Summer travel season is about to ramp up, putting significant pressure on America’s airline industry. However, airlines are already feeling the heat of the Biden administration, caught squarely in the crosshairs of its zealous “big is bad” approach to competition policy.
Instead of pursuing policies — namely, deregulation — that could effect real, pro-consumer benefits, the administration has filed an antitrust suit to prevent JetBlue’s purchase of Spirit. This deal would more than likely lead to an increase in competition and diversity in the market by enhancing the quality of competition over the mere quantity of competitors. Both employ low-cost business models, and have, historically, driven down prices in the markets they’ve entered.
If combined, JetBlue and Spirit, now the sixth- and seventh-largest airlines, respectively, would become the fifth-largest, with about 9 percent market share — still significantly smaller than any of the so-called “Big Four” domestic airlines. Mergers are a regular and pro-competitive business practice across many industries, allowing newly joined firms to provide better, cheaper services. Economies of scale beget operational efficiencies, the benefits of which are enjoyed by consumers. The combined capacity of a JetBlue–Spirit merger would enable the creation of a “national challenger to these dominant airlines, while also ensuring [ultra-low-cost] options remain available in overlap markets,” JetBlue says. Post-merger, the airline hopes to compete more effectively and exert greater downward pressure on prices.
These pro-competitive benefits are not, however, to the Department of Justice’s liking. Instead, the DOJ hopes to impose its own idiosyncratic vision of ideal competition on the airline industry, fretting that the proposed deal would destroy “the unique competition that Spirit provides” and “Spirit’s unique and disruptive role.” However, in 2021, the department also labeled JetBlue “a uniquely disruptive low-cost airline.”
The suit to block the JetBlue–Spirit merger is but the latest attempt by the Biden administration to enshrine in law and precedent an aggressive theory of antitrust enforcement. This effort, joined by the Federal Trade Commission under Biden-appointed Chair Lina Khan, seeks to inject regulators deeper into markets and to nix longstanding balancing tests that discourage ill-advised government interventions. In their fervor, Biden’s over-zealous enforcers have often overstepped, suffering numerous courtroom losses.
Moreover, the Biden administration has thus far declined to endorse a substantial reform that could, in fact, reduce consolidation — a liberalization of air “cabotage” restrictions, which prohibit domestic commercial transportation by any aircraft not owned and operated by an American entity. These protectionist measures shield the Big Four — and the rest of the domestic airline industry — from any foreign competition.
One paper estimated that a single European airline entering American markets could generate $1.6 billion annually for consumers, and “it is likely that those initial gains would expand greatly under a more comprehensive cabotage policy that allows entry by other foreign carriers.” Another suggested that cabotage liberalization could reduce prices by more than 20 percent.
Simultaneously held antirust worries and protectionist enthusiasm over the airline industry did not originate in the Biden administration. They nonetheless typify the president’s philosophy of governance. In several policy areas, the administration claims to want to fight excessive consolidation, yet prioritizes the furtherance of protectionism or antitrust over effectively ameliorating the primary issue.
For instance, federally funded infrastructure projects must comply with “Buy American” provisions, much touted by Biden, which require the domestic procurement of many construction materials, often raising costs and slowing project timelines. Another heavily promoted Biden initiative, broadband expansion, will also be slowed by such procurement restrictions and workforce mandates in coming months. All of this while the broadband industry is already wracked with inflation, supply-chain, and workforce-related impediments.
Biden’s failure to recognize simple tradeoffs will not lessen the regulatory costs of his ill-considered policies. In each case, chasing ancillary objectives has rendered his administration less capable of achieving its core aim. Indeed, basic economic forces persist despite politicians’ confusion.
For the airline industry, should Congress ever legalize foreign competition in domestic markets, the initial shock would surely destabilize incumbent American firms. However, in a process Austrian economist Joseph Schumpeter termed “creative destruction,” heightened competition inevitably promotes cost-cutting and innovation — all benefitting of the American consumer.
Meanwhile, in the landscape created by this administration and ones prior, airlines are finding ways to innovate and compete through mergers such as the proposed one between JetBlue and Spirit. If the administration is serious about its goals, it would champion this and allow it to move forward.
David McGarry is a policy analyst at the Taxpayers Protection Alliance.
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