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Details: DOJ Challenging American & JetBlue Alliance

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American Airlines and JetBlue Airways announced a Northeast alliance in 2020. This is now facing some major scrutiny from regulators.

American & JetBlue face DOJ lawsuit

This week the Department of Justice's antitrust division has filed a lawsuit, arguing that the arrangement between American and JetBlue is bad for competition. The claim is that this alliance threatens competition and will lead to higher fares, and this seems to reflect the Biden administration's aggressive stance on antitrust enforcement.

For some context on this agreement, American and JetBlue first announced their new alliance in July 2020, and it launched in early 2021. With this partnership:

This new alliance is part of a much bigger shift on the part of American, whereby the airline is increasingly relying on domestic partners. While American has JetBlue on the East Coast, American also has a close partnership with Alaska on the West Coast, as American builds up a long haul hub in Seattle.

American has been adding long haul flights out of New York

What the lawsuit argues about the American & JetBlue alliance

The 42-page lawsuit was filed in the United States District Court for the District of Massachusetts, and it's some fascinating reading, even if you're not usually into this stuff. First of all, I love the general sass of government lawyers, especially when they're writing something that will be widely read. Let me summarize a few key parts of the DOJ's argument.

American Airlines is "the largest airline in the world" and JetBlue is "a uniquely disruptive low-cost airline" (is the DOJ doing advertising for JetBlue here?), and the two airlines have entered into an "unprecedented and anticompetitive pact" (is this actually unprecedented?).

Here's the gist of the complaint:

Under their so-called "Northeast Alliance," the two rivals have quietly agreed to share their revenues and coordinate which routes to fly, when to fly them, who will fly them, and what size planes to use on flights to and from four major airports: Boston Logan International Airport ("Boston Logan"), John F. Kennedy International Airport ("JFK"), LaGuardia Airport ("LaGuardia"), and Newark Liberty International Airport ("Newark Liberty"). By consolidating their businesses in this way, American and JetBlue will effectively merge their operations on flights to and from the four airports—which collectively account for two thirds of JetBlue's business. In so doing, the Northeast Alliance will eliminate significant competition between American and JetBlue that has led to lower fares and higher quality service for consumers traveling to and from those airports. It will also closely tie JetBlue's fate to that of American, diminishing JetBlue's incentives to compete with American in markets across the country. The United States and Plaintiff States bring this action to prevent the hundreds of millions of dollars in harm to consumers that will occur if these two rivals are permitted to maintain this modern-day version of a nineteenth-century business trust.

The lawsuit uses some quotes from airline CEOs against them:

What's perhaps most interesting about the lawsuit is that it really puts a lot of faith in American's management, and very much paints JetBlue as the victim:

JetBlue is being painted as the victim in this partnership

Is the American & JetBlue partnership bad for competition?

I'll be the first to say that airlines in the United States need to be reigned in and sometimes have way too much freedom. Going into reading this lawsuit, my general take was that the American and JetBlue partnership is actually good for competition. Why?

How do my feelings change after reading the lawsuit? There are obviously some valid points here, but personally I think the DOJ is approaching this all idealistically rather than realistically. The DOJ is giving American way too much credit when it comes to its ability to execute a strategy, and is painting JetBlue too much as the victim here:

I don't see JetBlue as the victim here

Bottom line

The Department of Justice is challenging the American & JetBlue strategic alliance in the Northeast, which launched earlier this year. With this, the two airlines can coordinate schedules, allowing American to turn JFK into a long haul hub, while JetBlue provides most of the feed.

As the DOJ views it, this new alliance greatly limits competition, and gets rid of the incentive for American and JetBlue to compete. It's essentially being argued that American is taking advantage of JetBlue here, and that the latter airline holds no control.

I'm curious to see what comes of this…

What do you make of the DOJ challenging the American & JetBlue alliance? Do you think the alliance is good or bad for consumers?

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