JetBlue-American Case Shows Courts’ Wariness of Airline Deals

A federal judge’s ruling in favor of passengers alleging a former deal between JetBlue and American Airlines led to higher airfares indicates that courts’ scrutiny of airline agreements is reaching beyond formal mergers.

Judge Ann M. Donnelly of the US District Court for the Eastern District of New York denied the airlines’ motion to dismiss in a Sept. 6 opinion, adding to increasing pushback on deals that lead to airline concentration. Her ruling also highlights issues that arise when considering whether a joint venture has violated antitrust law and could be a disguise for collusion.

In her opinion, Donnelly said it was appropriate to apply the “per se” standard approach that presumes anticompetitive effects, disagreeing with the airlines’ contention that the robust “rule of reason” framework should be applied when evaluating joint ventures like the Northeast Alliance.

The ruling comes three years after the Justice Department and a group of state attorneys general sued the airlines in federal court, saying the Northeast Alliance was a de facto merger of the airlines’ operations in New York and Boston. Judge Leo T. Sorokin of the US District Court for the District of Massachusetts ruled in 2023 that the alliance violated antitrust law and ordered JetBlue and American to terminate the agreement.

American said in a statement the company was disappointed in Donnelly’s ruling allowing the proposed class action to proceed.

“We continue to strongly disagree with the negative characterizations of the Northeast Alliance,” American said. “As we have made clear in our prior filings, there has never been a finding that the NEA resulted in higher fares.”

JetBlue didn’t immediately respond to inquiries.

The agreement, touted as providing customers with better schedules and more competitive airfares, allowed the airlines to determine the frequency of flights on specific routes and which aircraft would be used. American and JetBlue shared the revenues each generated within the alliance.

Sorokin said in his 2023 opinion that the alliance made the two airlines partners, “each having a substantial interest in the success of their joint and individual efforts, instead of vigorous, arms-length rivals regularly challenging each other in the marketplace of competition.”

Evaluating JVs

Courts have long grappled with how to evaluate anticompetitive harm of joint ventures, which can be viewed as promoting competition, said Christine Bartholomew, professor at University at Buffalo School of Law. JVs can sidestep antitrust obstacles if participants create efficiency, lower prices and don’t foreclose competition.

“Of course it’s legal to have a joint venture within certain parameters; if you exceed those parameters, you’re inviting an antitrust suit,” Bartholomew said. “It’s just a reminder that joint ventures aren’t automatically outside of the purview of antitrust laws. You can’t just label collusion as joint venture and say you’re fine.”

In her opinion, Donnelly said the Supreme Court made clear that the “ancillary restraints” doctrine—which governs the validity of restrictions imposed by a business collaboration—doesn’t apply when the business practice being challenged involves the core activity of the joint venture itself.

“That is certainly the case here, as the challenged restrictions govern the NEA’s core activity of selling flights for northeastern routes,” she said.

Donnelly essentially saw the agreement as a price-fixing case, giving the plaintiffs leverage to pursue their claims, said George A. Hay, professor of law and economics at Cornell Law School who served as director of economics at the Justice Department’s Antitrust Division.

Unlike consumer cases that seek to stop mergers like the one between JetBlue and Spirit Airlines Inc. from moving forward, “there are potentially damages because this joint venture has been going on for some period time,” Hay said.

“People have potentially already overpaid because of the anticompetitive effects of this joint venture,” Hay said.

The plaintiffs are represented by firms including Israel David LLC and DiCello Levitt LLP. JetBlue is represented by Allen Overy Shearman Sterling US LLP. American Airlines is represented by Latham & Watkins LLP.

The case is Berger v. JetBlue Airways Corp., E.D.N.Y., No. 1:22-cv-07374, 9/6/24.