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:
“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.
Will American Airlines + JetBlue Appeal Northeast Alliance Ruling?
I’m confident lawyers at American Airlines (and potentially 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/or 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.
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.