Get all your news in one place.
100’s of premium titles.
One app.
Start reading
Tribune News Service
Tribune News Service
Business
Kyle Arnold

American Airlines-JetBlue antitrust trial starts Tuesday with high stakes for Biden

The government’s antitrust regulators are quickly approaching the proverbial line drawn in the sand over airline consolidation.

On Tuesday in Boston, Justice Department lawyers are set to lay out their objections to a two-year-old business partnership between American Airlines and JetBlue known as the Northeast Alliance.

It’s a case that could have far-reaching consequences in the airline industry after decades of consolidation shrunk the market to just a handful of viable carriers nationwide.

Future mergers could be measured by how well government antitrust lawyers can argue the case, including the pending merger between Spirit Airlines and JetBlue.

Does coordinating ticket booking networks simplify cross-country travel or reduce competition? Is it fair for the world’s largest airline to team up with a competitor? And at what point now can the government say consumers lose out after decades of allowing the country’s biggest carriers to combine?

“The DOJ is its own worst enemy in this case because they are arguing that the industry is too consolidated after allowing consolidation for decades,” said Darren Bush, a former antitrust lawyer in the government’s airline division and now a law professor at the University of Houston. “This wouldn’t be as big of an issue if they didn’t let it get to this point in the first place.”

District Judge Leo Sorokin, an Obama appointee, said the case could take three weeks of proceedings.

By many measures, it’s improbable for an antitrust case like this to get to trial. Usually, airlines resolve merger concerns by giving up space in hotly contested airports in big cities. Nine years ago, American Airlines and US Airways assuaged government regulators by divesting space in seven major cities — a move that was aimed at making more space for “low-cost carriers at key U.S. airports,” Attorney General Eric Holder said at the time.

The case also illustrates differing political philosophies of presidents. Donald Trump’s administration terminated its review of the partnership in 2021, two months after the presidential election and days before Joe Biden took office. The Biden administration promised more scrutiny of industry consolidation in an executive order that specifically names the airline industry.

The Northeast Alliance immediately tests the Biden administration’s resolve as it takes aim at two of the airline industry’s biggest players.

“This is a major test of Biden’s crusade against big business and corporate monopoly,” said William Magnuson, an associate law professor at Texas A&M. “Biden has staked his reputation on being a trust buster. They’ve certainly challenged a few lawsuits and they’ve brought lawsuits against. But this would be a major victory if he manages to stop it.”

That also could set a far-reaching precedent beyond airlines, Magnuson said.

But first, lawyers will have to argue whether the alliance formed by American and JetBlue hurt competition in the Boston and New York areas, two of the most lucrative travel markets in the country. JetBlue and American have now worked together in the region for two years, but the complications of the COVID-19 pandemic recovery make it hard to judge the impact on competition and pricing.

American and JetBlue’s lawyers have argued the alliance leads to more options for consumers by creating a viable third competitor to United and Delta in the region.

New York and Boston have long been weak points for American. Those cities are home to some of the nation’s most expensive and competitive airports, while American thrives in the Sunbelt. JetBlue, which as risen to prominence as a “low-cost carrier” over the last two decades, is strong in the Northeast and along the East Coast, but has a weak network in the Midwest, South and on the West Coast.

“What is interesting is that American was far behind, only about 12% of that Northeast market,” said Colin Scarola, an airline industry financial analyst with CFRA. “They are trying to beat the antitrust claim that the market was too heavily dominated by Delta and United, but really they wanted to find a way into this market other than trying to buy gates.”

The marriage of the two airlines theoretically fills each other’s weaknesses.

Attorney General Merrick Garland said the partnership amounts to a “de facto merger between American and JetBlue in Boston and New York City.” He also said the alliance’s “impact on consumers extends far beyond Massachusetts and New York.” Attorneys general from six other states and Washington, D.C., joined the suit to stop the deal.

Airline industry analysts are watching the case closely because its outcome could impact not only American and JetBlue, but also the pending merger between Spirit and JetBlue. American and JetBlue have committed to the alliance even in the event of a Spirit merger, but that could be decided in future legal battles.

Without the JetBlue alliance, American Airlines could find itself as the big loser in the region if a JetBlue-Spirit merger goes through, said Christopher Raite, an analyst with investor research firm Third Bridge. American is the fourth-place competitor in the region behind United, Delta and JetBlue, and the Spirit merger would give JetBlue a nationwide footprint.

The Spirit-JetBlue merger won’t actually be a discussion point in the case. But it will cast a shadow since the alliance decision could either propel the merger or slow it down.

Kerry Tan, an associate economics professor at Loyola University in Maryland, said both the alliance case and the merger could likely be resolved with concessions, such as giving up slots at key airports. But combining the complexities of the two muddles it.

“It makes the combined effect a lot harder to disentangle,” Tan said.

Sign up to read this article
Read news from 100’s of titles, curated specifically for you.
Already a member? Sign in here
Related Stories
Top stories on inkl right now
One subscription that gives you access to news from hundreds of sites
Already a member? Sign in here
Our Picks
Fourteen days free
Download the app
One app. One membership.
100+ trusted global sources.