The US Department of Justice (DOJ) has won its lawsuit against American Airlines and JetBlue Airways, with a judge ordering the carriers to unwind their so-called “Northeast Alliance” (NEA).
The judge’s 19 May decision says the carriers’ combined strategy in the lucrative Northeast USA markets – encompassing flights from Boston and New York – violates the Sherman Anti-Trust Act.
The DOJ had sued the carriers in September 2021, claiming the collaboration, which they launched four years ago, unlawfully stifled competition. The trial was held recently in Boston.
Massachusetts federal judge Leo Sorokin has now ordered the partnership dissolved. His decision says government lawyers “convincingly established that the NEA violates… the Sherman Act” and that the collaboration ”substantially diminishes competition”.
The airlines offered “minimal evidence of any cognizable pro-competitive effects” of the alliance, he writes.
“The question before the court is whether the NEA suppresses or promotes competition,” Sorokin writes in his decision. “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. It does so by combining the Boston and New York operations of two airlines that are among the most significant competitors in that region.”
“With the NEA, American and JetBlue transformed themselves from competitors to collaborators, joining forces to create a single ‘optimised network,’” he writes. “They design that network together, jointly determining which airline will fly which routes in and out of the NEA region, how often and on what schedule they will serve each route, and which aircraft (i.e. how many seats) will be used on each route. To further promote the arrangement, American and JetBlue share the revenues each generates within the NEA.”
The ruling forces the airlines to “permanently” dissolve the venture within 30 days.
JetBlue and American have 21 days to react to the order.
Neither carrier immediately responded to requests for comment.
The suit claimed the partnership harms consumers and gives American too much sway over JetBlue, threatening JetBlue’s ability to remain a successful low-fare counterweight in an industry that has significantly consolidated.
The DOJ maintained that the alliance represents a de-facto merger in the region. But the carriers countered by saying their deal evens the playing field in New York and Boston, helping them better compete with United Airlines and Delta Air Lines, which have larger presences at airports in both cities.
Attorneys general in six states and the District of Columbia had joined the DOJ as plaintiffs.
The airlines spent several years expanding the alliance, and had been counting on it to boost earnings.
During JetBlue’s first-quarter earnings call last month, JetBlue chief operating officer Joanna Geraghty said the airline’s revenue outlook for the year would be “bolstered by strong revenue streams from the NEA”. The venture had boosted the carrier’s total daily flights in New York City by 25% against pre-pandemic levels.
“We have set a year-over-year margin tailwind in New York as the NEA markets continue to mature,” Geraghty added at the time.
JetBlue is currently mired in a second lawsuit brought by the DOJ, intended to prevent the carrier from acquiring ultra low-cost carrier Spirit Airlines. That suit was filed in March, also in Boston, and a trial date is set for later this year.
With additional reporting by Howard Hardee.
