Anti-Trust Trial To Break Up American Airlines-JetBlue Partnership Starts Today

American Airlines and JetBlue entered into a partnership they refer to as the ‘Northeast Alliance.’ They have a frequent flyer partnership and they codeshare in and out of New York and Boston. American has moved some of its domestic flying to JetBlue, and JetBlue’s customers have made it possible for American to grow internationally out of New York. Now the government lawsuit to stop it starts today, even though the federal government had previously approved it.

In order to get government approval they gave several commitments to ensure more seats and competition in the market.

  • The federal government approved this partnership in late 2020

  • American and JetBlue agreed to give up slots in New York and DC as part of this. And if they don’t grow their flying they have to give up even more slots. JetBlue also can’t exit most of its routes from New York JFK. And they cannot coordinate fares.

  • These two airlines were the third and fourth largest in the New York area. Separately they weren’t strong competitors to United and Delta. American in particular hasn’t had a viable strategy in New York since US Airways management took over. That’s changed. They’re signing up more frequent flyers, selling service to companies together, and becoming more relevant to New York.

Competitors don’t like it. Amy Klobuchar, from Minnesota of all places has been a vocal opponent. She represents Delta’s hub city of Minneapolis and has a close relationship with the Atlanta-based airline that has worked hard to be the preferred airline in New York.

Under intense lobbying pressure, the Department of Justice sued to overturn the deal which is bizarre simply from a rule of law standpoint. The government approved it, American and JetBlue invested to move forward, and then the government is trying to dismantle it. (They were for it before they were against it.)

That the deal was approved under the Trump administration and now opposed by the Biden administration shouldn’t change anything – both individuals and companies should be able to rely not just on consistent application of law but that the government honors the explicit deals it strikes. And this isn’t a political party issue in any case – the Northeast Alliance had the support of Democrat Senator Majority Leader Chuck Schumer.

And this deal can only increase competition. The idea that there’ll be less competition in the New York market is silly, because the government limits the number of flights at New York JFK and LaGuardia. The number of flights at those airports will remain the same. Now there will be larger planes flying more seats.

  • JetBlue and American can’t coordinate on fares, and are required to increase seats. More seats means lower fares (basic supply/demand).

  • They’ve given up slots, allowing for new entrants into the market.

  • And that’s aside from the way this deal creates a viable competitor in New York, where neither JetBlue nor American had been one previously.

I haven’t been a fan of many of the moves made by current American Airlines management, and I’m skeptical of mergers and anti-trust exemptions in a world where incumbent airlines are protected from competition through foreign ownership restrictions and government-imposed restrictions on which airlines can fly into congested airports.

However this is a case where customers actually benefit, competitors don’t like it, and whether the Justice Department realizes it or not they’re carrying water for cronyist corporate interests and not passengers. If the Department of Justice succeeds in killing the Northeast Alliance, they take out American Airlines as a viable competitor in New York, reducing competition.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. The problem is that the partnership effectively creates a duopoly at JFK/LGA (Delta, and AA/B6). Ideally you would have three or more strong carriers at the airports, all competing to offer a competitive experience, similar to what you have LAX. That would truly be good for consumers – what Gary and others seem to really want is Delta being taken down a peg when customers seem to like what they are offering. The partnership hasn’t incentivized actions like JetBlue improving its ground experience at JFK T5 (which is sorely lacking), hasn’t seemed to encourage a much better schedule at LGA, etc.

    What the DOJ want is B6, AA, and maybe other airlines (Frontier, Southwest, whoever) competing aggressively with Delta on price, service, schedule, etc across both airports. With this lawsuit and the JetBlue / Spirit merger, it may get it one way or the other.

