Yesterday, a judge nullified the Northeast Alliance between JetBlue and American Airlines, ordering that it be disbanded within 30 days. Let’s unpack the legal reasoning behind the decision and whether the Northeast Alliance is likely to survive on appeal.
Judge Orders Swift End To JetBlue – American Northeast Alliance
In short, Judge Leo Sorokin ruled (in a 94-page opinion) that:
- The very nature of the alliance undermined competition and eliminated any incentive for JetBlue and American Airlines to compete with one another
- The Northeast Alliance has led to reduced frequencies and/or lower capacity on many key routes
- American and JetBlue failed to demonstrate how the alliance has benefited the public
- Therefore, the Northeast Alliance violates the Sherman Antitrust Act, which prohibits anticompetitive agreements that can monopolize markets
- Even though the Trump Administration may have allowed the alliance to proceed, it lacked sufficient legal grounds to do so
- The Northeast Alliance must be unwound in 30 days
Key quotes from Judge Sorokin:
Concerning competition–
“It makes the two airlines partners, each having a substantial interest in the success of their joint and individual efforts, instead of vigorous, arms-length rivals regularly challenging each other in the marketplace of competition”
Concerning Sherman Act violation–
“Whatever the benefits to American and JetBlue of becoming more powerful — in the northeast generally or in their shared rivalry with Delta — such benefits arise from a naked agreement not to compete with one another. Such a pact is just the sort of ‘unreasonable restraint on trade’ the Sherman Act was designed to prevent.”
Concerning evidence of consumer benefit–
“Though the defendants claim their bigger-is-better collaboration will benefit the flying public, they produced minimal objectively credible proof to support that claim.”
On that last point, American Airlines countered that the US Department of Justice failed to produce any evidence that consumers were not better off, beyond cherry-picking route adjustments that would have occurred with or without an alliance.
American Airlines + JetBlue Will Appeal Northeast Alliance Ruling
I’m confident lawyers at American Airlines and JetBlue are busy preparing an appeal to the ruling this weekend and we will see it filed early next week.
Addressing the ruling, American Airlines said:
“We believe the decision is wrong and are considering next steps. The Court’s legal analysis is plainly incorrect and unprecedented for a joint venture like the Northeast Alliance. There was no evidence in the record of any consumer harm from the partnership, and there is no legal basis for inferring harm simply from the fact of collaboration. The Northeast Alliance has been a huge win for customers and anything but anticompetitive.”
Focusing on the court’s legal analysis is key to lodging a successful appeal. The court used what it called “common sense” to justify its ruling:
“Common sense suggests, and the Court finds based on all of the testimony and evidence, that a spirit of partnership between the two carriers will overwhelm any incentive for intra-partnership competition the [Mutual Growth Incentive Agreement] might facially appear to create.”
That’s a bit shaky. To win on appeal, American and JetBlue will have to convince the appellate court that the Department of Justice has not met its burden of showing the competitive harm that results from the Northeast Alliance.
As JetBlue said:
”We are disappointed in the decision. We made it clear at trial that the Northeast Alliance has been a huge win for customers. Through the NEA, JetBlue has been able to significantly grow in constrained northeast airports, bringing the airline’s low fares and great service to more routes than would have been possible otherwise.”
Is that true or is that false? It depends on how you look at it. In its brief, DOJ asserted:
“Over the long-term, the NEA has compromised JetBlue’s incentives to expand its network in Boston and New York. Instead of adding flights and flying bigger planes, thereby lowering fares for passengers, JetBlue now can simply sell higher-priced tickets on AA’s flights and share in the resulting proceeds.”
What has actually occurred? It depends on how you examine and analyze the data. There is a narrative behind every new route and every canceled or consolidated route.
Furthermore, what degree of reliance interest can AA and JetBlue reasonably assert on the basis of the Trump-era approval of the Northeast Alliance? Has Congress delegated the authority to gauge Sherman Act violations to the courts or to the Executive Branch? There are broader questions at play.
Practically, Nothing Will Change…For Now
While I am unaware of how this case will turn on appeal, I am very confident that once the appeal is filed, a stay will be placed on Judge Sorkin’s ruling, meaning business as usual will continue…foreseeably for the next several months.
With tickets already sold and schedules filed in reliance on the Northeast Alliance, I do not think we will see a sudden dismantling and retooling of the schedule as we enter the busy summer travel season.
Long term, it is not at all clear what a relationship with JetBlue and American would look like without the Northeast Alliance, though it many cases it might look very similar to what it does today, at least for consumers in terms of reciprocal benefits.
