Consolidation will be one of the biggest themes for the US travel industry in 2024. The Justice Department’s (DOJ) successful blocking of JetBlue’s proposed acquisition of Spirit on 16 January is only one of three major decisions related to M&A activity expected in the US travel industry this year. In addition to the blocked acquisition of Spirit, Choice Hotels and Alaska Airlines have launched bids to acquire Wyndham and Hawaiian, respectively.
The DOJ’s main concern in JetBlue’s case was the potential impact on airfares from losing the market’s largest low-cost airline. The fate of Choice and Alaska’s acquisitions will also hinge on their potential price impacts, which could have ramifications across the entire US travel industry.
Dominance of largest travel companies places pressure on smaller players
The US travel industry is highly consolidated compared to other markets. American, Delta, United, and Southwest control 65% of US passenger revenue for airlines, including domestic and international flights.
Driven by the US, North America is the only global region where the top five lodging companies have a combined market share greater than 30%
Source: Euromonitor International
North America is also the only region where the top five companies’ market share exceeds that of all other players combined.
This consolidation creates significant challenges for smaller players. Larger companies will have greater resources to drive marketing efforts, negotiate new deals and, for hotels, attract new franchisees. Smaller companies merging together is a common strategy to counteract larger players’ market dominance.
Impact of mergers and acquisitions on travel prices
This period is reflective of the mergers that created the big three US airlines between 2008 and 2015. At the time, six of the country’s largest airlines merged to create the current “big three” of American, Delta, and United. The elimination of competition on previously shared routes was one of the most significant impacts of these mergers. Losing competition allows airlines to reduce service levels, resulting in higher prices. Last autumn, the DOJ argued that JetBlue predicted its fares would rise by 30% if Spirit acquired it. That argument was critical in convincing the court to block the acquisition.
Marriott’s acquisition of Starwood in 2016 and the growth of Airbnb have also consolidated market share among the US’s largest lodging companies. The lodging market’s consolidation has coincided with steady growth of average sales per hotel room and short-term rental listings.
DOJ scrutinises travel deals
Blocking JetBlue’s acquisition of Spirit is not the first time the DOJ has intervened in the travel industry under the Biden administration. In May 2023, the DOJ also blocked JetBlue’s northeast alliance with American Airlines. Together, these actions demonstrate a shift towards forceful action against anticompetitive behaviour in the travel industry.
Even without consolidation, US travel prices had already increased before the pandemic.
In 2023, the average price of a domestic trip in the US was 10% higher than in 2019
Source: Euromonitor International
This backdrop of rising prices is a major factor behind why the DOJ is taking such strong actions in the travel industry.
The fate of Choice’s acquisition of Wyndham and Alaska’s acquisition of Hawaiian will hinge on whether each deal has benefits that outweigh the loss of competition. Industry executives have been careful to stress the benefits of consolidation. Alaska, for example, has highlighted that acquiring Hawaiian would bring it into the Oneworld Alliance, offering passengers greater connectivity with partner airlines.
Choice has claimed that acquiring Wyndham would reduce costs for franchisees. Acquiring Wyndham, however, would create a highly consolidated budget hotel sector. The budget sector plays an important role in moderating prices for the industry. Reducing competition in budget hotels could create a ripple effect on prices across US lodging. This potential could lead the DOJ to pursue similar actions as it did against JetBlue.
The government’s interest in pursuing these actions could shift if a new administration is elected in November 2024. Republican administrations tend to be less assertive in blocking M&A activity. Even if the DOJ attempts to block this activity this year, they could move forward in 2025 under a new administration.
Consolidation risks uneasy recovery
The possibility of price increases could block multiple travel M&A deals in 2024. This threat of higher prices comes at a fragile time for the US travel industry. Demand has recovered to pre-pandemic levels, but American consumers’ confidence is low. The consumer confidence index hit 64.9 in the fourth quarter of 2023, down from 97.2 in the same quarter of 2019. Moves that raise prices further could reduce overall travel demand in the US. If prices do increase, travel businesses must demonstrate how they are delivering greater value to avoid a drop in demand.
Learn more about the US travel industry in our report, Travel in the US.