Thread by @David_Slotnick

Hello from the *overflow* room at the US District Court in Boston, MA, where the antitrust trial for the JetBlue-Spirit merger is about to get underway.

As they work to get the stream up in the overflow room despite tech challenges, a court employee jokes "sorry, your flight has been delayed. Come on, I had to."

Stream wasn't working; we're back in the main courtroom, and opening arguments are underway.

The government starts by arguing that JetBlue's own analysis, saying it suggests fares would increase 30% after a merger.

The DOJ is arguing that under the Clayton Act, they only need to prove harm in one or more markets, not every market overall. So that's a clue into the coming days.

Judge Young interrupts to ask the government lawyer if, in DOJ's prep for trial, it thinks that Spirit's economic model is viable. "Yes, your honor."

The government argues that JetBlue reducing seats on its planes compared to Spirit — partly by expanding its Mint cabin — limits capacity and gives the airline an incentive to raise prices, to improve unit revenues.

The government is also arguing that JetBlue's argument, that by combining with Spirit, it can better compete and apply pricing pressure to the Big 4 airlines, making the elimination of Spirit worthwhile, is "effective management consultant speak" but "goes against common sense."

DOJ: "Spirit is not afraid to compete against legacies. But for others, that's not the case. You'll hear from ULCC who say that their model is flying routes with little competition."

Judge: "That's Allegiant, right?"

DOJ: "Yes, your honor."

"There's no reason to think that Allegiant will step into Spirit's shoes and compete on routes (from For Lauderdale) to places like Boston."

"Defendants will point to Spirit's recent poor financial results. But the challenges Spirit faces are not unique to Spirit. And Spirit hasn't abandoned its business model."

Government argues the merger would cause $1 billion worth of harm annually to consumers across 100 route markets.

"The merger would result in less capacity, higher fares, fewer choices, and less access to air travel. Those harms are the reason antitrust laws exist."

I should note that all of these quotes are close but paraphrased. No recording is allowed in the court room, so I'm transcribing and note-taking live.

The DOJ opening statement is finished; the lawyer for MA is now speaking on behalf of the states that joined the lawsuit.

He's pointing to various markets, like BOS-MCO, and arguing that the merger would raise prices due to the lack of competition. "That anticompetitive harm falls on those least able to bear it."

Government opening statements are over; JetBlue's lawyers are starting. "With this merger JetBlue will finally become a disruptor nation-wide."

Like during the Northeast Alliance last year, JetBlue's lawyers argue that DOJ has allowed mergers in the past that led to the current "Big 4" market, and suggests that blocking the current merger, preventing a bigger JetBlue from competing against those 4, would be hypocritical.

"As everyone who flies knows, airlines have crammed more seats into less room. But JetBlue has bucked this trend. JetBlue has an average pitch of 32 inches, Spirit has 28 inches."

JetBlue's lawyers: "Despite praising some of JetBlue's unique qualities last year (like more legroom) and arguing that it makes the airline a stronger competitor, now the government argues that those qualities do harm."

JetBlue's lawyer is showing the government's slide from last year's NEA trial, highlighting the JetBlue effect on overall fares. "JetBlue has saved customers flying to/from Boston ~$3B dollars over the past 15 years."

JetBlue lawyer: "There is no such plan to raise prices 30%. Government is talking about internal work to estimate how much more passengers value the JetBlue experience over the Spirit experience, for revenue synergies."

Judge: "What does 'revenue synergies' mean?"

A few people in the gallery could be seen and heard hastily stifling their laughs. No doubt thinking back to the "management consultant" jab from the government's opening.

JetBlue lawyer: "Gov't wants this court to ignore the national market and national implications, and it's easy to see why. It's a merger of 6th and 7th biggest airlines. JetBlue would come from 5% to 7% share."

JetBlue lawyer: "DOJ is telling the court not just to ignore the national market, but to look at individual routes, and enjoin the merger if there's harm on any one of them, ignoring greater good done to millions of consumers. That goes against common sense."

JetBlue lawyer: "Planes are mobile, it's a mobile market — airlines can adjust based on demand — so it needs to be looked at as a national market."

