American Airlines and JetBlue must end their Northeast Alliance, ruled a federal judge, setting the tone for other airline partnerships.
This news first came last Friday (May 19th) and has divided analysts with respect to its implications for the industry. In his ruling, U.S. District Judge Leo Sorokin argued that this joint venture between American Airlines and JetBlue Airways would hurt competition and raise ticket prices.
The two airlines first announced their Northeast Alliance (aka NEA) in 2020. Its purpose is to allow them to coordinate their route networks in the region. JetBlue and American argued that NEA would allow passengers to make connections between the carriers easier, offering them choices they wouldn’t have otherwise.
However, this is not how many authorities saw the agreement. Last week’s decision comes after the Justice Department plus six states sued the airlines in 2021, aiming to stop what they saw as a merger. Now, the two airlines have to unwind the Northeast Alliance 30 days after the ruling.
Obviously, American and JetBlue don’t agree with the decision. Both carriers argue that prices for tickets in the region did NOT go up under the NEA. JetBlue, in particular, argued that the deal allowed the airline to offer its low fares to passengers that would have otherwise had to travel with pricier competitors.
Northeast Alliance: Good or Bad (and for whom)?
Likewise, American Airlines argued that the Northeast Alliance was a “huge win for customers and anything but anticompetitive”. By contrast, the U.S. Justice Department had argued that NEA gave the two carriers over 80% market share in many key markets. These included flights from Boston to Washington and the three New York area airports.
At the outbreak of the pandemic, many expected to see more consolidation in the airline industry. This didn’t happen, at least not in the United States. The country’s airlines had already undergone substantial consolidation after 9/11.
But with demand for travel now showing NO signs of letting up, the current U.S. administration argues that there is little reason to approve such moves. On the other hand, JetBlue and American didn’t label their Northeast Alliance as a merger. However, Judge Sorokin argued that the deal’s effects “resemble those of a merger”, allowing the two airlines to stop competing with each other.
For JetBlue, in particular, this decision could become a precedent for its buyout of ultra-low-cost carrier Spirit Airlines. Again, the DoJ has filed a suit, which has since been joined by a number of states, arguing that the JetBlue-Spirit merger will harm competition. Spirit and JetBlue don’t necessarily compete in the same markets. But JetBlue’s intention to absorb Spirit will see the latter’s Airbus fleet get fewer seats per plane, goes the argument.
Some believe that the rejection of the Northeast Alliance could give JetBlue a chance to argue that it needs the Spirit acquisition, to compete with larger carriers. But other analysts believe the opposite is more likely, especially considering the arguments that Judge Sorokin used.
