As part of the Biden Administration's ongoing crackdown on monopolies and enforcement of perceived antitrust violations (i.e., companies merging to reduce competition), the Justice Department has, for the past year, cast a stern eye against the partnership between American Airlines (AAL) and JetBlue Airways (JBLU).
For the past year and a half, the two airlines have had a partnership, in which they coordinated schedules, shared revenue from flights in the Northeast, and also sold seats on each other’s planes. The parties are not allowed to collaborate on prices.
The two parties have argued that this alliance is good for consumers, and gives them more options in the Northeast. But the Justice Department disagrees, and alleges that the alliance is a merger in-all-but name that costs consumers $700 million a year in higher fares.
And recently, the Justice Department has started to take steps to dissolve the partnership between the two companies.
Justice Department Seeks To Sever American and JetBlue
Last September, the Justice Department, along with the attorneys general of six states and the District of Columbia, sued to block the alliance between American and JetBlue.
The alliance “will eliminate significant competition between American and JetBlue that has led to lower fares and higher quality service for consumers traveling to and from those airports,” the Justice Department’s suit alleges. “It will also closely tie JetBlue’s fate to that of American, diminishing JetBlue’s incentives to compete with American in markets across the country.”
The Justice Department is currently attempting to convince the U.S. District Judge Leo Sorokin to end the partnership. Government lawyers argue that the deal limits competition and will push fares higher.
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American Airlines CEO Testifies Collaboration Is Necessary
As we previously noted, “in a brief, American and JetBlue, retorted that there is no evidence that consumers have been harmed by the alliance, and that it enables them to expand in capacity-constrained airports where they wouldn’t be able to on their own.”
The first witness in the trial, which took place in Boston federal court, was JetBlue CEO Robin Hayes, who defended the pact, which is known as the Northeast Alliance, as “pro-consumer,” in that it gives fliers more options.
Now American Airlines CEO Robert Isom has also testified, as noted by Travel Weekly. He said that following Delta Air Lines’s (DAL) merger with Northwest, the company “had more takeoff and landing rights at New York airports, and fewer unionized workers,”
As such, he argues the companies needed the partnership in order to stay competitive. Particularly, they were unable to get enough slots (meaning take offs and landings) at New York’s congested airports, and their attempts to secure additional slots from competition airlines didn’t work.
Interestingly, Hayes once expressed misgivings about the deal, due to American's size advantage over JetBlue. A former employee says Hayes worried that American "had nearly unlimited resources" to shift the balance of power in the partnership to its favor. Nevertheless, the deal eventually went through.
The non-jury trial is still ongoing.
