In late May a federal district court judge ruled for the government, that the American Airlines-JetBlue partnership violated anti-trust law.
- This, despite the partnership having been approved by the federal government (while the previous administration was in office). The agreement for approval required the airlines to fly more seats (add supply, which tends to lower price) and the judge struck this down.
- And despite the alliance creating a viable third competitor to Delta and United in the New York market – the judge effectively found that coordinating who flies where is per se illegal regardless of its overall effect, and the specific facts and circumstances of consumer benefit.
At the time I wrote that it wasn’t the federal judge’s decision that would kill the partnership, as much as whether or not JetBlue chose to appeal. I suspected JetBlue might walk away.
- American’s response to the ruling was far more aggressive. CEO Robert Isom said they’d appeal.
- However JetBlue was always more muted. They talked about studying their options.
JetBlue’s prize remains its acquisition of Spirit Airlines, which they’re still pursuing against government objections. If JetBlue were to walk away from the merger they’d owe American a breakup fee. This ruling takes them off the hook for that.
So not entirely unexpectedly JetBlue says they will not appeal, leaving the partnership dead.
“Despite our deep conviction in the procompetitive benefits of the NEA, after much consideration, JetBlue has made the difficult decision not to appeal the court’s determination that the NEA cannot continue as currently crafted,” JetBlue said in a statement.
It said it has started terminating the agreement, “a wind down process that will take place over the coming months.”
JetBlue said it will “now turn even more focus to our proposed combination with Spirit.”
It’s not yet clear whether JetBlue received any consideration from the federal government in terms of its openness to a deal over the Spirit acquisition in exchange for this decision.
And we don’t know yet whether a partnership of some kind with American is still in the offing.
- The judge outlined an arrangement similar to American’s with Alaska Airlines as potentially pro-competitive.
- A frequent flyer partnership remains possible. A final ruling by the judge on whether any combination might be permissible, and what sort of review the federal government would have, should come later this month.
When American and JetBlue began talking, American was looking at just leasing a substantial number of New York slots to JetBlue. American had new real plan for the New York market. A competitor would be eliminated in any case, since they were too small to compete effectively in their view after trying a number of strategies over the last decade. That would reduce American to flying mostly transatlantic to partner hubs and to premium West Coast markets. It’s not clear that American has a Plan B for New York without a JetBlue partnership.
Since the partnership’s launch, though, American does seem to have learned that having an active competitive presence in New York means acquiring more co-brand credit card customers and earning wallet share for that city’s substantial spending. Without a partnership their co-brand partners and revenue may take a hit.
Update: this soap opera gets even better, as American Airlines says they will appeal even though JetBlue won’t. Since, in JetBlue’s words, they have “initiated the termination of the NEA, beginning a wind down process that will take place over the coming months” (and I take their words both seriously and literally, that they initiated that process) I wonder what that might look like, other than forcing JetBlue to pay a breakup fee if the appeal is successful? Or filing an appeal effectively postures to get a settlement from JetBlue.
Why would B6 owe AA a breakup fee if they abandon the NK deal? You mean NK I think.
The NEA should remain and Spirit should merge with Frontier. Those outcomes would benefit consumers more but of course that’s not what’s going to happen. Shame.
Now let’s focus on how American Airlines can more effectively compete with Delta, United, and eventually JetBlue in New York, Boston and other markets using its current assets (planes, slots, employees, etc) given what just happened.
Gary, have you heard if AA gets back the slots it is letting B6 use at LGA? If so, would AA restart the BOS-LGA shuttle in some form?
AA is wasting their time with an appeal.
United Airlines has shown it can’t run a clean, reliable Newark operation, despite controlling well over 60% of the Newark market, and is talking out of both sides of its mouth, promising to cut flights but also obtain more gates to try and resolve the mess that EWR has always been. Meanwhile, across town, Delta recovered faster, and had far fewer disruptions to its operations at JFK and LGA, and AA did pretty much OK throughout.
The B6/NK merger is a study in corporate greed and incompetence. The Justice Department should block it. The original F9/NK merger made a lot more sense from both a passenger consideration and market share dynamics. The AA/B6 partnership was poorly constructed and could have been implemented without swapping slots and simply done as a code share, similar to what AA has with AS. In the long term, JetBlue will be acquired, or merged, but it won’t be NK. It will very likely be American down the road and that would solve AA’s NYC problem once and for all.
The NEA should not have been instructed to be unwound, but reworked into a code share.
