JetBlue Airways announced that it won’t appeal a judge’s decision to dismantle a partnership with American Airlines that allowed the two carriers to coordinate operations on certain routes in the Northeast United States and share the profits.
The carrier said it hopes its move to end the Northeast Alliance would prompt the U.S. Department of Justice to reconsider its opposition to JetBlue’s bid to merge with Spirit Airlines.
“Despite our deep conviction in the procompetitive benefits of the NEA, after much consideration, JetBlue has made the difficult decision not to appeal the court’s determination that the NEA cannot continue as currently crafted, and has instead initiated the termination of the NEA, beginning a wind-down process that will take place over the coming months,” the carrier said in a statement.
American Airlines said that although it respected JetBlue’s decision, it would still pursue an appeal in the Northeast Alliance case.
“JetBlue’s decision and reasoning confirm our belief that the NEA has been highly pro-competitive and that an erroneous judicial decision disregarding the NEA’s consumer benefits has led to an anticompetitive outcome,” the carrier said in a statement. “The importance of the legal issues presented and the burdens of the restrictions on our business should easily justify an accelerated appeal.”
American and JetBlue announced the creation of the Northeast Alliance in July 2020. The U.S. Department of Transportation gave the carriers approval to form the alliance in the waning days of the Trump administration as long as certain conditions were met. By joining forces on certain routes between New York and Boston, the carriers hoped to compete more effectively against United Airlines and Delta Air Lines, the major players in those markets.
The alliance included flights at Boston Logan International, John F. Kennedy International, LaGuardia and Newark Liberty International airports.
The DOJ, joined by attorneys general in Arizona, California, Florida, Massachusetts, Pennsylvania, Virginia and D.C., challenged the agreement in 2021, and the case was heard last fall in U.S. District Court in Massachusetts. A federal judge in Boston ruled in May that the alliance diminished competition and ordered the partnership be dissolved.
Judge Leo T. Sorokin’s 94-page decision came two months after the Justice Department moved to block JetBlue’s attempt to merge with Spirit, saying the deal would reduce competition and could lead to higher fares. DOJ attorneys said the loss of Spirit would be particularly harmful for price-sensitive consumers who depend on Spirit’s low fares.
In an interview with The Washington Post, Robin Hayes, JetBlue’s chief executive, pushed back on the notion that the merger would mean less competition in an industry in which four airlines account for about 80 percent of the market.
Hayes said combining operations would create an airline that can be “a disruptive presence able to appeal to a broader set of customers.” He added: “We’re doing this to grow. We’re not doing this to consolidate. We’re doing this to try and get bigger so we can better compete with the Big Four airlines.”
A combined JetBlue-Spirit airline would be the nation’s fifth-largest carrier.
Given its decision not to pursue an appeal in the Northeast Alliance case, JetBlue on Wednesday urged the DOJ to take another look at its $3.8 billion merger with Spirit, noting that the DOJ itself has recognized “the benefits of JetBlue’s disruptive impact on the industry.”
“As it relates to the Spirit combination, terminating the NEA renders the U.S. Department of Justice’s (DOJ) concerns about our partnership with a legacy carrier entirely moot,” JetBlue said. “With that, the DOJ should reconsider and support our plan to bring a national low-fare competitor to the Big Four; the flying public deserves better than the status quo.”
The Justice Department declined to comment on the matter.
Bill Baer, who led the Justice Department’s antitrust division from 2013 to 2016, said JetBlue’s decision is unlikely to hold much sway with regulators.
“With an adverse decision on the Northeast Alliance weighing down their prospects to buy Spirit, [JetBlue] made a cynical but strategically reasonable choice,” said Baer, now a visiting fellow in governance studies at the Brookings Institution. “I’m pretty confident that this will not do anything to change the strict scrutiny the antitrust division is applying to the Spirit transaction.”
The Biden administration has increased scrutiny of deals in industries in which it thinks there is too little competition to the detriment of consumers. The Justice Department’s victory in the Northeast Alliance case was seen as a huge boost to that effort.
“We need more, not less, competition in the airline industry, so I welcome JetBlue’s decision to end its participation in the Northeast Alliance,” said Rob Bonta (D), the attorney general of California, one of the states that joined the DOJ’s challenge to the American-JetBlue partnership.
JetBlue has taken other steps to allay regulators’ concerns about overlaps in service between the two carriers in the Northeast. Hayes previously pledged to divest Spirit’s holdings in Boston and New York and said it would offer five gates and “related assets at Fort Lauderdale” – a Spirit hub – to be allocated to other ultra-low-cost carriers.
Hayes also said concerns about a loss of seats could be addressed by operating more frequent flights and from growth that would occur as part of the merger.
(c) 2023, The Washington Post · Lori Aratani
Why would American Airlines sully their reputation by joining the incompetent failing Jet Blue?