JetBlue-American partnership struck down by federal judge

A federal judge halted a partnership between American Airlines and JetBlue Airways at airports in New York and Boston, writing in a ruling Friday that the alliance would harm competition and raise fares.

The ruling is a major victory for the Justice Department, which under President Biden has sought to enforce antitrust laws more aggressively, particularly in industries such as airlines and technology, where a few companies have such dominance that it can be difficult, if not impossible, for smaller businesses to to challenge them. The judge ruled that the airlines’ partnership, known as the Northeast Alliance, must end.

Under the agreement, starting in 2021, each airline sells seats offered by the other on certain routes. The airlines also share revenue from certain flights and access to airport gates. The alliance covers the three major airports serving New York City and Boston Logan International Airport.

The Justice Department had said the cooperation reduced competition and would cost travelers hundreds of millions of dollars a year if it remained in place. The airlines had claimed that the partnership gives consumers more flight options.

Sided with the government, Judge Leo T. Sorokin of the US District Court in Boston wrote: “It leaves the two airlines with a substantial interest in the success of their joint and individual efforts, rather than regular strong rivals at arm’s length. challenge each other in the competitive market.”

In statements, JetBlue and American said they were considering their legal options. JetBlue said it was “disappointed by the decision,” and American called the ruling “clearly wrong.” Both described the partnership as a “big win” for customers.

For the Justice Department, “it’s a big win,” said Gene Kimmelman, a fellow at the Harvard Kennedy School and Yale’s Tobin Center for Economic Policy and a former Justice Department official. “It was a very important matter for the department to show that the deal was constructed as a merger that concentrates power at key hub airports by coordinating flight routes and flight capacity.”

A series of mergers over about two decades has greatly reduced the number of major airlines in the United States. In 2013, for example, American combined with US Airways. Previously, United and Continental Airlines became one company, and Delta Air Lines merged with Northwest Airlines. That has left travelers with fewer choices, especially at many hub airports, which tend to be dominated by one or two airlines.

Part of the Ministry of Justice’s concern was that other airlines could also create partnership agreements, further limiting the options for customers.

The ruling is a blow to JetBlue, which has tried to expand rapidly in recent years. In addition to the alliance with American, JetBlue has entered into an agreement to acquire Spirit Airlines. The Department of Justice is asking a judge to block this acquisition as well.

JetBlue is the sixth largest airline in the United States, with a 5.5 percent share of the domestic market, according to federal data. The American is the largest, with 17.6 percent.

In the Northeast Alliance lawsuit, the Justice Department argued that JetBlue had been a disruptive presence in the industry, forcing larger, more established airlines to lower their fares. JetBlue’s deal with American effectively removed a formidable competitor from several key markets, the department argued.

More than 75 percent of all JetBlue flights last year flew to or from the four airports covered by the deal, according to flight routes tracked by Cirium, an aviation data firm.

“Although the defendants claim that their bigger-is-better cooperation will benefit the flying public, they produced minimal objectively credible evidence to support that claim,” Judge Sorokin wrote. “Whatever the benefits to American and JetBlue of becoming more powerful — in the Northeast generally or in their shared rivalry with Delta — such benefits arise from a bare-bones agreement not to compete with one another.”

The airlines’ share prices fell about 1.5 percent on Friday, but there appeared to be little additional selling pressure in aftermarket trading following this afternoon’s court decision.

American and JetBlue have posted strong gains in market value this year, but both still have a long way to go to recover from the pandemic’s devastating impact on air travel: American has lost roughly half of its market value compared to the start of 2020, while JetBlue’s stock has fallen more than 60 percent since then.

In the lawsuit to block JetBlue’s takeover of Spirit, antitrust regulators have argued that JetBlue’s pursuit of Northeast Alliance is evidence that the airline is increasingly behaving like a larger, more established carrier. Spirit is even more disruptive to other airlines today than JetBlue, which “has fewer reasons to continue to compete aggressively” with the nation’s largest carriers, the department said. The case is expected to go to trial this year unless it is settled first.