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.
A few comments
1) On your “rule of law” point, a judge could easily reject the DOJ’s claims here if it were an open and shut case. If the rule of law does support AA and JetBlue, a higher court will rule in their favor.
2) The alliance clearly involves JetBlue and AA colluding. Because of their collusion, JetBlue can get away with moves like not providing a lounge for its customers at JFK. So customers may benenit in some ways, but not necessarily as much as if JetBlue and AA were actually full borne competitors here.
I get the complaints about slot restrictions, but ultimately American and JetBlue should actually try something novel – compete on service, price, and schedule with Delta and United as best they can in these critical markets.
Unbelievable. This administration is truly worse than I ever imagined it could be.
@David_Stone I’m not sure I understand your point. This was a judicial decision, not a governmental one. The judge in the case, Leo Sorokin was not appointed by the current administration. Perhaps you can clarify.
Personally, I found the partnership working to my benefit. Accrue AA miles and loyalty points on B6 flights, along with free upgrade to Even More Room for EXPs. Also made it a breeze to “use AA” out of FLL since every B6 flight is now an AA flight.
In the end, this is going to be a moot point of the B6-NK goes through. That would have meant the end of the NEA anyway.
I’m sorry, but it’s been obvious for a long time that the FAA (737 Max), DOJ (rushing to approve this agreement), and other consumer protection agencies have been lax on so many levels for far too long catering to business interests rather than consumers. If this was clearly a case of it happening simply because the Biden administration didn’t like like this then a judge would have simply stated that the DOJ had no merit to bring this forward. The agreement was rushed and several airlines and even other states objected to this due to complex rules. The fact that the judge not only said no but to dismantle in 30 days says that this agreement violated so many things that it’s ridiculous it was even approved. It’s childish to say the DOJ isn’t following the “rule of law” when a judge not only agreed with the DOJ but completely smashed the agreement immediately.
If the Gov changed their mind after the statutory period had passed, one would imagine they will eventually get this overturned in a higher court. As you said this sort of thing undermines the whole idea of rule of law
@ Gary — This customer wasn’t benefiting. The AA/B6 collusion eliminated first class nonstop competition on ATL-LGA. AA droppped the route three weeks ago with customers instead stuck either flying B6 to JFK or DL or WN to LGA. It is ridiculous that such a major route would have monopoly F service.
Tom – The entities that are suing (the DOJ and six states attorneys general) have nothing to do with the Department of Transportation (the one that “approved” the original agreement). Again – the “rule of law” is ultimately determined by the courts.
Totally expected. The DOT crossed the legal line in approving the NEA and they got their hands slapped.
American’s northeast strategy is in tatters once again. They will have to use their LGA and JFK slots, lease them, or forfeit them
This does help the B6 NK merger
“American’s northeast strategy is in tatters once again. They will have to use their LGA and JFK slots, lease them, or forfeit them”
This points to what’s conceptually wrong with the ruling. American is too small in New York to compete effectively. They’ve tried a number of strategies unsuccessfully (losing money) over many years. They lack the assets to operate to enough destinations with enough frequencies to match United and Delta.
I’ve written – so we agree – that without the Northeast Alliance they don’t have a New York strategy. But that’s why the Northeast Alliance made sense for consumers, since it added a third viable competitor.
DOJ has been slapped repeatedly by the courts for overreaching on anti-trust. This is the initial court’s ruling, and we’ll (presumably) see what happens on appeal.
@Gene – most consumers get a better flying experience from JetBlue mainline (with more legroom, free wifi etc) than from an American Eagle regional jet. Totally get why elite frequent flyers with AAdvantage would disagree – it was a gimme upgrade.
@tom – DOT had a statutory period to object, DOJ has a whole separate bite at the apple, but an inability to rely on an agreement made with the federal government to allow the partnership to proceed, to invest resources to launch that partnership, and then to have the federal government change its mind is highly problematic in a society that intends to be governed by the rule of law
Doesn’t anything from the current administration even shock you at this point?
