American Airlines and JetBlue are now partners, including codesharing on routes in and out of Boston and New York. So far this includes reciprocal mileage and elite status earning and will soon include recognizing each others elite members with status benefits.
Naturally other airlines do not like this,
- It creates a strong third competitor in New York to United and Delta, so those carriers don’t want to see the partnership.
- The airlines had to give up 7 slot pairs at New York JFk and 6 at Washington National, but competitors would like the government to tax them more – competitors would like more of their slots if they can get them.
The American Airlines-JetBlue partnership is good for consumers however lobbyists for other airlines may get a new pound of flesh. The Wall Street Journal reports that the Department of Justice is going to sue American Airlines and JetBlue over their Northeast Alliance which the government already approved.
- The Department of Transportation missed its own legal deadline to object to the partnership
- Yet the two airlines came to an agreement with the government to secure its blessing. While this was done at the end of the Trump administration, it had the backing of Senate Majority Leader Chuck Schumer.
According to those familiar with the matter, the Department of Justice will argue that the two airlines might compete less against each other leading to higher prices.
The Justice Department is preparing to file a lawsuit challenging American Airlines Group Inc.’s AAL -1.52% partnership with JetBlue Airways Corp. JBLU -2.51% on antitrust grounds, according to people familiar with the matter.
The lawsuit, which could come as soon as Tuesday, is expected to argue that the recently forged alliance threatens competition and higher fares, the people said.
This theory makes little sense.
- American Airlines was not a viable competitor in New York before the pandemic.
- Because of slot controls at the New York airport, the total number of flights is fixed. The deal won’t reduce flights.
- The settlement the airlines reached requires the two carriers to operate more seats, increasing supply in the market which would tend to reduce prices.
On its own American Airlines was the #4 airline in New York pre-Covid. Management had walked away from competing for New York business and tried to be an airline that brought people from other cities to New York. Two years ago they appeared to be in a New York death spiral and viewed their limited New York operation as ’boutique’.
New York JFK Terminal 8
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. And to meet the conditions of approval for the deal, American and JetBlue have to operate more seats.
- JetBlue already agreed not to exit JFK non-stop (non-seasonal) routes it served as of February 2020, except for Long Beach, Oakland, and Worcester, Massachusetts.
- The two airlines aren’t allowed to discuss “future fares, fare levels, or revenue management strategies” and they separately can’t discuss route, scheduling or capacity outside the scope of the New York/Boston agreement.
- American had to permanently give up 4 slot pairs at New York JFK and JetBlue permanently gives up 3.
- American had to lease 4 slot pairs at Washington National airport and JetBlue had to lease 2, leases have to be available to other airlines for these slots for the duration of the American-JetBlue partnership.
- If American and JetBlue do not grow their seat capacity at New York JFK and New York LaGuardia combined by at least 5% they have to give up 10 more JFK slot pairs (American has already announced they’ll no longer fly small regional jets).
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. The move has been pushed hard by Senator Amy Klobuchar whose interest here is in representing Delta, which operates a hub in her home state of Minnesota – and hardly the people of New York or Massachusetts.
At the end of the day, too, shouldn’t government approval be government approval? The federal government signed off on the partnership this year and anyone who cares about the rule of law should object to this intervention. How can anyone operate in an environment where the government doesn’t keep its promises? Unless the agreement that was reached has been violated, which no one has yet alleged, the DOJ should stand down.
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