JetBlue CEO at trial calls Spirit merger key to taking on larger airlines

By Nate Raymond

BOSTON (Reuters) - The CEO of JetBlue Airways testified in court on Monday that the company's proposed $3.8 billion acquisition of Spirit Airlines is a critical part of his plan to turn the airline into a more significant competitor to the four largest U.S. air carriers.

JetBlue CEO Robin Hayes defended the deal being challenged by the U.S. Department of Justice in federal court in Boston, saying a merger was the only way to grow JetBlue into a long-term national challenger to the dominant airlines.

The Justice Department, along with Democratic state attorneys general from six states and the District of Columbia, sued in March to block the merger, which would combine the sixth and seventh largest U.S. airlines.

The four largest U.S. carriers - United Airlines, American Airlines, Delta Air Lines and Southwest Airlines - control 80% of the domestic market, compared with JetBlue's roughly 5% market share, Hayes said.

He said he had long believed that "consolidation among the smaller airlines was in some ways inevitable to compete with the larger airlines," and that the "need for us to grow quickly and inorganically, that never went away."

"You'd never ever get to the size they are based on organic growth," he testified under questioning by JetBlue lawyer Ryan Shores. "And let's recall they didn't get there through organic growth either. They did so through mergers and acquisitions."

The Justice Department counters that passengers would suffer roughly $1 billion in net harm annually if JetBlue absorbs Spirit, causing fares to rise.

Under questioning by Justice Department attorney Edward Duffy, Hayes acknowledged that the merger would eliminate no-frill, low-cost Spirit as an independent brand by combining it with JetBlue, which he admitted had, on average, higher fares.

But he said JetBlue had a history of offering low fares that forced larger airlines to cut prices and that most people would continue to benefit from its presence.

Hayes said JetBlue had tried to address U.S. regulators' concerns by agreeing to divest gates and slots at key airports in New York City, Boston, Newark, New Jersey, and Fort Lauderdale.

U.S. District William Young, who has said he would try to rule by year's end, at one point when questioning Hayes raised the prospect of placing conditions on the deal's approval when he asked whether "you had ever heard of a judicial decision that says this doesn't pass muster, but if you did the following," it could proceed.

Hayes said he had not seen such a court decision. The trial is a rarity for the Justice Department, which historically has approved airline mergers without trials conditioned on asset divestitures.

(Reporting by Nate Raymond in Boston, Editing by Alexia Garamfalvi)