricing than ultra-low-cost carriers are. That is as a result of JetBlue is giving a bigger community will make it a extra formitable competitor to the legacy airways. The evaluation I’ve seen means that the identical would not be true by combining two ultra-low-cost carriers. Legacies do not react in the identical solution to ultra-low-cost carriers. And the ultra-low-cost enterprise mannequin is not arrange in a approach that permits a service to profit from an expanded community in the identical approach that JetBlue would.

Is that this nearly fares for the DOJ?

It isn’t so simple as the bottom worth wins. DOJ doesn’t wish to see fares go up from the legacies both, so that they’ll research how legacies may reply to a bigger JetBlue or a bigger Frontier. They will additionally take a look at non-price components like product high quality and repair schedules. These are necessary items in producing aggressive results. It’ll be a troublesome analysis for DOJ as a result of JetBlue is thought for a really inclusive stage of service and choices that attraction to each vacationers and enterprise vacationers. Spirit and Frontier have a really fundamental stage of low-cost service and also you pay for all the things further.

For those who had been on the DOJ now, what would you be asking your self?

DOJ may be very conscious that 4 mega carriers have a grip on the US market. We acquired right here due to the consolidation that DOJ allowed, so it is ironic that DOJ might have to permit extra consolidation to repair it. It isn’t going to be politically widespread although, so they’re in a catch-22. I’d add that because of this, if wanted, we now have the courtroom system as the last word decider. Whereas the DOJ may strategy enforcement otherwise in several administrations, the legislation the courtroom follows stays just about the identical. And I believe a courtroom would see {that a} mixture of JetBlue and Spirit would result in extra competitors with the mega carriers that might in the end profit customers.

How do you see all this ending?

The regulatory hurdle goes to be there for any airline merger given the political panorama, however I do imagine that the danger is extraordinarily comparable for both a Frontier-Spirit or a JetBlue-Spirit merger. And I imagine that JetBlue has shot at getting a deal by. What actually satisfied me is how the DOJ put it in their very own phrases within the Northeast Alliance courtroom submitting.