It's difficult to break up. However, there isn't much of an alternative for JetBlue and American Airlines.
More than a year after the Department of Justice charged the alliance with restricting competition, a federal judge on Friday dismissed an antitrust lawsuit against the Northeast Alliance between American Airlines and JetBlue.
As part of the verdict, the judge mandated that the two carriers' association must come to an end within 30 days of this Friday. Both the implementation of the ruling and its implications for frequent flyers were not immediately obvious.
"The NEA [Northeast Alliance], when it operates as American and JetBlue envisioned, significantly reduces competition in the domestic air travel market. To accomplish this, two airlines that are among the major rivals in that area's Boston and New York operations are combined," according to Judge Leo T. Sorokin's decision from Friday.
The Justice Department claimed in the lawsuit that by codesharing and working together to run complementary route networks through New York and Boston, the alliance would "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."
However, American and JetBlue vigorously defended the agreement, claiming it gave them a better chance to compete with Delta Air Lines and United Airlines, which control the Northeast market than either airline could do on its own. JetBlue is well-known throughout much of the Northeast, but it is still a small airline with limited operations elsewhere in the nation.
Even though American Airlines has a considerable presence in New York, it has significantly decreased since the early 2000s, and owing to slot limitations in New York, it is unable to further expand its service.
Sorokin heard testimony from current and past executives from both airlines, as well as from other airlines, as well as from business experts and economists, during a three-week trial in U.S. District Court in Boston.
The defense of the airlines focused on the claim that the cost increases foreseen by the DOJ in its initial complaint had not materialized in the 18 months after the alliance's inception. The airlines said that by "collaborative scheduling, codesharing, and frequent flyer program integration," they have boosted capacity in the Northeast and "improved the quality of travel to and from Boston and New York."
Many business experts who had anticipated the case to go the other way were shocked by the decision.
"This was a bit of a surprise, as we believed with more than two years of data, the judge would rule in the airlines' favor," noted TD Cowen analyst Helane Becker, adding that she believes the ruling can be appealed.
What does this signify for the alliance between American Airlines and JetBlue?
The agreement, according to JetBlue, is still beneficial to passengers, the airline stated in a statement.
We disagree with the choice. The Northeast Alliance has been a great gain for customers, as we made clear during the trial," JetBlue said. "JetBlue has been able to rapidly expand in limited northeast airports through the NEA, bringing the airline's affordable rates and top-notch service to more routes than would have been possible otherwise.
The Northeast Alliance must be "permanently enjoined" 30 days after Friday, the federal judge ordered.
Indicating that it will appeal, American Airlines said in its statement:
"We assess the next course of action and deem the decision to be incorrect. The Court's legal interpretation is flawed and unheard of for a partnership like the Northeast Alliance. No consumer harm attributable to the partnership was shown in the record, and there is no legal justification for drawing that conclusion based only on the fact that the parties worked together. In no way is the Northeast Alliance anti-competitive; it has been a major win for consumers.
JetBlue continued, saying it was "studying the judgment in full and evaluating our next steps as part of the legal process."
However, the verdict appears to indicate that, barring an appeal, the tie-up will expire within the next several weeks.
Updates will be posted as we get them, but if you have upcoming travel booked with American and/or JetBlue, you might want to start reevaluating your options if you were hoping to benefit from Northeast Alliance benefits like reciprocal mileage earning and redemption options, elite benefits, and club access.
To facilitate the agreement, the two carriers additionally upgraded and rearranged their networks. So, if the decision stands, many of the alterations might need to be undone within a month.
The Department of Justice has also sued to prohibit JetBlue's proposed acquisition of Spirit Airlines, so the decision may also have an impact on that deal. JetBlue can contend that it is now in a weaker position as a result of the breakup of its relationship with American Airlines and that it requires Spirit to compete successfully.
However, the recent ruling can be interpreted as a sign that the judiciary opposes further airline industry concentration.
The Department of Justice filed a lawsuit to stop the merger of JetBlue and Spirit, and at least four state attorneys general joined it. According to Becker, TD Cowen analyst, "We believe this ruling has negative implications for the JetBlue/Spirit merger." "Mid-October marks the start of that case's trial."
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