CONCLUSION
A judge has vacated Northeast Alliance between JetBlue and American Airlines, arguing that it is anti-competitive collusion that violates US law and harms consumers. However, the case is not over yet: an appeal is likely and in so doing, I expect the 30-day wind-down ordered by Judge Sorkin to be frozen as the appeal proceeds.
The court released an extensive powerpoint of their findings and it is as patently inaccurate as can be to say that the court failed to prove that the NEA was uncompetitive and collusionary.
It really doesn’t matter if some people on social media don’t get it.
The words and internal documents of AAL and JBLU execs extensively show that the NEA was intended to suppress competition, did it, and AAL specifically chose to pursue the NEA even though it knew it could achieve most of the results using an ALK style partnership – but they chose the NEA anyway.
3 years later, AAL and JBLU now have to immediately undo in 30 days their bad decisions, are both now worse off than they were before the NEA, and have provided an even greater opportunity for competitors to grow than if they both grew on their own.
The court found those points and anyone that argues otherwise simply doesn’t want to face the truth.
The court itself showed that DL and UA both have grown as they intended to do all along – something AA and B6 did not do because of the NEA. That in itself is the definition of collusion to suppress competition
There is no viable case for an appeal.
The judge also showed that AA specifically considered an AS-style relationship with B6 but chose to pursue the NEA which they knew was counter to US antitrust laws.
Now they have to undo on 30 days notice what they created and B6 will have to compete with DL and UA.
Those are the words of the judge, not mine.
Just copying and pasting verbatim your delta spiel from other websites now, huh tim?
Of course there’s grounds for appeal. To suggest otherwise is ignorant. Doesn’t mean the NEA will win but of course there’s grounds for appeal.
It’s just “Tim Dumb” spewing his DL fanboydom all over the interwebs!
B6 is down to about 2 flights a day this summer at ORD because of the NEA, most of the options on their site to BOS and JFK are AA flights. I could have always flown AA if I wanted to. How does this agreement help me?
I agree that if there is an appeal, the ruling will likely be stayed (though I think ultimately the DOJ will win its case on appeal). However there is speculation that JetBlue won’t agree to an appeal as it may see the decision as a way to make it more likely for its Spirit deal to get done.
As an NYC consumer of all of the airlines in question here, my hope is that American steps its game up at JFK with better lounges and schedule, and JetBlue does the same (by building lounges at JFK and LGA), The current agreement doesn’t really encourage either to do so.
AA had all but given up on NYC prior to the NEA, what makes you think they will now invest in it? They have a successful hub less than 100 miles away and the fierce NYC competition made it unprofitable to sustain, much less grow. The NEA was a way to stay in the game – without it, my guess is NYC goes back to being little more than a “focus city”, connecting markets to its BA JV, while they cede other domestic flying to DL/UA and a newly independent B6 (who they will still partner with for mileage earning/elite recognition).
They’re giving up in New York, they are retreating in Chicago and LA… are they just going to try to fly everything through DFW?
@Matt – I love the West Wing and Newsroom as well, but I think you might want to double-check the name of the judge in this case 😉
Lol. Wow!
Check it again — I see one correction to Sorokin and one Sorkin 🙂
The lack of true upgrade reciprocity and elite benefits made this a one sided deal for the airlines, not to the benefit of the fliers.
That’s the lousy thing about these JVs. Metal neutral to the airline but not to the loyal customer who gets fewer choices to truly use the benefits they’ve earned. Same issue with BA/AA and NH/UA. Make it truly metal neutral for the customer with full upgrade alignment and soft product alignment.
Is this any different than an airline alliance like SkyTeam or OneWorld, but with a domestic flavor?? I can buy tickets on the Virgin Atlantic web site; yet, all the equipment and crew is from the Widget.
Also, for the eco freaks, each jet is packed to the gills as opposed to multiple jets flying half empty to Pittsburg. As I understand it, the FAA is having difficulty handling the current congestion in the northeast. Better to rack and stack them as opposed to multiple jets sitting in the taxiway waiting for slots. This administration is lost.
AA is unwilling to make do with the hand they hold at JFK. JV’s are essentially a merger without all of the government red tape. They coordinate schedules and also can direct the pricing strategy through the published and transparent pricing environment which also applies to non partner airlines as well.
The NEA is a zero sum game for the competitive nature of NYC. They stop competing on overlapping routes, by reducing capacity and driving up pricing, and instead deploy that capacity to compete with other airlines, which should reduce prices in those routes. AA/B6/DL are clear winners in BOS-LGA while consumers lose with less competition, as one example.