American Airlines, JetBlue lose DOJ antitrust challenge against partnership
The ruling could boost the DOJ’s chances in its upcoming trial against JetBlue’s acquisition of Spirit Airlines.
American Airlines and JetBlue must unwind a partnership that lets them cooperate on flights throughout the Northeastern U.S. after a federal judge in Boston ruled in favor of the Justice Department, which argued that the pairing would lower competition and raise fares.
It’s a much-needed win for federal antitrust prosecutors, who have lost three out of five merger trials under the leadership of Assistant Attorney General Jonathan Kanter, who has helped spearhead the Biden administration’s aggressive stance against anticompetitive mergers and other business practices.
While the partnership was not technically a merger, at a trial last fall, the DOJ argued it was a merger in all but name. Prosecutors said the partnership would give the two airlines too much control over flights out of Boston and New York City and ultimately raise prices for consumers.
The DOJ “convincingly established that this arrangement immediately and substantially upsets the competitive balance in a highly concentrated industry, not only on a single overlap route or a handful of [origins and destinations], but throughout the northeast and beyond,” U.S. District Judge Leo Sorokin wrote in a 94-page ruling on Friday afternoon. “The defendants have offered minimal evidence of any cognizable procompetitive effects arising from” the partnership.
In statements, American and JetBlue said they are evaluating their options. JetBlue said that it was “disappointed” and that through the partnership it “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.”
American called the judgment “plainly incorrect and unprecedented for a joint venture like the Northeast Alliance. 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.”
“Today’s decision is a win for Americans who rely on competition between airlines to travel affordably,” Attorney General Merrick Garland said in a statement. “The Justice Department will continue to protect competition and enforce our antitrust laws in the heavily consolidated airline industry and across every industry.”
The airlines have 30 days to unwind the partnership and can appeal the ruling.
The ruling could also boost the department’s chances in a trial set for October challenging the pending merger between JetBlue and ultra-low-cost airline Spirit. That case is also being heard in Boston federal court, though by a different judge.
David Gringer, an antitrust attorney at WilmerHale who while at the DOJ worked on its 2013 challenge to the American-US Airways tie-up, said Friday’s ruling creates a “very substantial tailwind for DOJ.”
“To the extent the defendants there are inclined to argue that the merger will help them compete with others or that they are tiny compared to the legacy airlines, or that the merger will help them grow their network, those arguments appear squarely foreclosed,” he said.
The DOJ is also considering whether to challenge the proposed merger of Korean Air and Asiana Airlines, POLITICO reported on Thursday.
In his opinion, Sorokin wrote that the benefits that accrue to American and JetBlue as part of the partnership “arise from a naked agreement not to compete with one another,” which he said is just the sort of “‘unreasonable restraint’” that longstanding U.S. antitrust law is designed to prevent.
Known as the Northeast Alliance, American and JetBlue inked their partnership in 2020 as a means to better compete with United and Delta in the region. Under the agreement, they began sharing revenue and interline booking — where each airline can book connecting flights on the others’ airlines — originating from Boston and New York City airports.
“In both locations, the defendants vigorously competed on everything from fares to the features they offered customers,” Sorokin wrote. “The NEA changes all of that. It makes the two airlines partners, each having a substantial interest in the success of their joint and individual efforts, instead of vigorous, arms-length rivals regularly challenging each other in the marketplace of competition.”
Sorokin said multiple times that “common sense” favors the Justice Department.