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American-JetBlue Tie-Up to Cost Consumers $700 Million, US Says

Sept. 27, 2022, 6:16 PM

A partnership between JetBlue Airways Corp. and American Airlines Group Inc. could cost passengers more than $700 million annually in higher fares, the US Justice Department said Tuesday in an antitrust trial challenging the carriers’ Northeast Alliance.

The alliance, which allows the companies to share routes, bookings and passengers in the US Northeast, ends the rivalry in Boston and New York between American, the country’s largest carrier, and JetBlue, allowing the two to act “like a single airline at the expense of travelers,” the government argued.

It is “a merger in all but name,” William Jones II, an attorney for the Justice Department, said during opening statements in Boston. The two airlines are “now collaborators instead of competitors,” he told US District Judge Leo Sorokin.

This trial is the latest in the Justice Department’s renewed trust-busting efforts and represents the first challenge the government has brought against an airline since 2013, when it sued to block the $17.2 billion merger of AMR Corp., then parent of American Airlines, and US Airways Group Inc. It also follows years of industry consolidation, which eliminated five of the 10 biggest airlines between 2005 and 2013.

Richard Schwed, a lawyer for JetBlue, said the alliance brought “immediate tangible benefits to consumers” including access to 50 new nonstop routes and increased capacity on 90 others.

This is “a highly pro-competitive partnership that already has delivered substantial benefits to consumers,” he said.

The Justice Department, along with attorneys general from six states and Washington, DC, sued September 2021 to challenge the agreement, which the airlines have been operating since early 2021. The government alleges the alliance has resulted in a “de-facto merger” at four airports in Boston, New York and Newark, New Jersey, allowing the pair to control as much as 96% of the market on some routes. Economic experts for the government estimate that airline passengers will pay $700 million annually in higher fares because of the alliance, Jones said.

The most harm will be in 29 nonstop markets between Boston and the New York area, which carry about 32 million passengers each year, he said.

The government alleges the Northeast Alliance allows American to expand its routes by essentially capturing those of smaller rival JetBlue. Jones said that JetBlue’s proposed deal to buy Spirit Airlines Inc. raises additional concerns and will allow American “to co-opt two disruptive competitors for the price of one.”

Schwed, the JetBlue attorney, said the alliance created “one relevant competitor out of two weak ones.” Before the partnership, United Airlines Holdings Inc. and Delta Air Lines Inc. had stronger positions in New York, with more destinations served nonstop, more international routes and greater frequency of flights to top destinations, he said.

The alliance lets the two airlines pool airport slots and gates, and offer reciprocal frequent-flier benefits and code-sharing, which allows them to book on each other’s flights. American and JetBlue don’t coordinate on pricing, fleet plans or overall capacity, Schwed said. He also rejected the DOJ’s contentions on the Spirit deal.

“The Spirit acquisition has absolutely nothing to do with this case,” he said.

American’s attorney Dan Wall said the Department of Transportation, the primary airline regulator, took a “wait-and-see approach” to the partnership, terminating its review of the alliance in January 2021 with some conditions. The Justice Department has no “tangible evidence” that the joint-venture is harming consumers, Wall said, adding that its lawyers have ignored what has happened during the 18 months the alliance has been in effect.

“This case has come to trial with no evidence of actual adverse effects,” Wall said.

Airline executives from JetBlue and Southwest Airlines Co. are scheduled to speak at the trial this week, with JetBlue chief executive officer Robin Hayes testifying Tuesday.

The case is US v American Airlines, 21-cv-11558, District of Massachusetts (Boston).

--With assistance from Mary Schlangenstein.

To contact the reporter on this story:
Leah Nylen in Washington at lnylen2@bloomberg.net

To contact the editors responsible for this story:
Sara Forden at sforden@bloomberg.net

Graham Starr, Rob Golum

© 2022 Bloomberg L.P. All rights reserved. Used with permission.