@Dan “the agreement was rushed” the DOT took its full extension, went past the extension and still negotiated a settlement there was nothing rushed.
@Anthony – my point about the rule of law – what kind of society we want to be living in – is broader than the legal merits being considered by the district court judge here.
I do think that the judge errs in his decision (i also thought that the lawyers performed poorly on both sides making their respective cases) but this isn’t why the judge gets the law wrong, it’s why the government’s pursuing the case this way in the first instance is wrong.
Most of the judge’s reasoning seems sound – the law doesn’t care whether its Delta, United, or whoever that the other competitors are trying to catch. Two other competitors can’t collude under the law, which is obviously what American and JetBlue are doing.
It is a real question about whether American is “too small” to compete in NYC or Boston, or they simply choose not to compete due to profit margins or some other corporate strategy. But the law seems to ban collusion.
Obvious overreach by the DOJ. The AA Jetblue partnership is one of few good things for consumers to come out of our domestic air travel industry in recent times.
@Anthony – “the law seems to ban collusion.”
No. While anti-trust law is something of a mess generally, banning… everything… the old saying is that if you charge too much, that’s monopoly pricing. if you charge too little that’s predatory pricing. and if you charge the same as competitors that’s collusion.
However the standard is supposed to be consumer benefit, and:
1. A deal that increases the number of viable competitors in the market is good for consumers
2. Where the number of slots are fixed, but the parties increase the size of aircraft and therefore number of seats, the deal increases supply and necessarily lowers cost to consumers
3. Far from giving AA+B6 some kind of monopoly, breaking up the deal protects the effective UA+DL duopoly in New York
This ruling undermines competition, rather than protecting it.
No collusion!
1) What determines a “viable competitor?” Both AA and B6 were viable competitors before the NEA from a customer standpoint. I know, because I flew all of these airlines before the NEA from NYC.
2) AA and B6 can choose, independently, to increase the size of the aircraft in the market, just like they do everywhere else in the country
3) UA and DL are strong in NYC, but there isn’t a “duopoly.” NYC is one of the most competitive airline markets in the world, and prices are fair. The NEA reduced choice in certain airlines and certain routes the same way it may have increased choice elsewhere.
4) JetBlue and B6 didn’t compete with each other on key routes – that seems like collusion to me.
Remind me again where Gary got his law degree.
The Biden Administration is simply lawless.
This ruling does nothing to increase competition – it will actually lower it – but everything to increase the government’s arbitrary powers.
@Anthony
“4) JetBlue and B6 didn’t compete with each other on key routes – that seems like collusion to me.”
JetBlue and B6 are free to collude…. Because they are one in the same!
Will the lost slots be returned to AA since that was part of the agreement?
How did the DOJ address the expired statutory period, at least on paper?
AA (and even UA) used to be bigger at JFK than DL. AA (and UA) deemed it to be in self-interest to cut back on their presence at JFK. AA cut back there despite AA’s investment to have JFK T8 plant structure developed into what it is. And now AA wants to cry about not being big enough to compete? They surrendered being NYC and JFK’s big boy. Choices have consequences.
Gary,
whatever market position a company or two have does not justify pursuing a deal that is counter to what 2 US airlines are legally permitted to do.
The NEA allowed a domestic joint venture which has never been approved for 2 US airlines before and also allowed schedule coordination and slot swapping – neither of which are permitted.
and remember that AA was the largest carrier at JFK just over 2 decades ago and US had half of the slots at LGA. AA and US leadership squandered multiple opportunities in the NYC; it isn’t the responsibility of consumer or the government to allow or support business practices that are counter to US law.
They won’t appeal – they need to get the merger approved. There is far better chances of arguing that the merger should be justified than the NEA.
l know what Cranky Flier will be discussing on Monday
@Gary, don’t you think it would have been a good idea for AA and B6 to run this by the DOJ in addition to DOT before proceeding? I can’t help but think it was dereliction of duty to not make sure all government entities were onboard. Surely they must know that DOT doesn’t get to speak on behalf of DOJ in regards to anti trust matters.