  2. @Anthony no one is taking anything away from delta. If customers still prefer this product you describe, they can still book it. What happens with the NEA, is that delta doesn’t get to win by default as much on frequency and destination quantity. Customers will truly get to choose on product and price.
    And the lax example is a poor one. There’s only one major international airport in the LA basin. There are two in NYC. So there are three major competitors in NYC already:

  3. Gary,
    you clearly don’t understand the core issue of the case – the GOVERNMENT is not some monolithic entity where everyone acts as one.
    The Dept. of Transportation approved the NEA and oversaw the case primarily because AA had been non-compliant with slot usage at LGA and JFK for years pre-covid. The DOT tried to let AA and B6 come up with a plan to improve utilization of the slots.
    AA and B6 came up with the NEA which includes slot-swapping and revenue sharing which the Dept. of Justice- which is a distinct federal entity – does not allow two US domestic airlines to do unless a merger analysis has taken place.
    AA and B6 have argued repeatedly that there has been no harm – not that they violated well-established DOJ practice and US law about the combination of companies, including airlines.
    The case is, to a great extent, the DOT vs. the DOJ but because AA and B6 said “I do” with the DOT’s blessing, the DOJ is going after them, not the DOT, which does have some antitrust powers but not to the extent of the NEA according to the DOJ.
    AA and B6 on a combined basis in BOS and NYC and S. Florida do offer more seats than competitors and that is exactly why the DOJ’s full merger analysis would not have allowed the NEA unless there are much larger and stronger carveouts.

    Just because a lawmaker represents a region where a competitor is strong doesn’t mean that they are doing that competitor’s bidding. Six states – all of which are AA hubs – all oppose the NEA and have joined the DOJ because they believe the combination of AA/B6 in the alliance as it exists will harm their states.

    and the issue is compounded by the B6/NK merger is on the table. B6 is trying to take the best of both situations – keep the NEA in the NE but divest NK’s assets since NK is smaller but keep NK’s size elsewhere.

    Given how poorly AA and B6 have planned and executed their individual strategies over a decade, the chances are high that what happens in court isn’t the real issue but rather that both will manage to fail to extract even the benefits they could get from the NEA.

  4. I wish the government was more concerned about the exorbitantly high fares AA can charge at their Charlotte hub based on a lack of competition

  5. The DOJ repeatedly has said that the NEA removes B6 as a low cost competitor not just to AA but also to DL and UA, effectively making NYC and BOS a 2 or 3 legacy carrier marketplace; B6 argued in getting its initial slots at JFK that it would provide competition to legacy carriers so this is reversing the entire reason for allowing B6 to be created using public assets at its creation.
    It is also clear that DL has been successful in overtaking and displacing American in NYC and BOS. B6 is the only large competitor DL has left so it is hard to argue that DL opposes the NEA which would allow AA/B6 to function as one and reduce competition w/ DL.

  6. Personally, I think the jetBlue / Spirit merger is a ruse to set up an AA buyout or merger with jetBlue. We will see what happens in the next year.

  7. To Tim Dunn’s point regarding execution, roughly 75 percent of completed M&A deals fail to achieve anticipated financial objectives. Assuming complete freedom to do as they wish, the failure to execute is an internal threat to the companies. Ultimately, management’s failure.

    Turning to the external threat, given the pending merger, the court’s analysis is widened to the three airlines. Jet Blue’s chest-beating about national dominance doesn’t help. It’s hard to imagine the court allowing the NEA to continue post-merger. If the NEA is ordered dissolved, AA returns to a different internal threat: failed strategy for the NYC market. Ultimately, management’s failure.

  8. sunviking82, if such a merger was allowed to happen, it would likely be an utter financial failure. The two sides of the deal have such disparate financial models.

  9. AA awards miles based on paid fares. They have visibility to the books. That in itself muddies the water as a consumer & suggests fare collision or at least the opportunity. This doesn’t lower fares, it creates a dupoply on many routes – less competition, not more to drive fares lower. If B6 & AA are separate, it forces AA to complete for butts in seats instead of inherited butts from B6.