The competitive dynamics in NYC are out of whack due to questionable past slot swaps, lack of adequate investment in overall infrastructure, and zero vision for the future beyond building expensive new terminals (needed) without the equivalent funding to fix the system.
@RF – indeed, JetBlue acquiring Spirit will take a bunch of capacity out of the ultra low cost business model. That likely means higher prices.
Despite the full-throated belief that the NEA was legally acceptable, including on this site, some of us knew all along that it made no sense for B6 to waste time pursuing the NEA but rather focus on the B6-NK merger.
Looking at AA without B6, if I was AA I would approach the business this way:
1. Boston – AA is nearly as large as DL, they should look to resume the routes forfeited to B6 and look at additional transcon service to solidify them as #2 (or a tie for #2 with DL)
2. LGA – similar to BOS, resume routes to all routes they forfeited to B6 (like BOS and ATL) and look at additional business destinations in the south and midwest as well as new Florida and Caribbean seasonal destinations.
3. JFK – I would look to add frequency to hubs and major business destinations, look at new European, Caribbean and Central / South American opportunities when the new XLR and 787-9 come into the fleet. B6 and DL can be #1 and #2 at JFK so long as AA is a closer #3 (similar to BOS).
If they do continue to code share / FF share without coordination, then I would only do so on the AA international destinations that B6 doesn’t fly too (like Rome).
UA is a mess and SW is too small in NYC and B6 too east coast limited to it give AA an opportunity to return to growth and challenge a DL that isn’t the DL of 10 years ago or even 5 years ago, they are much closer in service.
@Tom “Why would B6 owe AA a breakup fee if they abandon the NK deal? You mean NK I think.”
One of at least two typos in the post. VFTW…where editing goes to die.
B6 would owe AA a breakup fee for abandoning the Northeast Alliance
viking,
problem w/ your “game plan” is that AA has done all of that before and it hasn’t worked before. AA has lost market share in key markets and there are very few examples of regaining that share. Add in that succeeding in NYC requires directed marketing efforts and incentives and that is the opposite of where AA is going w/ its distribution strategy. Finally, there are no examples of a 3rd or 4th place carrier in a market succeeding with a niche strategy. AA doesn’t even do well as #2 in Chicago.
This date is the inevitable result of a 20 year decline for AA in NYC. They hitched their hopes to a strategy that they knew had legal risk and they now have no choice but to move on and focus on what works.
given that UA’s massive growth strategy is not going to happen as they think it will, AA has some breathing room to regroup.
Gary,
the chances are very low of B6 paying a breakup fee to AA given the two government rulings against the NEA
viking,
DL is 1.8 times the size of AA at Boston. DL is much closer to B6′ number of flights and, since DL has longhaul widebody flights, DL pushes more revenue through BOS than any other airline.
The real news is B6′ notice to employees that they are now overstaffed in some NEA cities – undoubtedly including LGA.
AA now has to figure out what it will do w/ the LGA and JFK slots it wasn’t able to use before and tried to get B6 to use. There is little incentive for anyone to pay AA for those slots in any form since the chances are high they will be returned to the FAA and other carriers will be able to use them.
@Tim Dunn – There is almost zero chance that AA LGA and JFK slots will simply be returned. And even if that happened not all carriers are on equal footing to receive them free from FAA so there would still be a market for slots. The large block of slots makes them harder to dump onto the market of course. AA squatted slots before precisely to avoid giving them up. That is a little harder with a pilot shortage for regional jets but it is not impossible.
Since JetBlue is the one American carrier I fly on these days, I don’t want it absorbed by a larger airline. I support it’s pursuit of Spirit. I have found Delta to be an expensive and inconvenient substitute for Northwest for flights to Asia so I don’t want that again.
Gary,
I guess that means you are betting that AA will be able to hold onto its LGA and JFK slots.
I disagree.
Your track record on how things w/ AA turn out is shockingly low – so we’ll watch this one as well.
This is TERRIBLE for AA elites who are fond of JetBlue’s MINT product on domestic itineraries.
JetBlue’s luggage delivery is much more timely than AA’s.
Hopefully their partnership can be salvaged.
As an NYC metro area resident, and Delta flyer (though also a flyer of American and JetBlue out of the area), I would much rather American hold onto the slots and actually make and effort to remain competitive in the area rather than to have them cede the slots to Frontier, Southwest (who has abandoned the NYC market again and again), Breeze/Avelo/etc.
Does this mean the AA-AS partnership will be forcefully cancelled as well?
Tim Dunn wrote: “This date is the inevitable result of a 20 year decline for AA in NYC. They hitched their hopes to a strategy that they knew had legal risk and they now have no choice but to move on and focus on what works.”
