At the end of the Trump administration, the Department of Transportation entered into an agreement allowing American Airlines and JetBlue to coordinate schedules and share revenue in the Northeast.
- American and JetBlue were the third and fourth largest airlines in New York. This combination would make them a viable competitor to the two largest players, United and Delta.
- In exchange, they’d have to give up slots in New York and DC, and they would have to grow total seat capacity. That means bigger planes. And more supply of seats, all else constant, means lower prices.
However the Biden administration took a different view and reversed positions. Its Department of Justice sued to break up the partnership, which had already begun. And they drew a judge who agreed with them.
The judge’s decision, rather than considering whether consumers would benefit overall, looked at individual markets and saw fare increases – when fares were rising everywhere due to inflation, supply chain issues and strong demand. The judge discounted expert witnesses for the airlines because they were working with airline data while giving weight to government experts. And the judge argued that the combination was per se illegal, since it reduced competitors, rather than looking at its effects to see more actual competition.
This despite the opinion itself observing that American Airlines was effectively planning to exit the New York market and lease its slots to JetBlue before building this partnership, because none of the strategies it had tried there made money – it found itself too small of a player in the market. By partnering with JetBlue they could use limited slots effectively, with American ramping up international service and JetBlue providing domestic feed, all while giving consumers the benefits of both.
Yet the two airlines have been strangely muted since the decision. They put out initial statements suggesting they disagreed with the decision. Then crickets.
- There are two separate defendants here, JetBlue and American, and together they needed to figure out a path forward.
- JetBlue is trying to buy Spirit Airlines, and the Biden administration opposes that too. JetBlue may have been trying to figure out if they could salvage the Spirit deal by walking away from this one.
Finally, though, American Airlines CEO Robert Isom spoke at the Bernstein Strategic Decisions Conference on Wednesday afternoon and said they’re going to appeal the decision which means figuring out how to deal with the continued partnership in the interim.
The good news for customers is this isn’t dead yet. It’s also good news for the rule of law, if the courts ultimately don’t allow the federal government to allow a deal to move forward and then let a mere change in administrations upend it, because those subject to the law should be able to rely on its consistency. It would be bad news, of course, for Delta who prefers to see its place in New York unchallenged by competition.