American Airlines has gone to the Supreme Court to revive legal prospects for its alliance with JetBlue.

The U.S. Court of Appeals for the First Circuit denied their request to overturn the government’s antitrust victory over the partnership.

• In July 2020, American Airlines and JetBlue Airways announced the “Northeast Alliance” which coordinated flight schedules and shared revenues for routes in and out of New York City and Boston. The Trump administration approved their operating like a single airline in these cities, jointly determining which would fly where and sharing their slots at New York airports.

• They were required to increase seat capacity as a result of the partnership, or face losing slots. That meant lower prices than consumers would otherwise face. And together the two airlines, undersized in the region (especially New York) on their own, would be big enough to mount real competition to Delta and United.

• The Biden administration sued to break up the partnership under antitrust rules. American and JetBlue no longer competed with each other even if they competed against Delta and United. Their position was that dividing markets with fewer competitors was per se illegal.

After a month-long bench trial, U.S. District Judge Leo Sorokin of the District Court of Massachusetts ruled in May 2023 that the NEA violated antitrust law​, though suggested a less intensive partnership akin to American’s ‘West Coast Alliance’ with Alaska would have been fine. The judge’s strongest argument was that pro-consumer benefits could have been achieved with less restriction on competition. But it’s precisely consumer benefit versus harm – the traditional antitrust standard – which was overall de-emphasized in his ruling.

JetBlue left it at that, preferring to focus on getting approval for their acquisition of Spirit Airlines. Ironically,

1. JetBlue really only needed Spirit in the context of their partnership with American Airlines, since the American deal gave them more slots to fly in New York and therefore the Spirit planes and pilots were a way to grow in both New York and Boston. Without the American deal, the Spirit one made little sense.

2. The government challenged the Spirit acquisition and won, as Spirit itself went into a tailspin and JetBlue struggled. Spirit is poised to emerge from bankruptcy not much stronger than when it entered.

American Airlines, however, appealed Sorokin’s decision even without JetBlue – because the ruling would restrain it from pursuing any similar collaborative arrangements in the future, no matter the consumer benefits. However the federal appeals court upheld the ruling, finding that there was no clear error in the district court’s findings.

American’s Supreme Court appeal contends – quite correctly – that lower courts misapplied antitrust law and failed to properly account for the NEA’s consumer benefits. The First Circuit and trial court misinterpreted the Sherman Act’s rule of reason by condemning the NEA without evidence of actual harm to consumers. During the NEA’s operation, the number of flights, routes, and seats in the Northeast increased, and there was no indication of price increases attributable to the alliance​

There was no broad-based fare increase, reduced output, or reduction in quality that you’d expect with an antitrust violation​. Instead, the courts treated any coordination between competitors as illegal. That’s a departure from traditional antitrust analysis and Supreme Court precedent. American cites decisions emphasizing that joint ventures can be efficient and even necessary to “do something more cheaply or better” than firms could alone, and should not be condemned “too reflexively” (e.g. Texaco v. Dagher (2006), where the Supreme Court held that a complete joint venture between two competitors – that ended competition between them – had to be analyzed under the full rule of reason rather than treated as per se illegal​).

In total, the Northeast Alliance,

• Offered consumers new flights
  
• And more seats through use of larger aircraft
  
• At lower prices than there would have otherwise been
  
• As well as more benefits through their frequent flyer partnership

It was pro-competitive overall, precisely by working together and deciding jointly how to allocate limited resources like slots to greatest benefit. And by reversing course on the Trump administration’s prior approval of the arrangement, the Biden administration undermined the rule of law and created an uncertain business environment. American argues it was improper for a court to override DOT’s expert judgment without clear evidence of harm (though DOT has authority to provide antitrust immunity between U.S. and foreign airlines they lack that authority between domestic carriers).

The odds that the Supreme Court will take any given case are low. American Airlines seeks to frame the issue as a broad one for antitrust rather than a single narrow dispute, and suggests that there is a ‘circuit split’ in how the fifth circuit applied Supreme Court precedent (suggesting that the 2nd, 9th, and 11th Circuits would not condemn a collaboration absent evidence of higher prices or reduced output​). If the Supreme Court perceives a genuine split in how lower courts apply the rule of reason to collaborations, that could increase the chances of review. However, lower courts have not diverged specifically upholding some airline alliances but not others. It’s unclear whether there will be 4 votes to take the case though votes to win might actually be easier.

However, since the last Trump administration approved this combination and it would be an opportunity to break from the Biden administration, if the case made it to the Supreme Court the Department of Justice might not defend against it (even though Trump’s DOJ has signaled that they would take a strong antitrust position generally). The Trump administration ‘cut a deal’ with the airlines to ensure the Northeast Alliance was pro-consumer and pro-competitive. Meanwhile, if the Court takes the case, it has overall been broadly friendly to business in its antitrust analysis.

It’s a long shot for the Court to take the case, but if they do American stands a good chance. And the fact remains that American, as a competitor in New York, considers itself ‘too big to quit, too small to win’ while JetBlue is desperately seeking partners (including domestic ones). Lifting restrictions on these could be great for customers.