American Airlines and JetBlue entered into what they called ‘the Northeast Alliance’ in order to become more competitive against larger rivals in key markets. As the number three and four carriers in New York, neither were large enough to be really competitive with United and Delta. But slot restrictions and gate availability meant that neither could grow. This was their solution to create a third real competitive alternative.
The government just won at trial to break up the alliance. The judge permanently enjoined this partnership from continuing and from further implementation, beginning in 30 days. One expects an appeal.
Ironically, the two airlines had gotten government signoff prior to launching. Then – without any new information – the government reversed course once the deal had already started.
- After waiting too long past the allowable statutory period in which to oppose the American Airlines – JetBlue Northeast Alliance, the Department of Transportation entered into a settlement to approve it in which the two airlines gave up slots at New York’s JFK and LaGuardia airports along with Washington National Airport. They also committed to give up additional slots if they did not grow passenger capacity in New York.
- Despite approving the arrangement late in the Trump administration, the Biden Administration’s Department of Justice sued to undo the partnership – violating a key tenet of the rule of law. It isn’t supposed to be the whims of the people in power that matter before the law.
The two airlines coordinated over which one flew a given route, but weren’t allowed to discuss pricing. Customers of each airline were given frequent flyer benefits on the other and could earn and redeem miles across the two carriers.
With slot restrictions, though, the total number of flights couldn’t change – and the total number of seats had to grow, increasing supply and reducing price, while creating sufficient scale for the two airlines to be big enough to become a viable competitor. Delta and United, naturally, opposed the deal and got the Biden administration to side with them. We’ve been waiting since the fall for a verdict.
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. Blocking this partnership takes out American Airlines as a viable competitor in New York, reducing competition. Sad.