JetBlue's lawyer summarizes the main argument they'll make: "JetBlue and Spirit are the 6th and 7th biggest airlines in an industry controlled by 4 big players. JetBlue needs scale to compete, and through this merger, it will gain that scale, and that's good for consumers."

Another lawyer is now arguing that Spirit has no way to grow enough to compete meaningfully with the big 4 as a ULCC.

Pointing to Spirit’s “growing” financial losses as an argument that Spirit can’t compete against the legacies.

Seeing an airline’s lawyer (I think this is Spirit’s — it was hard to hear when he was introduced) argue that the airline’s financially model isn’t viable, so it needs the merger to compete, is truly surreal.

Openings are finished. We’re on a brief recess and then Spirit CEO Ted Christie will testify.

Alrighty, my laptop’s almost dead and I’m not near an outlet, so switching to phone. Sorry for the inevitable ducking autocorrect typos.

DOJ is now beginning its questioning of Spirit CEO Ted Christie

We’re establishing terminology and units now — defining ASMs, CASM, RASM, etc.

Still mostly foundational, discussing airline business models broadly, about to talk about Spirit’s model, etc.

Giving examples of how Spirit keeps costs down: charging fees for carry-on and checked bags means people bring fewer bags overall, means less weight and fuel burn.

Govt is talking about other ULCCs pulling out of primary airports, going to smaller ones, like leaving Newark or JFK for Islip.

Playing 2019 clip of Ted Christie saying fares incl ancillary products were 30% lower than other airlines, on average, and that the airline focuses on “middle class” passengers who “pay for their own tickets.”

Later in the clip, Christie argued that increasing passenger charge would lead to fewer people being able to travel.

Gov’t displaying a letter from Christie to JetBlue CEO Robin Hayes in April 2022 noting concern that JetBlue’s acquisition of Spirit would face regulatory challenges because “a higher-cost/fare airline would be eliminating a lower-cost/fare airline.”

(Foundational stuff is done, moving into more relevant material)

In the letter, Christie also noted skepticism of “JetBlue effect” of combined airline significantly exceeding a solo Spirit effect. Christie notes the letter and his opinion were based on info at the time (April 2022)

Govt now raising the various press releases Spirit issued in spring 2022 urging shareholders to reject JetBlue merger in favor of Frontier

Another communication Spirit sent to shareholders: “At its core, the JetBlue proposal represents a high cost/fare airline buying a low cost/fare airline, with half the synergies coming from reduced capacities and increased fares.”

Christie said it was based on broad concerns of regulatory disapproval.

“JetBlue has stated it will reduce capacity and raise fares on Spirit routes,” another slide on the presentation says. Another slide: “Spirit continues to be a check on jetblue’s fares.”

On another slide on the spirit presentation for shareholders in 2022, a chart shows that when Spirit entered the BOS-SJU route, JetBlue’s average fare on that route dropped from $231 to $208.

Will stress that a) this is the DOJ’s cross examination, the defendants will respond soon, and b) don’t take any of these tweets out of context, check earlier in the thread for the opening arguments.

*direct examination. I’m not a lawyer. I just stay in a Holiday Inn Express from time to time.

“Is JetBlue purposely downplaying the substantial regulatory risk,” this slide is titled. But it’s mostly noting risk in the context of the NEA, which has since been dissolved.

Christie (paraphrased): Shareholders made clear they did not want Frontier merger, so we began exploring JetBlue offer versus staying on its own.

Now DOJ is asking Christie about his role (or lack thereof) at the theoretical combined airline, where CEO Robin Hayes would be in charge.

Christie: “if this goes forward and I’m out of a job, I’d consider myself to be less well off” than if the merger was blocked and he stayed employed, or if he were retained by a combined airline (presumably reporting to Robin Hayes)

DOJ has finished questioning; and court is adjourning for the day. The defense’s questioning will be tomorrow.

The trial is set for mornings only over (up to) 20 days. I’ll be back tomorrow so check back for the defense’s questioning of Spirit CEO Ted Christie.