The ruling from U.S. District Judge Leo Sorokin—who presided
over the American Airlines-JetBlue Northeast Alliance antitrust trial that began
in Boston in September and had closing arguments in November—is expected soon. No
matter what the judge decides, the outcome will be a win for the JetBlue-Spirit
Airlines proposed merger.
First, a recap…
The Justice Department along with attorneys general from six
states and Washington, D.C., in September
2021 filed a civil antitrust suit in the District of Massachusetts to undo
the American and JetBlue partnership, calling it a "de facto merger"
between the carriers in Boston and New York and that it would lead to higher
The carriers began
codesharing in February 2021, after they received approval
from the U.S. Department of Transportation that January, as a way to better
compete against Delta Air Lines and United Airlines, which "dominated the
New York City market," according to the former American CEO Doug Parker at
the time the suit was filed.
Since then, the carriers continued to announce new routes as
part of the alliance—including 10 more
cities announced in December—which has so far resulted in about 50 new
routes out of New York's John F. Kennedy International Airport and LaGuardia
Airport, Boston Logan International Airport, and Newark Liberty International
Airport; increased frequencies on more than 130 existing routes; 90 nonstop
routes with increased capacity; and 17 new international routes launched,
according to a recent JetBlue press release.
The AA-JetBlue partnership was a major sticking point in
2022 when Frontier Airlines and JetBlue went toe-to-toe in what became a hostile
takeover bid for Spirit. The Spirit board and CEO declined JetBlue's increasing
offers multiple times in favor of the Frontier deals, specifically citing concerns
over whether the merger would get regulatory approval given the antitrust suit
against the American-JetBlue alliance. That is, until it became clear that
shareholders favored JetBlue, and Frontier essentially said,
“enough,” and wouldn't increase its offer
further. The next day Spirit
agreed to be acquired by JetBlue, and its shareholders approved
the merger in October.
The Trial and Potential Ruling
During the trial, the
carriers' CEOs argued that they remained competitors, with their own gates,
their own planes, distinct services, and they did not consult with each other
on pricing. American chief commercial officer Vasu Raju, however, in testimony said
that "consolidation has been good for us," and that Parker was
"jokingly referred to internally as the 'godfather of consolidation.'
Further, the Justice Department argued that several
executives from both airlines admitted during testimony that the carriers no
longer compete on alliance routes. JetBlue's CEO Robin Hayes said that "we
don't compete with each other directly," and Scott Laurence, formerly of
JetBlue now SVP of partnership strategy for American, conceded that "it
makes more sense [for JetBlue] to cooperate with American, rather than compete
for NEA routs," according to a court transcript.
The DOJ also seized on the carriers' revenue sharing as a
symbol of lack of competition and claim that the alliance will result in higher
prices and reduced output in overlap markets, and the restriction of
competition will "substantially harm" consumers in Boston and New
York. The DOJ also estimated that the alliance results in an overcharge to
consumers of $696 million per year, based on a model that assumes the alliance
didn't exist. The defendants argued that the plaintiffs "have not proven
that the alliance already has caused price or output effects."
There are many more nuances to this case including details
on market share effects, whether there are benefits to the alliance and true growth.
Should the judge rule in favor of the plaintiffs, that would
eliminate the concern Spirit had about the antitrust suit as it likely would
result in the dismantling of the alliance, thereby making the approval of the
JetBlue acquisition more probable. Should the judge rule in favor of the
carriers, that sets a precedent that the partnership is not anticompetitive,
and again, should remove worries that the merger would not be approved.
The latter scenario also could spur other similar alliances between
carriers and perhaps even encourage another merger in the next year or two.
I'm not saying that this is good for travelers or corporate
customers, because it could lead to reduced choice of preferred carriers—and a
reduced number of carriers in general, which usually hurts competition. Then
again, it also might provide opportunity for new carriers to be creative with
city pairs and hub airports (think Breeze), particularly with the new ability for
people to live and work from anywhere that has resulted from the pandemic.