JetBlue, American slam US DOJ lawsuit against their alliance

JetBlue Airways (B6, New York JFK) has vowed to continue implementing its Northeast Alliance (NEA) partnership with American Airlines (AA, Dallas/Fort Worth) despite the fact that the US Department of Justice (DOJ) and attorney-generals in six states (Arizona, California, the District of Columbia, Florida, Massachusetts, Pennsylvania, and Virginia) have filed a federal lawsuit to unwind it, arguing it limits competition and results in higher airfares.

In a scathing criticism, chief executive officer Robin Hayes said the DOJ was sure to face an uphill battle in court as there was “absolutely no evidence that the NEA (implemented on January 10, 2021) is harming consumers”, in fact, it was “quite the opposite”. “I want to reassure you that the DOJ’s action will not affect our plans to continue implementing the NEA,” he wrote in an open letter to employees.

American Airlines chairman and chief executive officer Doug Parker called the lawsuit “misguided”, saying the airline looked forward to “vigorously rebutting the DOJ’s claims and proving the many benefits the NEA brings to consumers”.

Both stressed the partnership was not a merger and that both airlines remained independent. “We have two different business models and are not working together on pricing,” Hayes explained. “Even with the NEA, we continue to independently price as we always have and remain tough competitors to American in markets where we are going head-to-head.”

The lawsuit filed on September 21 in the District of Massachusetts is based on a “civil anti-trust complaint” that the NEA codeshare and reciprocal loyalty programme alliance reduces JetBlue’s incentive to compete with American in the Boston and New York region and throughout the country. “In an industry where just four airlines control more than 80% of domestic air travel, American Airlines’ ‘alliance’ with JetBlue is, in fact, an unprecedented manoeuvre to further consolidate the industry. It would result in higher fares, fewer choices, and lower quality service if allowed to continue,” said Attorney-General Merrick Garland.

The DOJ, in a statement, said the NEA combined American’s and JetBlue’s operations at four major airports: Boston, New York JFK, New York La Guardia, and New York Newark. The airlines cooperate on code-sharing, frequent flyer programmes, interlining, revenue sharing at these airports, and asset (airport slots) sharing.

In light of the DOJ lawsuit, the Department of Transportation (DOT), in a regulatory filing on September 21, gave notice it had stayed proceedings on a formal complaint by Spirit Airlines, submitted in January 2021. The DOT said it would work closely with the DOJ in providing data and documents. The outcome of the litigation would inform any future DOT action. The DOT said it had already consulted with the DOJ during an informal time-limited review of the NEA in 2020, but that the DOJ had been conducting its own in-depth review of the alliance. The DOT had entered into an agreement with both airlines on January 10, 2021, to address certain concerns about “anticompetitive harms arising from the NEA”.

However, Hayes said it was ironic that the government agency responsible for preserving competition was trying to take away JetBlue’s ability to expand its low fares model. “What the DOJ says and does seem to be in conflict – it’s quite puzzling and hypocritical for DOJ to applaud the DOT’s recent efforts to promote competition at Newark while standing in the way of JetBlue’s growth. Rather than use the public’s resources to stifle competition in court, DOJ should monitor the NEA’s progress over the months ahead and hold us accountable for delivering the customer benefits we’ve promised.”

American and JetBlue said their alliance allowed them to challenge Delta Air Lines and United Airlines which dominate the Northeast market. “Before the alliance, Delta and United dominated the New York City market. The NEA has created a third, full-scale competitor in New York and is empowering more growth in Boston. Ironically, the Department of Justice’s lawsuit seeks to take away consumer choice and inhibit competition, not encourage it,” said Parker.

“In New York’s airports, there has been quite literally no room for us to add flights,” added Hayes. “There are no slots available at LGA and JFK, and it remains extremely difficult to grow in Newark given gate and space constraints. Delta and United – with large international networks, ample financial resources, and significant airport gate and slot holdings – have a lock on the market and make it impossible for an airline like JetBlue to grow and introduce sorely needed low-fare competition. In Boston…our sales pitch is hampered by a relative lack of network breadth and depth compared to the deep-pocketed legacy airline that plans to grow even further there.” “These obstacles to growth led us to an unlikely alliance with American Airlines which…also has not been able to compete with Delta and United’s dominance in the Northeast.”

He said the NEA also enabled JetBlue to grow its network faster than it otherwise would have been able to do, which was why the carrier had delayed the retirement of its 30 owned E190s.

American and JetBlue said through the NEA, they added 58 new routes, including 18 international flights to be launched in 2022, and increased frequencies on more than 130 routes. The airlines are now code-sharing on 175 routes. Hayes said Delta and United were already responding by launching new routes, introducing larger aircraft, and bringing premium seats to Boston and New York. “This is exactly the type of action you would expect when there is a competitive influence in the market,” he noted.