In a significant blow to JetBlue Airways' expansion plans, a federal judge in Boston has blocked the airline's proposed $3.8 billion acquisition of ultra-low-cost carrier Spirit Airlines. The ruling, made by US District Judge William Young on Tuesday, came in response to concerns raised by the Justice Department about the potential reduction in low-priced air tickets if the deal were to proceed.

The decision is seen as a victory for the Biden administration, which has been actively working to prevent further consolidation within the US airline industry. The ruling is also expected to complicate Alaska Air's attempt to finalize its own acquisition of Hawaiian Airlines. Additionally, the ruling raises questions about the future of Spirit Airlines, which has been grappling with financial difficulties due to rising operating costs and supply chain issues.

Following the announcement of the ruling, shares of Spirit Airlines plummeted by 52%, while JetBlue Airways saw a 2.5% increase in its share value. Both companies have the option to appeal the decision. JetBlue has stated that it is currently reviewing the court's decision, while the Justice Department has yet to respond to requests for comment.

Judge Young justified his injunction by stating that the proposed merger between JetBlue and Spirit would violate the core principle of antitrust law, which is to protect US markets and participants from anti-competitive harm. He also noted that the consumers who rely on Spirit's unique low-price model would likely be adversely affected by the merger. However, Young clarified that his injunction only applies to the current form of the merger and does not bar any potential combination of the two companies.

The Justice Department, along with Democratic state attorneys general from six states and the District of Columbia, had argued that the JetBlue-Spirit deal would lead to reduced flight options and higher prices for millions of Americans. They claimed that the merger would eliminate a crucial source of low-cost competitive disruption across more than 375 routes, resulting in approximately $1 billion of net harm to consumers each year.

JetBlue's legal team countered these arguments by stating that the case was misguided and that the merger between the sixth- and seventh-largest US airlines, which together control less than 8% of the domestic market, would benefit consumers. They argued that the deal would position JetBlue to better compete against the four larger airlines that currently dominate the market.

Spirit Airlines, as the first US domestic carrier to allow passengers to choose which flight features they pay for, has been credited with pushing competing airlines to lower their prices. JetBlue, although a higher-cost airline compared to Spirit, has historically maintained a low-cost model compared to larger carriers and has been able to exert pressure on them to reduce prices when entering new routes.

In an attempt to address regulators' concerns, JetBlue had agreed to divest gates and slots at key airports in New York City, Boston, Newark, and Fort Lauderdale. However, the Justice Department's case is part of a broader effort by the Biden administration to intensify antitrust enforcement, with mixed results in court thus far. JetBlue had previously been the focus of another antitrust case, in which a different Boston judge ruled in favor of the government, finding that JetBlue's partnership with American Airlines violated antitrust law. JetBlue subsequently terminated the alliance, and American Airlines is currently appealing the decision.

The ruling against JetBlue's acquisition of Spirit Airlines marks a significant development in the US airline industry. It reinforces the Biden administration's commitment to preventing further consolidation and protecting consumer interests. The decision also leaves JetBlue with the challenge of devising an alternative growth plan as it prepares for a leadership transition, with Joanna Geraghty set to replace Robin Hayes as CEO next month. Furthermore, the ruling opens the possibility for Frontier Airlines to make a renewed attempt to acquire Spirit Airlines, as the two airlines had previously engaged in a bidding war that was ultimately won by JetBlue.