American Airlines and JetBlue Airways must dismantle the carriers’ long-term partnership after a federal judge agreed with government regulators that the alliance would reduce competition and lead to fare hikes.
“Though the defendants claim their bigger-is-better collaboration will benefit the flying public, they produced minimal objectively credible proof to support that claim,” U.S. District Court Judge Leo Sorokin said in a ruling Friday.
“Whatever the benefits to American and JetBlue of becoming more powerful — in the northeast generally or in their shared rivalry with Delta — such benefits arise from a naked agreement not to compete with one another,” the judge wrote. “Such a pact is just the sort of ‘unreasonable restraint on trade’ the Sherman Act was designed to prevent.”
The ruling gave government antitrust enforcers a major win and struck a blow to the American-JetBlue alliance covering flights across the northeastern U.S. American CEO Robert Isom testified in October that the carrier was hindered in markets like New York and Boston because of the head start that Delta Air Lines and others had as blockbuster mergers shrunk the industry over the last two decades.
Sorkin concluded the partnership “substantially diminishes competition in the domestic market for air travel.”
Andrea Koos, spokesperson for American Airlines, said the carrier believes “the decision is wrong” and is considering next steps.
“The court’s legal analysis is plainly incorrect and unprecedented for a joint venture like the Northeast Alliance,” Koos said. “There was no evidence in the record of any consumer harm from the partnership, and there is no legal basis for inferring harm simply from the fact of collaboration. The Northeast Alliance has been a huge win for customers and anything but anticompetitive.”
JetBlue Airways spokesman Derek Dombrowski said the carrier is “studying the judgment in full” and evaluating next steps as part of the legal process.
“We are disappointed in the decision,” Dombrowski said. “We made it clear at trial that the Northeast Alliance has been a huge win for customers. Through the NEA, JetBlue has been able to significantly grow in constrained northeast airports, bringing the airline’s low fares and great service to more routes than would have been possible otherwise.”
The airlines can appeal the ruling.
The Justice Department lawsuit, which dates back to September 2021, called the alliance an “unprecedented and anticompetitive pact” because it gave the airlines too much control over the air travel market in Boston and New York. American and JetBlue are two of the four largest carriers operating in New York, and two of the largest three in Boston, Sorokin noted. Delta Air Lines is the only other carrier with a large presence in Boston.
In March, the Biden administration sued to block JetBlue’s $3.8 billion purchase of Spirit Airlines. The government argued the deal would hurt low-budget travelers who depend on Spirit for cheaper fares.
The White House has made the airline industry a key target in touting a pro-consumer agenda, opposing airline mergers and alliances and proposing new rules for compensating passengers in the event of delays and cancellations.
Airline analyst Helane Becker with TD Cowen said she expected a different outcome from the case.
“This was a bit of a surprise, as we believed with more than two years of data, the judge would rule in the airlines’ favor,” Becker said in a note to investors Friday afternoon. “The two largest airlines in the New York area, Delta Air Lines (largest in NY) and United Airlines (in Newark), stand to benefit as American and JetBlue unwind their alliance.”
The case has major implications for the future of the airline industry, not only in the relationship between JetBlue and Fort Worth-based American, but also for the pending merger between JetBlue and discount carrier Spirit Airlines, Becker said. Antitrust experts doubted the government’s ability to win the case after allowing major airline industry mergers such as the pairing of US Airways and American Airlines, Delta and Northwest and United and Continental.
With the ruling, American and JetBlue must dismantle their partnership within 30 days, a task that involves untangling hundreds of flights in the New York and Boston region.
American and JetBlue tried to convince the judge that their partnership combined the strengths of each airline, theoretically lowering costs and providing more choice. American, which is weak in New York and Boston, would have access to JetBlue’s strong position there, while JetBlue could put its customers in those markets on American Airlines flights that connect to more than 200 destinations in other parts of the U.S. and internationally.
The airlines said the alliance created 50 new routes of New York and Boston-area airports, increased frequencies on 130 routes and resulted in 17 new international routes.
Sorkin listened to a month of testimony in Boston from top executives at American and JetBlue along with other notable industry leaders. American witnesses, including chairman Doug Parker and chief commercial officer Vasu Raja, were both defensive and sometimes flippant about defending the partnership.
“There is no doubt that savvy executives representing both defendants earnestly believe the NEA promotes the interests of their respective shareholders and will strengthen American and JetBlue in their rivalry against Delta (and, to a lesser extent, United) in New York and Boston,” Sorkin wrote in the ruling. “It is similarly beyond dispute that the NEA involves substantial coordination by two powerful competitors in an industry that, on a domestic level, is closely regulated, highly concentrated, and often volatile.”
Testimony was sometimes embarrassing, such as when Raja recounted how American Airlines lost count of precious and valuable slots at JFK International Airport after the merger with US Airways in 2013.
Airline passenger advocates called it a win for consumers.
“Blocking this de-facto merger forces JetBlue and American to continue competing, eliminating anticompetitive revenue-sharing incentives and setting an important precedent against future consolidation in the industry,” said William J. McGee, senior fellow for aviation and travel at the American Economic Liberties Project, in a statement. “We hope to see a similar ruling in favor of the Justice Department’s suit against the JetBlue-Spirit merger, another illegal deal that would accelerate concentration and drive up fares nationwide.”
Bloomberg contributed to this story.
