American-JetBlue Alliance Violates Antitrust Laws, U.S. Says

(Bloomberg) -- U.S. antitrust enforcers sued American Airlines Group Inc. and JetBlue Airways Corp. to unwind their agreement to coordinate flights in the U.S. Northeast, saying the pact violates antitrust laws by eliminating competition between them.

The Justice Department and a group of state attorneys general filed the lawsuit in federal court in Boston, saying the so-called Northeast Alliance is a de-facto merger of the airlines’ operations in New York and Boston.

“The alliance will harm travelers in the northeast U.S. and nationwide through higher fares, reduced choice and lower-quality service,” Richard Powers, the acting head of the Justice Department’s antitrust division, said. “The department cannot allow American Airlines to further consolidate in American industry, where competition is already in critically short supply.”

Questions about the alliance have increased since President Joe Biden’s July executive order sought to increase competition broadly. It called out the airline industry, among others, and said the Transportation and Justice departments must consult on how consolidation has affected passengers, as well as review the award of flying rights at congested airports. 

American Chief Executive Officer Doug Parker said the airline is prepared to fight the government’s lawsuit.

“They’re wrong, and we’ll prove it,” Parker said Tuesday in an online interview with the Washington Post. “It’s disappointing. We feel really good about what we’re doing for consumers. We’ll defend it and I feel quite certain we will prevail.”

JetBlue Chief Executive Officer Robin Hayes told employees in a message that companies intend to continue to implement their agreement. “Our biggest obstacle to bringing more low fares and great service to the Northeast right now is the DOJ -- the very government agency that should be making every effort to foster robust competition among airlines,” Hayes said in the message.

Spirit Airlines Inc. and Southwest Airlines Co. had filed complaints calling for renewed scrutiny of the JetBlue-American deal, saying the agreement was approved without a full public review and would block competitive growth at all three major New York-area airports.

The venture includes a code-sharing agreement that enables the carriers to book travelers on each other’s flights and offer reciprocal loyalty-program benefits. Passengers can use either airline’s website to buy a single itinerary that includes flights on both airlines. The alliance focuses on the Boston-New York corridor.

JetBlue shares dropped 4.8% in New York trading while American fell 2.8%.

‘More Choices’

The pact was approved by the Transportation Department in the final two weeks of the Trump administration, and American and JetBlue already have put key portions of the venture in place, including adding or announcing 58 new routes from airports covered by the alliance. 

The two carriers say that by working together, they can compete more effectively against United Airlines Holdings Inc. and Delta Air Lines Inc. The alliance is “already providing more choices and better service for customers,” American said by email. “It’s also provoking a competitive response from other carriers in the region by compelling them to step up their own products and services.” 

To get Transportation Department approval of the alliance, the airlines agreed to sell a combined seven slot pairs at New York’s John F. Kennedy International Airport and lease out a combined six slot pairs to competitors at Ronald Reagan Washington National Airport. Slots are used to control flights at congested airports, and each slot allows for one takeoff or landing. Small carriers historically have struggled to gain access to slots at some of the largest airports. 

Some Prohibitions

“We would not be shocked if DOJ asks for additional slot divestitures, but we ultimately expect American and JetBlue to fight back,” Conor Cunningham, an MKM Partners analyst, said in a report. Cunningham said the alliance has fostered growth in the Northeast market and that blocking the partnership “would ultimately prove anti-competitive.”

JetBlue and American are prohibited from discussing certain topics, including fares or revenue management strategy in any context, and outside of the alliance’s purposes, they can’t discuss route, schedule and capacity decisions. 

“We have heard similar claims of benefits in prior mergers and they have not materialized, leading consumers to pay more for less,” said Powers from the Justice Department. “Consumers will be better off if American Airlines and JetBlue continue being competitors, not allies.”

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