  10. Wow, I agree with Tim Dunn on this one. DOT “approval” of the NEA was not an antitrust review; it’s not like the government changed its mind. Ultimately, the DOJ (which has authority to challenge anti-competitive mergers, etc. – including alliances – along with the FTC, depending on industry) decided to challenge it.

  11. Good post with (mostly) good, well argued & informative industry focused points being made in reader comments.

    Yes, please, for more of/like this!

  12. Tin Dunn wrote: “The Dept. of Transportation approved the NEA and oversaw the case primarily because AA had been non-compliant with slot usage at LGA and JFK for years pre-covid.”

    Tim, The DOT did not “approve” the NEA. The DOJ didn’t sue to stop it. The DOT is not the CAB (the old Civil Aeronautics Board that had the power to approve or reject mergers). Deregulation placed the airline industry under normal anti-trust law. The DOJ has to sue to stop mergers or other joint business arrangements. The DOT approves the implementation of code shares, route authorities, etc., but the DOJ has to sue to block transactions that it believes violate anti-trust laws. It’s not a crime to enter into a business arrangement.

  13. Tim Dunn wrote: “Given how poorly AA and B6 have planned and executed their individual strategies over a decade, the chances are high that what happens in court isn’t the real issue but rather that both will manage to fail to extract even the benefits they could get from the NEA.”

    Then you wonder why people accuse you of wanting American to be liquidated.

  14. @Gary Leff,

    I have to make the same point with you that I did with Tim Dunn. The “government” under Trump did NOT approve the NEA. The DOJ didn’t sue to stop it. Maybe you think that’s a de-facto approval. It isn’t necessarily, especially when there’s a change of administrations. The “government” doesn’t approve or reject airline mergers anymore. Those fall under regular anti-trust law. The Civil Aeronautics Board was dissolved by deregulation. The DOJ has to sue to stop mergers or other cooperative ventures like the NEA.

    I still think there’ll be some kind of settlement, as I seriously doubt that neither the DOJ nor the airlines involved want litigation to drag on for 10 years or more, which is quite possible.

  15. There is a simple answer to all of to all of it. Anything AA touches turns to crap.

    Jet Blue thought they were better off with Spirit to the point of ridiculous dollars once they were 6 months in.

  16. This alliance has been destroying competition at major airports (BOS especially) & customers lose.

    AA dropped its BOS-LGA shuttle entirely after this partnership. AA also stopped flights in many other northeast markets (PIT & BUF) and drastically scaled back their cross country flights as well. Take a look at BOS-LAX flights that both AA & Jetblue offered before this merger & now. It’s down considerably. Meanwhile, it’s clear that in exchange for AA leaving the northeast markets, they got Jetblue to stop expansion at MIA & DFW (which are captive & $$$ AA hubs)

  17. Ghost,
    nobody is asking for anyone to be liquidated.
    It is perfectly legitimate to note that American has managed to lose its position as the #1 airline in NYC – it was originally headquartered there. They have gone back and forth trying to make routes work from NYC for years.
    B6 has chased a million strategies including with the NEA and now steadfastly is trying to convince the DOJ that it doesn’t matter what is or was legal but rather the NEA has hurt competition. AA/B6 are desperately trying to argue that DL has added flights so there is no loss in competition when the DOJ specifically said accurately that B6 is a price competitor to AA, not DL.

    And the DOT most certainly did approve the NEA using its own antitrust limited antitrust powers. The DOJ was not given an opportunity to approve or pass on approving the NEA before the DOT approved it.

    those are simple facts whether you want to try to spin them any other way or not.

    As others have noted, AA and B6 have eliminated a number of routes, transferred slots between each other, and joiintly planned capacity – those are hallmarks of a merger and the DOJ says two domestic airlines cannot do that until the DOJ has conducted a full merger review and the merger has been approved.

    The biggest overlap between AA and B6 is the NE to Florida as well as to each of the states that are party to the DOJ lawsuit including FL, NC, DC, TX and AZ.

