Justice Department Sues to Block Northeast Alliance
The U.S. Department of Justice, together with Attorneys General in six states and the District of Columbia, sued today in the District of Massachusetts to block the Northeast Alliance. This is a series of agreements between American Airlines and JetBlue through which the two airlines will consolidate their operations in Boston and New York City.
The civil antitrust complaint alleges that this extensive combination will not only eliminate important competition in these cities, but will also harm air travelers across the country by significantly diminishing JetBlue’s incentive to compete with American elsewhere, further consolidating an already highly concentrated industry.
Attorney General Merrick Garland said the lawsuit was about ensuring fair competition that lets Americans fly at affordable prices. “In an industry where just four airlines control more than 80% of domestic air travel, American Airlines’ ‘alliance’ with JetBlue is, in fact, an unprecedented maneuver to further consolidate the industry,” Garland said in a statement. “It would result in higher fares, fewer choices, and lower quality service if allowed to continue.”
The Northeast Alliance combines operations for the two airlines at four major airports: Boston Logan, John F. Kennedy, LaGuardia and Newark Liberty. The airlines have committed to coordinate “on all aspects” of network planning, including which routes to fly, when to fly them, who will fly them and what size planes to use for each flight. The two airlines will also share revenues earned at these airports, eliminating their incentives to compete with one another. The Northeast Alliance will also allow the parties to pool their gates and takeoff and landing authorizations, known as “slots.” According to the complaint, this unprecedented combination would raise prices and reduce choices for air passengers traveling to and from Boston and New York City.
The complaint states that American is the largest airline in the world. Just four airlines, American, along with Delta, United and Southwest, collectively control over 80% of domestic air travel. The complaint alleges that JetBlue’s CEO stated, “it may look as if a dozen or more airlines [are] providing service. But when you go under the surface, it’s really just three big mega-alliances controlling 87% of the traffic…Consumers effectively have very little choice in markets where JVs have a stranglehold – and they also face higher fares.”
According to the complaint, JetBlue has positioned itself as an important source of competition against American and the other large airlines, particularly in the northeast. JetBlue’s reputation for lowering prices is so established that the industry refers to it as the “JetBlue Effect.” JetBlue’s own internal estimates show that it has saved customers at least $10 billion since its launch, offering lower fares and better service, and forcing its competitors to do the same.
According to the complaint, the Northeast Alliance will cause hundreds of millions of dollars in harm to air passengers across the country through higher fares and reduced choice. The complaint alleges that prior to entering the Northeast Alliance, JetBlue and American both planned to compete more intensely with one another, including in Boston and New York City, but also in other areas. If allowed to proceed, the Northeast Alliance would eliminate this important existing and future competition.
American Airlines and JetBlue argue that the deal is pro-consumer by making their combination a stronger competitor in the Northeast. The airlines also say that there is no evidence to suggest that their agreement is leading to higher fares. They claim that nothing in their deal controls pricing, and that each airline will continue to set its own fares.