A federal judge halted a partnership between American Airlines and JetBlue Airways at airports in New York and Boston, writing in Friday’s ruling that the alliance would harm competition and raise fares.
The decision is a major victory for the Justice Department, which under President Biden has sought to enforce antitrust laws more aggressively, particularly in industries like airlines and technology, where some companies exercise such dominance that it would be difficult, if not impossible, for them to . Small businesses to challenge them. The judge ruled that the airlines’ partnership, known as the Northeast Alliance, must end.
Under the agreement, which began in 2021, each airline sells seats offered by the other on certain routes. Airlines also share revenue from some flights and airport gate access. The alliance covers the three major airports serving New York City and Boston Logan International Airport.
The Justice Department said the cooperation reduces competition and would cost travelers hundreds of millions of dollars a year if it continued. Airlines have argued that the partnership provides consumers with more flying options.
On the side of the government, Justice Leo T. Sorokin of the U.S. District Court in Boston, “It makes the two partner airlines, each with a substantial interest in the success of their joint and individual efforts, rather than energetic, energetic competitors who regularly challenge each other in a competitive marketplace.”
American and JetBlue did not immediately respond to requests for comment.
For the DOJ, “it’s a huge win,” said Gene Kimmelman, a fellow at the Harvard Kennedy School and the Tobin Center for Economic Policy at Yale University and a former DOJ official. “It was a very important case for the department to show that the agreement was created like a merger that concentrates power at major hub airports by coordinating flight schedules and airline capacity.”
A series of mergers over nearly two decades has greatly reduced the number of large airlines in the United States. In 2013, for example, American merged with American Airlines. Earlier, United and Continental Airlines became one company, and Delta Airlines joined Northwest Airlines. This has left travelers with fewer choices, particularly at many hub airports, which tend to be dominated by one or two airlines.
Part of the DOJ’s concern was that other airlines could enter into partnership agreements as well, limiting choice for customers even more.
The ruling is a blow to JetBlue, which has been trying to expand rapidly in recent years. In addition to the alliance with American, JetBlue has entered into a deal to purchase Spirit Airlines. The Department of Justice is asking the judge to block this acquisition as well.
JetBlue is the sixth largest airline in the United States, with a 5.5 percent share of the domestic market, according to federal data. America is the largest, at 17.6 percent.
In the Northeast Alliance lawsuit, the DOJ argued that JetBlue had a disruptive presence in the industry, forcing larger, more established airlines to cut prices. The division argued that JetBlue’s deal with America effectively removed a formidable competitor from several important markets.
More than 75 percent of all JetBlue flights last year flew to and from the four airports covered by the agreement, according to flight schedules tracked by Cirium, a flight data company.
“Although the Defendants claim that their greater co-operation would best benefit the flying public, they have produced the least amount of reliable objective evidence to support this claim,” Judge Sorokin wrote. “Whatever the benefits to American and JetBlue of becoming more powerful—in the Northeast generally or in their shared rivalry with Delta—those arise from an explicit agreement not to compete with one another.”
Airline stock prices fell about 1.5 percent on Friday, but there appeared to be slight additional selling pressure in aftermarket trading after the legal ruling in the afternoon.
American and JetBlue have posted strong market value gains this year, but they still have a long way to go before recovering from the pandemic’s devastating impact on airline travel: Americans has lost about half of its market value compared to the start of 2020, while JetBlue’s stock is down more than 60 percent since. That moment.
In the lawsuit seeking to block JetBlue’s takeover of Spirit, antitrust regulators have argued that JetBlue’s pursuit of the Northeast Alliance is evidence that the airline is increasingly behaving as a larger, more established airline. The department said Spirit is more disruptive to other airlines today than JetBlue, which “has fewer reasons to continue to compete aggressively” with the nation’s largest airlines. The case is expected to go to trial this year unless it is settled first.