No take-off clearance: DOJ continues to shutdown American-JetBlue alliance in northeast | Mintz – Antitrust Perspectives
On Tuesday, September 21, 2021, the Antitrust Division of the United States Department of Justice (“DOJ”) and the Attorneys General of the States of Arizona, California, District of Columbia, Florida, Massachusetts, Pennsylvania and Virginia filed a lawsuit in the United States District Court for the District of Massachusetts seeking to block a series of agreements (“Northeast Alliance”) between American Airlines Group Inc. (“American”) and JetBlue Airways Corp. (“JetBlue”) to combine airline operations in Boston and New York. This complaint represents the most significant antitrust challenge to consolidation in the heavily concentrated domestic airline industry in nearly a decade. Acting Assistant Attorney General Richard A. Power, head of the Department of Justice’s antitrust division, said “the alliance will hurt travelers in the northeastern United States and across the country through tariffs. higher, reduced choice and lower quality service â.
Context of the parties
American is the world’s largest airline. According to the government complaint, American, along with Delta Airlines, United Airlines and Southwest Airlines, controls more than 80% of domestic air travel.
JetBlue is a low-cost airline founded in 1998. JetBlue offers consumers lower fares than American, Delta and United, serving as a disruptive âcounterweightâ to these airlines. The CEO of JetBlue noted that âJetBlue has always been an airline against the grain, a disruptor. According to the government complaint, JetBlue is “only disruptive” in that it is able to make a profit despite offering these lower fares due to its significantly lower cost structure. JetBlue’s internal estimates conclude that its lower fares have saved $ 3 billion for consumers traveling from Boston and $ 10 billion for all consumers since the airline’s inception.
North East Alliance
On July 15, 2020, American and JetBlue entered into the Northeast Alliance, regarding airline operations from Boston Logan, JFK, LaGuardia and Newark Liberty airports:
- American and JetBlue have agreed to pool their revenues and coordinate âon all aspectsâ of network planning at the four airports, including decisions about which routes to take, when to fly them, who will fly them and where to fly them. size of the aircraft to use.
- The airlines have agreed to pool and distribute the income earned on flights to and from the four airports so that each earns the same income whether a passenger flies in a US plane or JetBlue.
- The airlines would mutually market their flights to and from the four airports. The parties also agreed to pool their âslotsâ for take-off and landing clearances issued by the Federal Aviation Administration to JFK and LaGuardia.
The government’s complaint
The government complaint alleges that the Northeast Alliance violates Section 1 of the Sherman Act as an unreasonable restriction on trade, noting that the combination of agreements in fact constituted a merger between American and JetBlue with respect to domestic markets which have either Boston or JFK / LaGuardia as an endpoint. According to the complaint, the alliance will hurt competition by eliminating competition between American and JetBlue in the domestic markets to and from Boston and JFK / LaGuardia.
The government complaint also highlights the competition concerns presented by the production coordination and the revenue sharing restrictions of the agreements. Specifically, the complaint notes that this arrangement eliminates the incentive for either airline to compete on price, as this would simply reduce the revenue each earns under the flight sharing agreement. income. As a result, the government maintains that JetBlue would no longer be incentivized to offer its historically disruptive low prices to consumers.
The government complaint also noted that this arrangement could allow American and JetBlue to increase fares without even talking to each other about prices. For example, one might simply exit a market and then share the other’s increased profits; in addition, under the agreement, the parties could agree to reduce the number of seats they fly in a market and thereby increase prices.
Take away food
While the government complaint includes only one complaint for violation of Section 1 of the Sherman Act (which does not apply to mergers), the complaint contains an analysis generally reserved for merger challenges such as presumptions of illegality due to the concentration that the parties would have on the markets concerned. It will be worth keeping an eye on how the district court is handling these merger-based arguments in this non-merger case.
It is also interesting that the government’s complaint points out that the Northeast Alliance echoes the global alliances (oneworld, SkyTeam and Star Alliance) led by American, Delta and United. These global alliances involve extensive coordination and revenue sharing, and have not yet been challenged under antitrust laws.
When American and US Airways merged in 2014, the government negotiated an approval order requiring the merging parties to cede slots at a number of airports, including New York’s LaGuardia Airport and Boston Logan Airport. This opened the door for the expansion of JetBlue’s operations from New York and Boston, with the savings and price competition that occurred there. The Antitrust Division apparently sees these advantages fading away forever with the Northeast Alliance and is working to stop it.