In a judgement issued on Friday, a federal court ruled that the alliance between American Airlines and JetBlue Airways at New York and Boston airports would hinder competition and hike rates.
In industries like airlines and technology, where a few companies wield such dominance that it can be difficult, if not impossible, for smaller businesses to challenge them, this decision is a huge win for the Justice Department, which has sought to enforce antitrust laws more aggressively under President Biden. The court determined that the Northeast Alliance of airlines must dissolve.
Beginning in 2021, each airline will sell tickets on the other’s flights as part of the arrangement. Profits from some flights and use of airport gates are also split among the carriers. New York City’s three main airports and Boston’s Logan International Airport are also part of the partnership.
According to the Department of Justice, continuing the partnership would decrease competition and cost travellers hundreds of millions of dollars annually. The airlines defended its alliance by saying that it gives passengers additional flight alternatives.
Both JetBlue and American issued comments saying they were investigating their legal options. American Airlines declared the verdict “plainly incorrect,” while JetBlue expressed “disappointment in the decision.” They both referred to the alliance as a “huge win” for consumers.
The number of major U.S. airlines has decreased significantly due to a series of mergers during the last two decades. American Airlines, for instance, merged with US Airways in 2013. Delta Air Lines merged with Northwest Airlines, while United Airlines and Continental Airlines merged earlier. This is particularly true at hub airports, where often only one or two airlines operate.
The Justice Department was worried that if one airline formed a partnership with another, it would further restrict consumer choice.
JetBlue’s aggressive expansion plans have been derailed by this verdict. JetBlue has made plans to acquire Spirit Airlines in addition to its partnership with American. The Department of Justice has also filed a petition with a court to halt this transaction.
According to official statistics, JetBlue is the sixth biggest airline in the United States, accounting for 5.5% of the domestic market. With 17.6 percent, Americans are the biggest single group.
The Justice Department asserted that JetBlue’s presence in the business was disruptive, leading to reduced rates from more established airlines as part of the action against the Northeast Alliance. The government said that the merger between JetBlue and American effectively eliminated a significant competition in numerous key areas.
According to flight schedules recorded by Cirium, an aviation data company, more than 75% of all JetBlue flights last year travelled to or from the four airports covered by the deal.
Friday afternoon’s judicial verdict caused a 1.5 percent drop in airline stock prices, although there looked to be no more selling pressure in aftermarket trade.
Although both American and JetBlue have seen significant increases in market value this year, they still have a ways to go before they fully recover from the disastrous effect the epidemic has had on the airline industry: Since the beginning of 2020, American’s stock price has dropped by about half, while JetBlue’s stock price has dropped by more than 60 percent.
Antitrust officials have used JetBlue’s pursuit of the Northeast Alliance as proof that the airline is becoming behaving like a bigger, more established carrier in their action to block the merger of Spirit. The Department of Transportation claims that Spirit Airlines is even more of a threat to established carriers than JetBlue is because JetBlue ‘had less motivation to continue to compete aggressively’ with the top airlines in the country. Unless it is resolved before then, the lawsuit is scheduled to go to trial this year.
