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A federal judge on Jan. 16 sided with the Biden administration and blocked JetBlue Airways from buying Spirit Airlines, saying the $3.8 billion deal would reduce competition.

The Justice Department had sued to block the merger, saying it would drive up fares by eliminating Spirit, the nation鈥檚 biggest low-cost airline.

U.S. District Judge William Young, who presided over a non-jury trial last year, said Jan. 16 that the government had proven that the merger 鈥渨ould substantially lessen competition鈥� and violated a century-old antitrust law.

In his ruling, which ran more than 100 pages, the judge gave a nod to the Justice Department鈥檚 argument that Spirit is particularly important to travelers looking for an alternative to pricier airlines.

鈥淪pirit is a small airline. But there are those who love it,鈥� he wrote. 鈥淭o those dedicated customers of Spirit, this one鈥檚 for you.鈥�

Mr. Young said that a JetBlue-Spirit combination 鈥渨ould likely place stronger competitive pressure on the larger airlines in the country. At the same time, however, the consumers that rely on Spirit鈥檚 unique, low-price model would likely be harmed.鈥�

Shares of Spirit Airlines Inc. plunged 47% after the ruling, while JetBlue shares gained 5%.

JetBlue and Spirit said they disagreed with the ruling and were considering whether to appeal.

New York-based JetBlue had argued that it needs the deal to grow in one move and better compete against bigger rivals that dominate the U.S. air-travel market.

鈥淲e continue to believe that our combination is the best opportunity to increase much needed competition and choice by bringing low fares and great service to more customers in more markets,鈥� the airlines said in a statement.

The ruling was a victory for the Biden administration, which has moved aggressively to block consolidation in several industries.

鈥淐apitalism without competition isn鈥檛 capitalism 鈥� it鈥檚 exploitation,鈥� President Joe Biden said on X, formerly known as Twitter. 鈥淭oday鈥檚 ruling is a victory for consumers everywhere who want lower prices and more choices. My Administration will continue to fight to protect consumers and enforce our antitrust laws.鈥�

For JetBlue, the ruling was its second major setback in federal court in less than a year. Another judge in the same Boston courthouse killed a partnership in the Northeast between JetBlue and American Airlines.

JetBlue, the nation鈥檚 sixth-largest airline by revenue, now must come up with another growth plan. That will be an assignment for incoming CEO Joanna Geraghty. Next month she will replace Robin Hayes, who had engineered both of the deals that have now been blocked in court.

The recent ruling could open the door for Frontier Airlines to make another attempt to buy Spirit. The two budget airlines announced a cash-and-stock deal in 2022, only to have JetBlue make an all-cash offer and win a bidding war for Florida-based Spirit.

Spirit鈥檚 CEO and board initially opposed a sale to JetBlue, arguing presciently that regulators would try to block a deal that would eliminate a low-cost carrier from the U.S. landscape 鈥� JetBlue planned to repaint Spirit鈥檚 planes and remove some seats to match JetBlue鈥檚 roomier interior.

To overcome that resistance, JetBlue agreed to pay Spirit a reverse breakup fee of $70 million and pay Spirit shareholders $400 million if the deal failed because of government opposition.

Helane Becker, an airline analyst for the financial services firm Cowen, said Spirit will likely now search for a new buyer, but it鈥檚 more likely to file for Chapter 11 bankruptcy restructuring.

Both JetBlue and Spirit have struggled to recover from the pandemic while their bigger rivals have returned to healthy profitability. JetBlue has lost more than $2 billion since the start of 2020, and Spirit 鈥� weighed down by higher costs and weaker demand 鈥� has lost more than $1.6 billion in that time.

That generated some sympathy for a merger between them 鈥� and criticism of the judge鈥檚 ruling.

鈥淏locking a merger of smaller competitors trying to combine resources and scale up to compete with the top four airlines makes little sense,鈥� said Jessica Melugin, an antitrust expert at the Competitive Enterprise Institute, which opposes government intervention in the market. 鈥淚t risks making both Spirit and JetBlue less able to compete with the big guys and ultimately leaving the airline industry less competitive, harming consumers.鈥�

But the decision was praised by critics of mergers over the past 15 years that have eliminated Continental, Northwest, US Airways, AirTran, and Virgin America.

鈥淭his is an enormous victory for travelers, workers, and local communities, and another huge win for antitrust enforcers鈥� at the Justice Department, said William McGee, an air-travel expert at the American Economic Liberties Project.

The government鈥檚 victory could make it more likely that it will challenge Alaska Airlines鈥� proposal to buy Hawaiian Airlines for $1 billion and pick up about $900 million in Hawaiian鈥檚 debt.

鈥淭he days of relentless consolidation are over. We hope to see judges presiding over future airline mergers, like Alaska-Hawaiian, follow Judge Young鈥檚 lead,鈥� McGee said.

The government hasn鈥檛 said whether it will sue to stop Alaska from buying Hawaiian. The administration might have tipped its hand, however. 鈥淭he Justice Department will continue to vigorously enforce the nation鈥檚 antitrust laws to protect American consumers,鈥� Attorney General Merrick Garland said.

聽This story was reported by The Associated Press.