DOJ questions JetBlue and American Airlines partnership in court
Attorneys for airlines and the Justice Department expressed sharply opposing views about an alliance between American Airlines and JetBlue during Friday’s closing arguments in a case that will test the Biden administration’s aggressive enforcement of antitrust laws.
The partnership will allow American and JetBlue to coordinate flight schedules and share revenue on many routes to and from New York and Boston, which the government says will cost consumers hundreds of millions of dollars a year through higher fares.
“It’s a very important case for us…because of the families who have to travel and want affordable tickets and good service,” Attorney Bill Jones said in federal district court in Boston.
Lawyers for the airlines said the partnership has created new routes that are good for travellers. They argued that during a month-long trial, the government failed to provide any evidence that the deal harmed consumers.
“It’s all just an idea,” said Daniel Wall, an attorney for American.
As the attorneys concluded their arguments, US District Judge Leo Sorokin said he was still reading hundreds of pages of material filed by both sides this week. A decision is likely weeks away.
The government’s reasoning is intuitive – that two major airlines working together rather than competing will limit consumer choice and result in higher fares. However, the lawsuit, which has been joined by six states and the District of Columbia, is also speculative.
The case will boil down to the judge’s interpretation of antitrust law and his ruling on whether the government has produced enough evidence to end the partnership the airlines have been rolling out since early 2021.
Above the trial, JetBlue’s proposal to buy Spirit Airlines, the country’s largest discount airline, for $3.8 billion is threatening. Spirit Airlines shareholders voted to approve the sale last month, though JetBlue rejected Spirit’s request to end its partnership with American to reduce regulatory risk.
The process involved testimony from current and former airline CEOs and economists, who differed widely on the impact the alliance will have on competition and ticket prices.
The US Department of Transportation approved the alliance 10 days before the end of the Trump administration. However, shortly after President Joe Biden took office, there were rumors that the Justice Department was taking a closer look, and it sued to end the deal in September 2021.
The case is a test of the Biden administration’s resolve to embrace mergers and other business deals it believes will stifle competition and cost consumers more money.
“The Justice Department has a very good case,” said Florian Ederer, an antitrust expert and economics professor at Yale University who has been following the matter. “The NEA hurts competition, it probably hurts consumers. (American) has eliminated a disruptive competitor, a maverick.”
The stakes are even higher because the Justice Department has suffered two losses in major antitrust cases this fall. It failed to stop a sugar refinery merger and failed to block a major takeover in the health insurance industry.
Robert Britton, a former American Airlines executive who teaches marketing at Georgetown University, said the government acted too hastily before any harm from the alliance was apparent.
“They say, ‘You haven’t done anything wrong so far, but you might do it in the future, so we’re going to arrest you now,'” Britton said.
American and JetBlue say the alliance is already helping them compete against Delta Air Lines and United Airlines in two critical markets. Their experts said the America-JetBlue deal will save consumers up to $635 million a year by acquiring established competitors.
American’s chief commercial officer, Vasu Raja, testified that before the alliance, the company had lagged behind its two major competitors in the Northeast. He said American Airlines only flew non-stop from New York to 31 of the top 50 destinations. Now it flies to 47 of them and works on the other three. Raja added that additional JetBlue passengers, by coordinating their flight schedules, enabled American to offer new international routes, such as to Tel Aviv.
Government attorneys tried several times during the trial to use previous comments from American and JetBlue executives, including times when JetBlue CEO Robin Hayes criticized joint ventures with other airlines. Hayes testified that this deal is different because American and JetBlue still set their own prices.
Executives at rivals Southwest Airlines and Spirit Airlines said the partnership created unfair competition for low-cost airlines looking to expand in New York and Boston.
Each side called economists to back up their arguments. A Georgetown University professor, Nathan Miller, concluded that the partnership will reduce competition and cost consumers nearly $700 million annually in higher prices. An aviation consultant called by the airlines, Darin Lee, tried to poke holes in Miller’s analysis, saying, for example, that he used nearby Newark, New Jersey — which is dominated by United — when measuring the concentration of American and JetBlue on the New largely ignored the York market.
Judge Sorokin was nominated by President Barack Obama in 2013 and confirmed by the Senate 91-0. Sorokin played an active role during the trial, interrupting the attorneys to ask questions of the witnesses while trying to understand the idiosyncrasies of the industry, including how airlines set fares.
The judge was careful during the trial not to indicate whether he was leaning one way or the other. Whenever he decides, his decision will likely be challenged by the losing side.
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