May 21, 2024

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JetBlue-American Partnership Struck Down by Federal Judge

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A federal judge halted a partnership between American Airlines and JetBlue Airways at airports in New York and Boston, writing in a ruling on Friday that the alliance would hurt competition and raise fares.

The decision is a big victory for the Justice Department, which under President Biden has sought to enforce antitrust laws more aggressively, especially in industries like airlines and technology, where a few companies wield such dominance that it can be hard, if not impossible, for smaller businesses to challenge them. The judge ruled that the airlines’ partnership, known as the Northeast Alliance, must end.

Under the agreement, begun in 2021, each airline sells seats offered by the other on certain routes. The airlines also share revenue from certain flights and access to airport gates. The alliance covers the three major airports serving New York City and Boston Logan International Airport.

The Justice Department had said the collaboration reduced competition and would cost travelers hundreds of millions of dollars a year if it remained in place. The airlines had argued that the partnership provides consumers with more flying options.

Siding with the government, Judge Leo T. Sorokin of U.S. District Court in Boston wrote, “It makes the two airlines partners, each having a substantial interest in the success of their joint and individual efforts, instead of vigorous, arm’s-length rivals regularly challenging each other in the marketplace of competition.”

In statements, JetBlue and American said they were considering their legal options. JetBlue said it was “disappointed in the decision,” and American called the ruling “plainly incorrect.” Both described the partnership as a “huge win” for customers.

For the Justice Department, “it’s a big win,” said Gene Kimmelman, a fellow at the Harvard Kennedy School and Yale’s Tobin Center for Economic Policy and a former Justice Department official. “It was a very important case for the department to show that the agreement was constructed like a merger that concentrates power at key hub airports by coordinating flight schedules and airline capacity.”

A series of mergers over roughly two decades has greatly reduced the number of large airlines in the United States. In 2013, for example, American combined with US Airways. Earlier, United and Continental Airlines became one company, and Delta Air Lines joined up with Northwest Airlines. That has left travelers with fewer choices, especially at many hub airports, which tend to be dominated by one or two airlines.

Part of the Justice Department’s concern was that other airlines could establish partnership agreements, too, limiting choice for customers even further.

The ruling is a blow to JetBlue, which been trying to expand rapidly in recent years. In addition to the alliance with American, JetBlue has entered a deal to buy Spirit Airlines. The Justice Department is asking a judge to block that acquisition as well.

JetBlue is the sixth-largest airline in the United States, with a 5.5 percent share of the domestic market, according to federal data. American is the largest, with 17.6 percent.

In the lawsuit over the Northeast Alliance, the Justice Department argued that JetBlue had been a disruptive presence in the industry, forcing larger, more established airlines to lower prices. JetBlue’s deal with American effectively removed a formidable competitor from several important markets, the department argued.

More than 75 percent of all JetBlue flights last year flew to or from the four airports covered by the agreement, according to flight schedules tracked by Cirium, an aviation data firm.

“Though the defendants claim their bigger-is-better collaboration will benefit the flying public, they produced minimal objectively credible proof to support that claim,” Judge Sorokin wrote. “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 airlines’ share prices fell roughly 1.5 percent on Friday, but there appeared to be little additional selling pressure in aftermarket trading following the afternoon legal ruling.

American and JetBlue have recorded strong gains in market value this year, but both still have a long way to go before they recover from the pandemic’s devastating impact on airline travel: American has lost about half its market value compared with the start of 2020, while JetBlue’s stock has fallen more than 60 percent since then.

In the lawsuit seeking to prevent JetBlue’s takeover of Spirit, antitrust regulators have argued that JetBlue’s pursuit of the Northeast Alliance is evidence that the airline is increasingly acting like a larger, more established carrier. Spirit is even more disruptive to other airlines today than JetBlue, which “has fewer reasons to continue to compete aggressively” with the nation’s largest airlines, the department said. That case is expected to go to trial this year unless it is settled first.

Joe Rennison and Niraj Chokshi

2023-05-19 21:55:23

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