American Airlines and JetBlue Airways Ordered to End Partnership by Federal Judge
A federal judge has ordered American Airlines and JetBlue Airways to put an end to their Northeast partnership, which the Justice Department sued to undo on the grounds that it hurt competition. The Justice Department filed a lawsuit in September 2021 alleging that the partnership was effectively a merger that would hurt consumers by driving up fares. The trial ended in December 2022 with Judge Sorokin’s recent ruling in favor of the Justice Department. However, the carriers will likely challenge the decision.
The Northeast Alliance
The Northeast Alliance, approved in the final days of the Trump administration in 2021, aimed to help the two airlines compete with other major carriers like Delta Airlines and United Airlines in congested airports in the region. However, under the partnership, American Airlines and JetBlue were not allowed to coordinate their fares.
Next Steps for American Airlines and JetBlue?
Though both airlines expressed their disappointment with the decision, they are considering next steps. The airlines have already sold tickets for travel during the peak summer season, making it difficult to unwind the partnership. Undoing the partnership could also result in additional expenses related to implementing operational and marketing elements of the partnership, which may not be recoverable.
Judge Sorokin’s Ruling
In his ruling, Judge Sorokin said that the Northeast Alliance agreement was an unreasonable restraint on trade, the type that the Sherman Act was designed to prevent. He ordered the airlines to put an end to their partnership 30 days after his ruling, which could have an adverse impact on the airlines’ financial condition and results of operations.
American Airlines and JetBlue argued they needed the partnership to compete with other large carriers, but Sorokin argued that the benefits of the partnership arose from “a naked agreement not to compete with one another.” Despite American Airlines expressing that there was no evidence of consumer harm from the partnership, Sorokin argued that there was no legal basis for such an inference to be made.
Impact on JetBlue
JetBlue expressed its disappointment in the decision and warned that it could adversely affect its business, financial condition, and results of operations. The Northeast Alliance had been a major win for customers, and JetBlue was able to expand its services to constrained northeast airports, bringing low fares and great service to more routes.
Potential Antitrust Lawsuits
The Justice Department filed a separate antitrust lawsuit in March of 2023, this time to block JetBlue’s proposed acquisition of budget carrier Spirit Airlines. The Department argued that the acquisition would drive up fares, harming cost-conscious fliers most acutely. However, this acquisition faces a high hurdle for approval by the Biden administration, which has vowed to take a hard line against what it views as anti-competitive deals.
The ruling against American Airlines and JetBlue’s partnership was a win for the Justice Department and a reminder of the importance of fair competition in the airline industry. While the airlines may challenge the decision, Judge Sorokin has made it clear that the Sherman Act was designed to prevent agreements that unreasonably restrain trade. The impact of the ruling on the airlines and their customers remains to be seen.
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