Guess it’s back to the drawing board for Vasu.
@Tim Dunn
“The NEA allowed a domestic joint venture which has never been approved for 2 US airlines before and also allowed schedule coordination and slot swapping – neither of which are permitted.”
Nevermind the fact that a joint venture is at its heart a *revenue sharing* agreement, how is the NEA any different from when US Airways and United back when they were Star Alliance basically doing the same thing? Isn’t it what American and Alaska have now?
@Gary – as a native of NYC whose career has required 3-5 international and domestic trips a month for the past 25 years, I can say that there was nothing about the NEA that proved to be benficial to me or any of my business colleagues. All the claims of benefits and accomplishments just don’t pan out and that’s not even factoring in two carriers’ lack of reliability.
It’s comical how you make American sound like a victim in this equation when in fact, they are their own worst enemy. The sole reason they’re not a viable competitor is due to their lack of business strategy so, your comments are skewed and inaccurate.
United and Delta invested billions of dollars in NY and built an infrastructure and product to support their business strategy.
What’s truly sad is that anyone would think American and JetBlue have the right to simply merge their operations and dub it as an alliance to achieve the same thing their competitors spent years to build. It was not an alliance – it was a regional merger. We all know the impact mergers have on the consumer.
Kind of amazes me how myopic and skewed this blog continues to be, not to mention inaccurate in its assessments.
So it seems like while American and JetBlue were … errr, successfully lobbying the DOT, Delta and United flanked them by, errrr, establishing friendly presence inside DOJ. Those guys’ services are very popular recently, or so it seems.
Gary’s comments about rule of law made me smile. Believing in rule of law after 2020 is, errr, a little too optimistic
Gary,
Your point, while well-considered, is probably a bit too nuanced in view of what the law says. At its core, the NEA essentially eliminates a 4th domestic competitor generally in the New York and Boston markets (given the collusion-in-all-things-but-pricing) and actually eliminates a competitor outright in a number of key markets, like LGA-DCA or ATL. Broadly stated, the test is not one of “viability” of a competitor, but whether a business relationship reduces competition in a given market.
I found it interesting that the Judge went to great lengths to distinguish the AA/AS relationship and even ventured to say that a facsimile of that arrangement (which was apparently considered as a “fallback” to the NEA) would have passed antitrust muster. The fact that the NEA was pursued as it ultimately was constructed, suggests a basic goal of consolidation to ultimately reduce competition and drive greater profits via the revenue share was at the core of the NEA, rather than any perceived “pro-consumer” benefits. That’s not to say the consumer accrues NO benefit from the NEA — we do, to a certain extent — but the overall conduct between AA/B6 is inherently anticompetitive and leads to less capacity, higher fares and reduced competition.
Adam L,
see the comment above this one.
AA/AS is not a joint venture and the judge stated what I have said many times which is that AA could have and still might change its relationship with B6 to the same type of relationship as they have with AS – inside the oneworld alliance or not.
And UA/US also did not have a joint venture. and when they tried to merge, the whole thing was blocked
There should be one giant generic airlines that does the flying but you purchase your ticket from whatever loyalty program you participate in.
AA lobbyists didn’t have the same “juice” that DL and UA lobbyists had. That’s what this came down to.
no, lars, no.
DL and UA built their hubs through acquisition and organic growth.
AA squandered its position in NYC, failed to use its slots at LGA and JFK, and cooked up a plan that they knew full well was counter to US antitrust laws but they had no other plan.
B6 can be excused for being ignorant about antitrust laws – they have thought they were something special from before they took their first flight – but AA has been around for nearly a century and has a wealth of industry experience including in mergers and acquisitions and antitrust law.
AA simply refused to do in the NE what they did with AS on the west coast – because they would not gain the ability to swap slots around as they have been doing with the NEA.
The real question will be what AA and B6 choose to do; the judge himself said they could have an AS-AA style relationship and be in complete compliance with all competition laws.
@mc
AA+JB=merger
Happy to have more choices, not less. B6 competing against AA is a godsend.