————
With all due respect, this is the kind of rhetoric that informs my reasoning behind why I think you want American to be liquidated. You’re apparently celebrating an air carrier’s problems.
American’s management will figure out what it wants to do in New York. More often than not, business leaders tend to be smarter than most people give them credit for. That doesn’t mean they don’t make mistakes. That’s part of being human. I’m guessing (and only guessing) that a lot of the criticism high ranking business executives get is simply a disguise for envy. That’s part of being human, too.
@gary – Any sense for when the reciprocal AA/B6 Enhanced Perks for Loyalty Status Members under the NEA would go away? We often take advantage of them on both carriers and it might influence our card/spending strategy. Thanks!
@matt – we’re waiting for the judge’s order later this month to know what the wind down looks like
@Tim Dunn – “Your track record on how things w/ AA turn out is shockingly low” you have zero examples of this. On the contrary, I predicted several times that JetBlue wouldn’t appeal this ruling and that would put an end to the Northeast Alliance agreement. That’s exactly what happened.
You perhaps mistake my argument about why the Northeast Alliance is normatively beneficial and improves competition for a prediction of how a single district judge might rule in the case?
Gary,
ghost,
whether you think it is beneficial doesn’t change that it isn’t legal.
There are plenty of legal ways that AA could have competed but they chose a path that they knew was legally risky, they got smacked, and whatever benefit the deal might have provided is now worse than before because they wasted time pursuing something that wasn’t ever going to work.
and the Atlanta-based airline that you are convinced orchestrated all of this is having the best summer in history as UA melts down on a daily basis at EWR and AA is now faced with the reality that the latest round of routes it added don’t work financially and the hope it had to turn the others around hasn’t worked either.
AA cannot use all of the slots it has. There will be fierce interest for dozens of slots at LGA that AA can’t use but there will be little interest in JFK slots (I am betting AA won’t even release enough slots at the right times for UA to put together a JFK schedule) and B6 and DL will each grow at JFK as a result of AA’s pulldown.
ghost,
every time something goes wrong for AA and I note it you think I am rooting for AA’s demise – and nothing could be further from the truth.
AA has failed to protect and grow in NYC for years. Choices and failed strategies have consequences.
I have repeatedly and accurately noted that AA is doing better financially that it has for years – and has a brighter financial future than UA which is loading itself up w/ debt and screwing up its operation far worse than AA ever did. AA has 4 hubs in very strong metro areas plus DCA which is as protected from competition as NYC is for B6, DL and UA. Unlike B6 and UA in NYC but like DL in NYC, AA can and does work w/in the operational constraints of DCA.
so, no demise desired and AA will be fine. It’s just time to recognize that the once NYC based airline that ran for Texas decades ago now has to live with the consequences of its decisions and failed strategies and focus on what works best now.
According to the 8K, JetBlue delivered notice to American on June 29 that it was terminating the NEA as of July 29. So looks like this thing is done and dusted regardless of the court’s decision. Even if AA were successful on appeal, I am not sure they would want to go back to JetBlue given these circumstances. This makes even a frequent flyer arrangement seem less likely.
On another note – as many have said, it is time for American to begin a total overhaul of its domestic Admirals Club in JFK. Thet would signal they are dedicated to the market.
@Gary, RF The merger between Spirit and Frontier, although keeping seats would also result in increased prices. Going from two separate ULCCs to one will cause prices to rise as competition will no longer exist.
@Jim – Ironically the DOJ has stopped the one with consumer benefits!
Gary,
obviously you and the DOJ have different interpretations of what is pro-consumer. The difference is that the DOJ has power to choose the one they like better – or hate less – while you do not.
Am curious, what keeps AA from utilizing and maximizing its current assets (slots) at both LGA and JFK? I guess I’m somewhat ignorant in regards as to why they rid themselves of these slots in the NYC. market.
I still don’t understand why JetBlue would want to lower themselves to have anything to do with American. They have nice planes, seemingly a good product, they have nice people… what could possibly go wrong with that merger? Maybe JetBlue decided…”Meh!”
AA maybe pursuing a legal precedent by appealing.
If it wins the appeal, the revised opinion could be used to justify any future NEA in the northeast or other parts of the country (ie: South Florida).
If you have noticed, DL & UA have gone dark on the appeal. Should AA lose the appeal, then the Justice Department could use the adverse option to break up the monopoly at EWR or duopoly at JFK via reallocation of airport slots.
I would imagine all four airlines are hoping for a GOP win in 2024.