  18. @DesertGhost – (1) DOT historically has taken the lead in airline partnerships, (2) DOT explicitly approved it, entering into a competition settlement. DOT gave the green light for the partnership ON COMPETITION GROUNDS and now the DOJ is suing to stop it.

    Yes, the federal government gave green light, yes the federal government signed off on anti-trust concerns.

    What DOJ is doing is *legal* for sure, but it’s contrary to the rule of law principle at issue here.

  19. Always amusing how much the Delta fanboy brigade cares about the consumer when it comes to the NEA, but don’t mind Delta market shares above 75% or that Delta purchased their way to an LGA slot position more than AA/B6 combined.
    But wow, Tim…. going back to the 1970s to say AA gave up their #1 position in NYC with their headquarters there? That’s a ridiculous thing, even from you.

    As usual, it’s just flagrant fanboyism hypocrisy at its worst.

  20. Lots of verbiage in the comments, but the underlying issue is simple: can the gov’t prove with clear and convincing evidence that the NEA reduces competition in the Northeast? “Maybe, someday, somehow” isn’t good enough. Nobody in their right mind would think that, to date, competition has been reduced. To the contrary, the overwhelming evidence is that, together, AA and JetBlue are more viable 3rd place NYC competitors having joined forces. They have increased seats and routes in the marketplace, and nobody can show an increase in fares. The law does not allow gov’t to randomly allow the gov’t to block alliances because they somehow believe someday the deal will be bad for consumers — especially when the evidence shows it’s already GOOD for consumers. You never know for sure how cases will turn out, but this one looks like a stone cold loser for the Biden administration, and the lawsuit should never have been brought.

  21. Max
    AA was still the largest airline at JFK at the time B6 was gifted slots to begin service. It was only as B6 grew including to the Caribbean from JFK that AA fell to 2nd and, by the time Delta started beefing up JFK as it closed DFW as a hub, AA dropped to #3 where it has remained.
    AA was also larger than DL at LGA prior to the US-DL slot swap. By the time AA and US merged, US had already given up most of its LGA slots and didn’t end up w/ an advantage at DCA because it had to give up the number of slots gained from DL as part of the DOJ’s requirements to get the AA-US merger approved.
    AA and US have both royally screwed up their NE strategies largely to DL’s benefit. UA has also screwed up, again largely to DL’s benefit.
    chopsticks,
    the DOJ presented evidence today that AA and B6 BOTH made comments privately that they knew each other would be tough competition, didn’t want to face that competition and created the NEA to avoid competing.
    And it is delusional to think that air fares haven’t risen; they have risen throughout the country. Because the NEA was implemented largely during the pandemic, data is skewed but intent to avoid competition and concentration in markets is more than enough to prove that mergers should not happen. The government cannot wait until air fares rise by 80% 5 years from now and then act. DOJ merger practice is to prevent mergers when it is clear that competition will be harmed.

    Personally, I still think that the NEA can survive but with significantly more carveouts and removal of some provisions like revenue sharing and the abililty to swap slots. B6 esp. appears to be willing to go as far as they can before they concede that the DOJ will win and then offer concessions.

    I also think B6 has it all backwards; they should hold onto NK’s NE assets and reduce the NEA to a simple codeshare w/ carveouts and they can probably get it all approved.

    The trial is supposed to last for 3 weeks so we could be jawboning this for a long time. Or just wait for some movement or decision on one side or the other.

  22. I wish the US DOJ the best of luck in busting up the legacy major airlines’ joint ventures with other airlines.

  23. @sunviking82, the US government would not let AA purchase B6. AA has way too much debt, is the least profitable of all legacy carriers especially. B6 has a brand that in the NE area that people know well AA is iffy to NE citizens. After the failed US Airways merger with AA they would most likely be shrinking somewhat with all the internal issues they have.

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