OPINION:
The Biden administration has likely just grounded one commercial airline — and possibly a second one. But the real victims will be all Americans who travel by air.
The Justice Department sued to stop Spirit Airlines and JetBlue Airways from merging, and a judge recently sided with the Biden administration. The airlines have given up in the face of this opposition. That means airfares will rise even more.
Spirit and JetBlue are known for offering no-frills options to get from point A to point B. They often serve areas abandoned by the larger carriers, airports that don’t have the volume to create the economies of scale on which the big airlines thrive.
But faced with mounting cost increases, especially from inflation, Spirit and JetBlue have seen profitability evaporate. Instead of each company flying half-full planes at about the same time on the same routes, the merger would have allowed a new company to fly one plane and cut costs almost in half.
The Biden administration’s Justice Department, however, claimed that this would cost consumers $1 billion annually, under the assumption that the new company would immediately raise its fares.
There was never any reason to believe that would be the outcome because of the business model that Spirit and JetBlue use. These carriers compete with larger rivals by offering lower fares. If they raise their prices, people will switch to larger carriers with perks, like Southwest’s two free checked bags.
The two smaller airlines are a classic example of companies using accumulated wealth to implement innovative business practices that better serve their customers. Faced with headwinds in the market, their merger would have ensured profitability and continued ability to provide the services people want.
This unwarranted obstruction by the Biden administration is just its latest attempt to strangle the dynamic engines of innovation, and with it, the path to future prosperity.
In the crusade against so-called big business, the Justice Department has probably doomed at least one American company, which will leave customers with higher airfares.
The irony is that after the abandoned merger, the new airline would have still been small compared with the four large carriers that dominate the industry. By market share, United Airlines (the smallest of the four major carriers) would still be 50% larger, and American Airlines would be almost 70% larger.
Without the merger, Spirit is all but condemned to death, and investors know it, selling off the company’s stock, which hit a record low after the plug was pulled on consolidating with JetBlue. The ratings agency Fitch downgraded Spirit’s credit rating, citing default as a real possibility, meaning the airline may soon be unable to pay its bills.
With operational losses, over $1 billion in bonds coming due soon, and the evaporation of available equity from the stock plummeting, Spirit’s collapse seems like a fait accompli.
Now, Americans who are already cash-strapped from inflation will have to pay higher airfares. Without Spirit, some small airports will have almost no service at all. Customers may have to travel father to larger airports and fly with one of the four larger carriers, which already charge higher prices.
Without the economies of scale from the canceled merger, JetBlue will likely have to raise its prices as well. Of course, that undermines JetBlue’s business model of offering economy fares, which in turn puts the company in jeopardy of following Spirit’s current descent and likely crash landing.
Thus, the Biden administration’s misguided attack on these airlines may put them out of business. That means fewer jobs and more investors being wiped out, as has already happened with Spirit.
Last, as these smaller airlines slowly evaporate like contrails, the four largest carriers will face less competition. That means they can charge higher prices without fear of losing as many customers since there are fewer alternatives.
Americans do not need bureaucrats in Washington to dictate what air travel options should be available. If people want to fly with an economy airline, they should be free to do so. Likewise, if industry innovators want to compete with a unique business model, the Department of Justice has no business intervening.
Regulators in the Biden administration should note how this injudicious intervention will keep both innovators and passengers grounded.
• E.J. Antoni is a public finance economist at The Heritage Foundation and a senior fellow at the Committee to Unleash Prosperity.
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