Antitrust Law Daily U.S. Justice Department, states sue to undo American/JetBlue alliance
Tuesday, September 21, 2021

U.S. Justice Department, states sue to undo American/JetBlue alliance

By Jeffrey May, J.D.

Trump administration’s Department of Transportation signed off on cooperation agreement at issue subject to commitments, but the deal remained subject to Antitrust Division scrutiny.

The U.S. Department of Justice, together with attorneys general in six states and the District of Columbia, filed a complaint today against American Airlines Inc. and JetBlue Airways Corporation over a series of agreements purportedly consolidating their operations in Boston and New York City, known as the “Northeast Alliance.” The cooperative agreements, which effectively received a pass from the Department of Transportation during the Trump Administration, were labeled “a de facto merger between American and JetBlue in Boston and New York City.” Richard A. Powers, Acting Assistant Attorney General in charge of the Antitrust Division, was among the Justice Department officials who announced the suit at a press conference. Attorneys general from Arizona, California, Florida, Massachusetts, Pennsylvania, Virginia, and the District of Columbia joined the lawsuit. The action was filed in the federal district court in Boston. The government seeks to enjoin the alliance (U.S. v. American Airlines Group Inc., Case No. 1:21-cv-11558).

The government contends that the “Northeast Alliance” will not only eliminate important competition at the four airports serving New York City and Boston but will also harm air travelers across the country by significantly diminishing JetBlue’s incentive to compete with American elsewhere, further consolidating an already highly concentrated industry. Moreover, the airlines have allegedly committed to coordinate “on all aspects” of network planning, including which routes to fly, when to fly them, who will fly them and what size planes to use for each flight. The government also asserts that the two airlines will share revenues earned at these airports, eliminating their incentives to compete with one another.

“Knowing full well that an outright merger would invite a challenge under Section 7 of the Clayton Act, American instead seeks to align JetBlue’s economic incentives with its own through a far-reaching partnership based on the same kinds of alliances that American has used to consolidate international air travel,” the complaint alleges. “In so doing, American and JetBlue have violated Section 1 of the Sherman Act,” it was asserts.

Transportation Department review; carrier implementation. Although the arrangement received an okay from the Department of Transportation in January 2021, subject to commitments, the Justice Department has the authority to review the impact on competition. At the press conference, a Justice Department official noted that the Antitrust Division coordinated with the Department of Transportation in its review of the agreements. Despite the Transportation Department’s review, the official noted that the alliance remains fully subject to the antitrust laws. It was suggested that the airlines’ commitments to the Transportation Department did not go far enough and did not address a broader harm from the arrangement outside of Boston and New York.

In July 2020, American and JetBlue submitted their cooperative agreements, including code-sharing and alliance agreements, to the Department of Transportation for review under 49 U.S.C. 41720. In January 2021, the companies entered into an agreement with the agency in which they made several commitments. Soon thereafter, the carriers publicly announced that they were moving ahead with their strategic alliance.

Under the arrangement, American and JetBlue schedules were to be coordinated in New York and Boston to give customers access to more domestic and international destinations. Also, the airlines noted that their codeshare arrangement would introduce JetBlue customers to more than 60 new routes operated by American and would introduce American’s customers to more than 130 new routes operated by JetBlue. Passengers also would be provided reciprocal benefits in the carriers' frequent flyer programs.

The airlines noted that the approval was conditioned on a ”series of commitments to ensure the alliance delivers consumers benefits without harming competition.” Among the commitments were slot divestitures at John F. Kennedy Airport in New York City and at Washington, D.C.’s Reagan National Airport and antitrust compliance measures. The carriers also said that they would refrain from certain kinds of coordination in city pair markets where they are substantial competitors to each other and there is little service from other airlines.

Their press release included a quote from Senator Chuck Schumer (D., N.Y.), saying: “I am glad to see JetBlue and American Airlines collaborating on innovative solutions to save thousands more jobs in a way that also expands New Yorkers’ travel options.”

Earlier concerns over Transportation Department approval. Shortly after the Transportation Department’s decision not to block the American/JetBlue cooperative agreements, Spirit Airlines filed a complaint with the agency seeking an investigation pursuant to 49 U.S.C. 41712, to determine if the agreements between American and JetBlue would constitute unfair methods of competition and should be prohibited.

Spirit Airlines has since voiced concerns over the implementation of the arrangement. In a May 12 filing, Spirit argued to the Department of Transportation that American, “encouraged by the previous administration’s unjustified sign off on the NEA” along with Alaska Airlines and JetBlue “now seems emboldened to further erode competition in an already highly-consolidated air travel industry.”

In addition to Spirit, interest groups also called for a review. The American Antitrust Institute objected to the fact that the public was not afforded any opportunity to comment, which the think tank said was “pushed through with only 10 days remaining in the Trump administration.” Travelers advocacy group Travelers United also asked the Transportation Department for a "new, transparent, on-the-record review" of the proposed arrangement.

Airlines’ response to suit. Both American and JetBlue appear ready to defend their arrangement. Calling the suit “misguided,” American Airlines Chairman and CEO Doug Parker said that his company “look[s] forward to vigorously rebutting the DOJ’s claims and proving the many benefits the Northeast Alliance brings to consumers.”

In a separate statement, JetBlue CEO Robin Hayes said that the company was “ready to make a strong case on why more low-fare JetBlue growth is good for Customers. We fully expect the court to find that nothing about the [Northeast Alliance] changes our business model or our role as a force for good in the industry.”

Attorneys: William H. Jones II, U.S. Department of Justice. Joanne W. Young and David M. Kirstein (Kirstein & Young, PLLC) for Spirit Airlines, Inc.

Companies: American Airlines Group Inc.; JetBlue Airways Corp.; Spirit Airlines, Inc.

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