Thank you rule of law.
I can’t believe I’m saying this but Tim Dunn is right. American made their bed in New York. Their positioning is not something that just happened to them. They don’t get to skirt antitrust law to fix it.
The judge specifically noted that AAL and US gave up a privileged position in NYC in order to pursue a strategy of illegal cooperation that they now have to undo on 30 days notice.
The court released an extensive powerpoint of their findings and it is as patently inaccurate as can be to say that the court failed to prove that the NEA was uncompetitive and collusionary.
it really doesn’t matter if some people on social media don’t get it
the words and internal documents of AAL and JBLU execs extensively show that the NEA was intended to suppress competition, did it, and AAL specifically chose to pursue the NEA even though it knew it could achieve most of the results using an ALK style partnership – but they chose the NEA anyway.
3 years later, AAL and JBLU now have to immediately undo in 30 days their bad decisions, are both now worse off than they were before the NEA, and have provided an even greater opportunity for competitors to grow than if they both grew on their own.
The court found those points and anyone that argues otherwise simply doesn’t want to face the truth.
@Tim Dunn – “The court released an extensive powerpoint of their findings and it is as patently inaccurate as can be to say that the court failed to prove that the NEA was uncompetitive and collusionary.”
The court is treating reduction in the number of competitors as per se illegal, and there is very little discussion let alone demonstration of actual consumer harm which is the ‘normal’ standard over the past four decades (but not the standard that Biden administration officials are pushing across a number of fronts).
“The judge specifically noted that AAL and US gave up a privileged position in NYC in order to pursue a strategy of illegal cooperation that they now have to undo on 30 days notice.”
The US Airways decision to give up slots at LGA to Delta in exchange for DCA slots + cash, which pre-dated the AA merger, is wholly irrelevant to this discussion. In any case there are only two references to US Airways in the decision, both in footnotes, one the history of airline mergers and the other in reference to slots AA+US gave up to B6 which B6 had to divest as part of this deal. Have you actually read the decision?
@Dan if the previous position they were in wasn’t illegal, then growing back to such a position shouldn’t be either.
@Gary: they can grow if they like. Growth and the NEA are not the same thing.
Gary,
your statements in response to me are wholly and completely contrary to what the judge said.
Feel free to write him and tell him he got it wrong.
As others have noted, the number of times that you repeatedly set yourself up as an expert and then get it wrong and argue w/ legitimate authorities, is breathtaking.
The court ruled that the NEA is illegal, they did it on the basis of facts that you have yet to acknowledge and they showed that AAL KNEW that they were alternatives to the NEA which AAL considered that would not be contrary to law but AAL pursued the NEA anyway.
It doesn’t matter one iota what you or anyone besides the court thinks.
There is no basis for appeal given the damning evidence that the court found using AA and B6 execs’ own words.
@Tim Dunn – “your statements in response to me are wholly and completely contrary to what the judge said.”
By definition, writing what grounds appear most fertile for appeal are contrary to what the judge said.
“It doesn’t matter one iota what you or anyone besides the court thinks.”
It matters what an appeals court thinks.
“There is no basis for appeal”
100% false.
when AAL and JBLU file and win an appeal, then you will have proven yourself correct.
The judge specifically said:
AA and US forfeited and squandered multiple opportunities to compete in the NE on its own
The court provided page after page of evidence including testimony and internal documents showing that AA and B6 quit competing against each other after the NEA was created.
Despite their joint desire to compete against Delta which all sides recognized was gaining passengers and revenue from AA and B6, there is no legal justification for breaking the law.
The cooperation that AA and B6 engaged in was and will be harmful to consumers.
AA did its own studies evaluating various options – internal docs and emails were part of the trial – showing that an AS style relationship was an option but AA chose the NEA which they knew was problematic legally.
No, Gary, the judge put the nail in the coffin of the NEA. Neither AA or B6 can afford to waste time or resources pursuing an appeal of a case which the DOJ clearly won based on solid evidence and application of law.
