American Airlines, JetBlue Ordered To Cease Northeast Alliance
A U.S. federal judge has ruled a more than two-year-old alliance between American Airlines and JetBlue Airways is anticompetitive and has ordered the U.S. carriers to permanently cease the agreement in 30 days.
Under the Northeast Alliance (NEA), launched in February 2021, the airlines coordinated schedules at Boston Logan International Airport and at airports in the New York region. Roughly seven months after its launch, the U.S. Justice Department filed suit to block the NEA, along with the District of Columbia and the states of Arizona, California, Florida, Massachusetts, Pennsylvania, and Virginia.
“The question before the Court is whether the NEA suppresses or promotes competition,” the May 19 ruling states. “The record supports only one answer. The NEA, operating as it was designed and intended by American and JetBlue, substantially diminishes competition in the domestic market for air travel.”
JetBlue and American have maintained that their alliance is pro-consumer, creating more competition in the U.S. northeast region.
Reacting to the court’s decision JetBlue expressed disappointment and stated, “We are studying the judgment in full and evaluating our next steps as part of the legal process.”
American says it is also “considering next steps,” telling Aviation Daily, “The Court’s legal analysis is plainly incorrect and unprecedented for a joint venture like the Northeast Alliance. There was no evidence in the record of any consumer harm from the partnership, and there is no legal basis for inferring harm simply from the fact of collaboration. The Northeast Alliance has been a huge win for customers and anything but anticompetitive.”
In the ruling, the judge said “minimal objectively credible proof” had been provided to support claims of consumer benefits.
“Whatever the benefits to American and JetBlue of becoming more powerful—in the northeast generally or in their shared rivalry with Delta [Air Lines]—such benefits arise from a naked agreement not to compete with one another,” the ruling states. “Such a pact is just the sort of ‘unreasonable restraint on trade’ the Sherman Act was designed to prevent.”
The antitrust trial began in September 2022 and ended two months later, while the collaboration continued to expand.
The ruling is a high stakes outcome for both operators as they have consistently touted the NEA’s benefits during the court’s deliberations regarding the fate of the alliance. In its April 25 first quarter 2023 earnings call, JetBlue called the NEA a “meaningful revenue generator” as it grew daily flight offerings in New York City by over 25% when compared to 2019.
“Our revenue outlook for the remainder of the year is bolstered by strong revenue streams from the NEA, our TrueBlue loyalty program and JetBlue Travel Products,” JetBlue President and COO Joanna Geraghty told analysts and investors. “We expect a year-over-year margin tailwind in New York as the NEA markets continue to mature.”
The New York-based carrier cautioned, in an SEC filing for the end of fiscal 2022, that an unfavorable ruling could have an “adverse impact” on its business, financials, and operations. JetBlue noted, “Additionally, we are incurring costs associated with implementing operational and marketing elements of the NEA, which would not be recoverable if we were required to unwind all or a portion of the NEA.”
American pointed to the NEA’s value this spring and expressed confidence in a favorable ruling outcome.
“The NEA is producing value that I can’t envision it being ruled against,” CEO Robert Isom said at the JP Morgan Industrials Conference in March. “Everything that we have done has produced consumer benefit and all the concerns have never, have not, come. And we’ve been operating this now for a couple of years. So, I’m not looking at a plan B.”
Under the NEA, the carriers planned to fly more than 500 daily departures across New York’s three major airports in 2023, as well as nearly 200 daily departures in Boston.
In his May 19 ruling, U.S. District Judge Leo Sorokin notes, “This case turns on what “competition” means.”
He continues, “To the defendants, competition is enhanced if they join forces to unseat a powerful rival. The Sherman Act, however, has a different focus. Federal antitrust law is not concerned with making individual competitors larger or more powerful. It aims to preserve the free functioning of markets and foster participation by a diverse array of competitors. Those principles are generally undermined, rather than promoted, by agreements among horizontal competitors to dispense with competition and cooperate instead. That is precisely what happened here.”