Justice Department lawsuit threatens to break up American-JetBlue alliance

In an attempt to disintegrate the new Northeast Alliance (NEA), in Boston and New York, American Airlines and JetBlue have been sued by the Justice Department, along with the District of Columbia, the States of Arizona, Massachusetts and California, Florida and Pennsylvania, respectively.
According to the Justice Department and other plaintiffs in the antitrust case the alliance is anti-competitive and will cause consumers hundreds of millions of dollars of harm. JetBlue has an incentive to subordinate to its larger partner in route decisions, not just in New York or Boston, but across its entire network.

Doug Parker

In statements Tuesday afternoon, the carriers quickly refuted the DOJ's claims, arguing that the alliance which was formed in February has enabled new routes and increased frequencies through Newark and JFK airports.

American CEO Doug Parker stated that "Before the alliance Delta and United dominated New York City." The NEA has created a third, fully-scale competitor in New York City and is enabling more growth in Boston. Ironically, the lawsuit filed by the Department of Justice seeks to limit consumer choice and discourage competition. This is not a merger. JetBlue and American are independent airlines.

JetBlue defends alliance

Robin Hayes, CEO of JetBlue, stated that the alliance has allowed JetBlue to expand in the capacity-constrained New York Market by giving it access American-controlled departures and landing slots.

Robin Hayes

Hayes stated, "The irony is that the government agency charged with preserving competition is actually trying to remove our ability to expand our low fares on these markets."

He said that JetBlue had announced nine new cities and 32 additional routes since the beginning of the alliance. All of these were possible due to access to American's landing slots, as well as American's customer base.

Parker stated that the Northeast Alliance has added 58 new routes to Boston, New York, and beyond, with new or planned JFK services to Tel Aviv and Athens. He also said that the alliance has increased frequencies on over 130 routes and now offers codeshares on 175 routes.

Related: DOT may reexamine approval of American JetBlue alliance

The DOT approved Northeast Alliance in the final days of Trump's administration. The approval allowed the carriers to schedule flights from Boston and three New York metropolitan airports together, but they are not permitted to share fares.

The DOJ claims that JetBlue and American have quietly agreed to share revenues on flights to and fro those airports and to coordinate which routes, when and who will fly them.

According to the suit, tight coordination has a significant impact on the competition in the already strong U.S. airline sector, since two-thirds JetBlue's business is located in New York or Boston.

Plaintiffs claim that American is a long-standing proponent of industry consolidation, and pointed out that JetBlue had fallen behind JetBlue in Boston. According to them, American is now seeking to co-opt JetBlue via an unprecedented domestic alliance. They liken the alliance to international joint venture tie ups that have helped consolidate the transatlantic aviation market.

Related: The impact of AA-JetBlue alliance is not yet clear

The suit states that American can absorb JetBlue's operations from New York City and Boston, and reduce its investments in the rest of its network. American could also make savings in other areas where it would otherwise maintain or add service. "Consumers across the country will be left with fewer choices and higher fares as a result. The Northeast Alliance will also tie JetBlue's success to American's, significantly reducing JetBlue's desire to compete with its larger partner.

The suit is focusing on JetBlue's London service, which will be available from New York. It also plans to offer service from Boston.

Even though these flights are not included in the alliance, JetBlue is less likely to compete with American in the transatlantic market from the Northeast. JetBlue shares revenue from American transatlantic routes which are part of the alliance.

Parker refuted these allegations during a Tuesday interview with Washington Post Live.

He stated, "Nothing in this arrangement would not allow us to be vigorous competitors elsewhere."