The Breakup of the American-JetBlue Alliance: A Victory for Consumers or a Misstep for the Airlines?
The alliance would add nearly $700 million in extra annual costs for consumers
The ruling's impact also extends beyond the American-JetBlue alliance. The decision may have implications for the proposed JetBlue-Spirit Airlines merger, a $3.8 billion deal that the Justice Department is also seeking to block.
According to Reuters, On May 19, 2023, a federal judge ruled that American Airlines Group must end its alliance with JetBlue Airways Corp. The U.S. Justice Department had argued that the alliance, known as the "Northeast Alliance," resulted in higher consumer prices. The ruling gives the airlines 30 days to dissolve their partnership.
The alliance between American Airlines, the largest U.S. airline by fleet size, and JetBlue, the sixth largest, was first announced in 2020. The deal was dubbed the "Northeast Alliance" due to its focus on coordinating operations in Boston and New York. The airlines used the alliance to coordinate flights and pool revenue to strengthen their competitive position in the northeast.
However, the Justice Department, along with six states and the District of Columbia, sued in 2021 to undo the deal. They argued that the alliance was essentially a "de facto merger" of the two airlines' Boston and New York operations, removing incentives for them to compete independently.
The Ruling and Its Implications
U.S. District Judge Leo Sorokin sided with the Justice Department, stating that the partnership "substantially diminishes competition in the domestic market for air travel." Sorokin further explained that these two carriers, acting as one entity in the northeast, were dividing markets amongst themselves, replacing vibrant competition with broad cooperation.
Shares of both airlines fell after the ruling, with JetBlue down 1.8% and American dropping 1.5%. Both airlines voiced disappointment with the decision, stating they were evaluating their next steps. American Airlines argued that the court's legal analysis was incorrect and unprecedented for a joint venture. JetBlue echoed these sentiments, expressing disappointment and maintaining that the alliance had extended its low fares to more routes than would have been possible otherwise.
U.S. Attorney General Merrick Garland welcomed the judge's decision as a victory for Americans who depend on competition between airlines to travel affordably. He reaffirmed the Justice Department's commitment to enforcing U.S. antitrust laws across various industries, including the airline industry.
The Alliance's Impact on Consumers and the Market
The Justice Department argued in the lawsuit that the alliance would add nearly $700 million in extra annual costs for consumers and would give the airlines more than 80% of the market share in flights from Boston to Washington and six other airports, including JFK, LaGuardia, and Newark in the New York area.
Lawyers for American and JetBlue countered that the alliance had not resulted in higher airfares or fewer flights but had instead expanded flights, making the airlines more competitive with Delta Air Lines and United Airlines on U.S. northeast routes.
The ruling's impact also extends beyond the American-JetBlue alliance. The decision may have implications for the proposed JetBlue-Spirit Airlines merger, a $3.8 billion deal that the Justice Department is also seeking to block.
The dissolution of the American-JetBlue alliance represents a significant shift in the aviation industry, highlighting the Biden administration's hard line on consolidation and tie-ups in the sector. Whether this will ultimately result in more competition and lower prices for consumers, as the Justice Department contends, remains to be seen. As the industry continues to navigate these regulatory challenges, the effects on airline partnerships, mergers, and ultimately, the consumer experience will be closely watched.
