Is American Airlines Doing JetBlue’s Bidding In Northeast Alliance Appeal?

JetBlue will not appeal a judge’s decision to disband the Northeast Alliance, but American Airlines is. Is AA simply doing the bidding of JetBlue when it comes to an appeal in an effort to better position JetBlue to acquire Spirit Airlines?

Is American Airlines Appealing Northeast Alliance Decision On Behalf Of JetBlue?

In May, a New York judge determined that the Northeast Alliance (NEA) undermined competition and eliminated any incentive for JetBlue and American Airlines to compete with one another. As a result, it was ruled that the NEA violates the Sherman Antitrust Act, which prohibits anticompetitive agreements that can monopolize markets.

In light of the ruling, Both American and JetBlue issued statements of objections and indicated they were considering their appellate options.

In a somewhat surprising move, JetBlue has announced it will not appeal the decision:

We’ve spent a lot of time considering next steps and, while we believe in the NEA’s procompetitive benefits, we have made the hard decision not to appeal the court’s ruling and have instead initiated the termination of the NEA, beginning a wind down process that will take place over the coming months.

Why would JetBlue not appeal what it views as an erroneous ruling? The answer is that it has its eyes on what it considers a greater prize: Spirit Airlines.

This decision will enable us to focus even more on our combination with Spirit. In fact, we hope taking the U.S. Department of Justice’s (DOJ) misplaced concerns about our partnership with a legacy carrier off the table will help us when we go to trial this fall to obtain approval from the court to move forward with our Spirit acquisition. Combining with Spirit is our best chance to create a national low-fare competitor to the Big Four.

However, I am of the opinion that if the NEA was prohibited, a merger between JetBlue and Spirit Airlines is likely to be as well. Of course, there is a difference between two competitors coordinating and two competitors merging, but it appears to me the current Administration and the agencies that report to it are in no mood for a merger and will fight bitterly to block such a union. Both partnerships are viewed as anti-competitive.

Meanwhile, American Airlines will proceed with the appeal alone:

JetBlue has advised us that it will not join the appeal of the District Court ruling in the Northeast Alliance case. We, of course, respect JetBlue’s decision to focus on its other antitrust and regulatory challenges. At the same time, 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. American will therefore move forward with an appeal. JetBlue has been a great partner, and we will continue to work with them to ensure our mutual customers can travel seamlessly without disruption to their travel plans.

Could it be that American Airlines is appealing not only for itself but as a proxy of JetBlue? I think the answer is yes. JetBlue does value its merger with Spirit Airlines above all else, but it still wants to have its cake and eat it too…in an ideal world for JetBlue, it would have both the NEA and a meter with Spirit. I don’t believe its decision to “terminate” the NEA is the real goal going forward.

It is reasonable to argue that American needs JetBlue more than JetBlue needs American (especially in terms of its presence at New York JFK), but the NEA has allowed both to strategically grow in a New York metro market that is dominated by Delta Air Lines and United Airlines.

JetBlue wants to maximize its chances for the Spirit Airlines merger to proceed, but AA’s appeal suggests to me it also wants the NEA to survive.

CONCLUSION

I am convinced that American Airlines has moved forward with its unilateral appeal with the blessing of JetBlue, even as JetBlue says it has initiated the termination of the NEA.

As for what the wind-down of the NEA would mean for consumers, we will have to wait and see. It is still not clear to me that Judge Sorokin’s decision will survive on appeal, which could put JetBlue in the position of remaining “stuck” with American Airlines (assuming there is no unilateral dissolution clause in the NEA contract). As for whether that benefits consumers, as we noted it really depends upon the narrative. The case is not nearly as clear-cut as Sorokin reasoned.

> Read More: Will Northeast Alliance Survive On Appeal?

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