AA needs to rebuild its NE presence and find a strategy that works – and that will be ten times harder after DL and UA have both significantly grown using legally acceptable methods. B6 needs to get its merger through and very likely does not find the need to have so deep of a relationship with AA anyway.
Spend a little time this weekend getting back in touch w/ reality.
The NEA is dead. AA has to figure out how to compete w/ DL and UA in the largest markets in the US and extract itself of Crandall’s DNA which has always been to avoid competition rather than embrace and win in it while B6 has a solid chance of winning the NK merger – but has to quit wasting energy on efforts that don’t work.
This is a novel theory of competition. The district judge agreed, which is normally only one small first step. JetBlue could decide not to appeal! A judge struck it down, that lets them out of a termination payment, and the DOJ could offer them a generous settlement on Spirit to do so. (This seems unwise to me, NEA is far more valuable than Spirit at the price point they’re paying, with all of the costs – merger costs, capital costs – integrating the airlines, and considering that B6 will transition NK assets to a lower-return business model, but JetBlue seems to want it.)
That doesn’t make me wrong. And decisions US Airways made prior to merging with American are irrelevant to whether the AA/B6 NEA is anti-competitive within the meaning of anti-trust law.
AA and B6 have to move on and stop wasting time on something that has a high risk of further rejection. Both need to address their strategic issues which led them to pursue the NEA in the first place and which are still there.
The judge said the US-DL LGA/DCA slot transaction was relevant to the NEA case so he, not you or I, got the chance to include what he wanted. Given that Parker and company were at the helm for the AA-US merger, the slot transaction and the creation of the NEA, there is every reason to argue they should have known what they were doing.
Scott Kirby doesn’t get off w/o blame even though he bailed to UA; he was the architect of the DL-US slot transaction and ended up having to live w/ the results of previous management decisions to leave JFK and also to not fully use UA’s EWR slots which led to the end of slot controls. AA and UA have both badly mismanaged their NYC slot portfolios for decades – which has provided opportunity after opportunity for Delta. Even a judge that is outside of the airline industry and is not strictly involved in cases on it can see that.
@Tim Dunn – “Both need to address their strategic issues which led them to pursue the NEA in the first place and which are still there.”
This was *HOW* they could address the strategic issues that made the NEA necessary. They don’t have the slots to grow and will otherwise always be smaller than Delta and United in New York. They can’t offer service where they need to, with the frequency they need to, in order to offer a competitive product.
American tried doing it on its own pre-merger and that was a big money-loser.
When US Airways took over they tried to be the carrier ‘that brings people to New York’ (based on flight timings) rather than focusing on serving the New York market.
Then after that failed American tried to go it alone with a ’boutique’ operation, and that was a money-loser as well.
This ruling, if it stands, is a death sentence to competition in New York.
The judge specifically said that a company’s market position does not justify breaking the law by colluding together.
AA still controls all of the slots that it did before the NEA.
If AA can’t figure out how to use them, then it is not the public or the DOJ’s responsibility to let them break the law and then cry about the loss of competition that will result.
As noted on another site, you clearly are carrying the water for AA in this discussion.
Like AA, you need to figure out how to live in a world that is based on competition and not collusion – an AA trait that goes all the way back to Bob Crandall.
@Tim Dunn “As noted on another site, you clearly are carrying the water for AA in this discussion”
I don’t know what ‘other site’ you’re referring to, but I don’t think anyone can ever reasonably consider me to be carrying water for American. You of course do little else other than carry water for Delta 😛
“AA still controls all of the slots that it did before the NEA.”
And that was insufficient to allow them to be a real competitor to DL/UA. So this judge’s ruling, if it stands, harms competition. That’s all I’m saying.
You and the DOJ have different ideas about what helps and harms competition.
AA and B6 have the tools to be formidable competitors on their own but chose not to do so.
The kiddie table is where someone stated that you carry the water for AA.
And, no, I don’t carry the water for DL. I simply bring facts that you and others don’t want to hear. If I was wrong, you would be able to refute them logically.
Only in your mind is the HND case remotely similar to the NEA.