JetBlue-American partnership struck down by federal judge

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

The decision is a major victory for the Justice Department, which under President Biden has sought to more aggressively enforce antitrust laws, particularly in industries like airlines and technology, where a few companies wield such dominance that it is difficult, if not impossible. Small businesses challenge them. The judge ruled that the airline’s partnership, known as the North East Alliance, must end.

Under the agreement, which begins in 2021, each airline sells seats offered to others on certain routes. Airlines share revenue through access to certain flights and airport gates. The alliance includes three major airports serving New York City and Boston Logan International Airport.

The Justice Department said the cooperation would reduce competition and cost travelers hundreds of millions of dollars a year if left in place. The airlines argued that the partnership gives customers more flying options.

In support of the government, Judge Leo D. of the U.S. District Court in Boston. Sorokin wrote, “It makes the two airlines partners, each with a substantial interest in the success of their joint and individual ventures, rather than serious, arms-length competitors. Challenging each other in a competitive marketplace.”

In statements, JetBlue and American said they were considering their legal options. JetBlue said it was “disappointed in the outcome” and called American’s ruling “clearly wrong.” The duo described the partnership as a “huge win” for customers.

For the Justice Department, “it’s a big win,” said Gene Kimmelman, a fellow and former Justice official at Harvard’s Kennedy School and Yale’s Tobin Center for Economic Policy. “This is a very important case to show that the agreement was structured as a merger to consolidate power at major hub airports by consolidating flight schedules and flight capacity.”

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A series of mergers over nearly two decades has greatly reduced the number of major airlines in the United States. In 2013, for example, American merged with US Airways. Earlier, United and Continental Airlines became one company, and Delta Air Lines merged with Northwest Airlines. This leaves travelers with fewer choices, especially at many hub airports where one or two airlines dominate.

Part of the Justice Department’s concern is that other airlines may enter into partnership agreements, further limiting choice for customers.

The ruling is a blow to JetBlue, which has been trying to expand rapidly in recent years. In addition to the tie-up with American, JetBlue also has 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 U.S. 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 against Northeast Alliance, the Justice Department argued that JetBlue was disruptive in the industry, forcing larger, more established airlines to lower prices. JetBlue’s deal with American effectively eliminated 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 under the agreement, according to flight schedules tracked by aviation data firm Sirium.

“Although the defendants claim that their larger-than-life cooperation will benefit the flying public, they have produced minimal objectively credible evidence to support that claim,” Judge Sorokin wrote. “As American and JetBlue become more powerful — generally in Northeast or whatever their shared competitive advantages with Delta — such advantages arise from a bare-bones agreement not to compete with each other.”

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The airline’s share prices fell roughly 1.5 percent on Friday, but there was little additional selling pressure in aftermarket trading following the afternoon legal ruling.

American and JetBlue have posted strong gains in market value this year, but still have a long way to go to recover from the pandemic’s devastating impact on air travel: American has lost half of its market value compared to the start of 2020. JetBlue’s stock has fallen more than 60 percent.

Antitrust regulators argued that JetBlue’s pursuit of Northeast Alliance was evidence that the airline was acting like a larger, more established carrier in a lawsuit to block JetBlue’s takeover of Spirit. The department said Spirit today is more disruptive to other airlines than JetBlue, which has “less reason to continue to aggressively compete” with the nation’s largest airlines. That case is expected to go to trial this year if it is not settled first.

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