Anti-competitive or pro-consumer? American, JetBlue square off with DOJ in antitrust trial

Are airfares lower when JetBlue and American Airlines compete against each other? Or does an alliance between the airlines compete more with Delta, United and Southwest, bringing more pricing pressure to the major airlines?

That's the question at the heart of the Justice Department's antitrust suit against JetBlue and American over their "Northeast Alliance" partnership.

The antitrust trial began on Tuesday, with the DOJ and the two airlines making opening statements and testimony from JetBlue CEO Robin Hayes in response to DOJ questioning. Both sides stuck to familiar talking points, with the DOJ suggesting that the airlines' alliance would eliminate competition and lead to higher fares, and the two carriers arguing that by combining, they can offer stronger competition against entrenched United and Delta in the New York and Boston markets.

DOJ lawyer William Jones, in his opening statement, suggested that the alliance would cost consumers $700 million annually in higher fares, saying that the alliance was "a merger in all but name" and that the two could act like "a single airline at the expense of travelers." Jones cited internal messages from American Airlines executives before the alliance that suggested the airline saw JetBlue as a competitive threat exerting pressure on fares.

The government further argued that there were other alternatives that could have helped JetBlue and American compete in the Northeast short of an alliance — be it excluding Boston from the alliance, where American is less disadvantaged than in New York due to a lack of slot restrictions; American choosing to sell or lease slots to JetBlue; or a codeshare which would exclude any routes on which the airlines overlapped before the alliance began.

Lawyers for the airlines, however, argued that in the 18 months since the NEA was formed, the higher fares the Justice Department warned about have failed to manifest, consumers have had access to better choices and the competitive landscape shaped by previous mergers has left them unable to compete in the Northeast market alone.

The alliance creates one single, stronger, and "relevant competitor out of two weak ones," Richard Schwed, a lawyer from Shearman & Sterling representing JetBlue, argued in his opening, adding that the alliance has brought "immediate, tangible benefits to consumers."

Schwed cited 50 new nonstop routes that have been added to or from New York or Boston since the alliance was formed, 90 nonstop routes with increased capacity, 17 new international routes covered by the alliance, and a more than 17% increase in total capacity on the the routes covered by the alliance.

Partner growth: American adds 6 new routes as part of Northeast Alliance tie-up with JetBlue

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Dan Wall, a lawyer from Latham & Watkins representing American Airlines, also argued that the case DOJ plans to present would not meet the burden of proof required for antitrust action.

"This case has come to court with no direct evidence of adverse effects," Wall said.

Wall additionally argued that the Department of Transportation, which has oversight over airline mergers and alliances, took a "wait-and-see" approach to the alliance and has thus far not found any issues.

The pending merger between JetBlue and ultra-low-cost rival Spirit, was brought up by the government as an example of further anti-competitive action, with Jones arguing that with such a merger, "American gets to co-opt two disruptive competitors for the price of one." Lawyers for the airlines refuted that, saying that the deal was separate and not relevant to the NEA, and that "if it has any relevance, it's further evidence of JetBlue's independence from American."

During Hayes' testimony, the JetBlue chief said that talks between the airlines began in late-2019, and accelerated as COVID-19 took hold in the first and second quarters of 2020. The alliance was announced that July.

Hayes also argued that JetBlue was incentivized to continue growing capacity and offering competitive fares and products, despite the supposed "metal-neutral" nature of the alliance, by the potential revenue it could earn by recruiting passengers on-board to join and engage with its frequent flyer program rather than American's, refuting government accusations that the revenue sharing model used by the airlines disincentivized all competition.

Within the alliance, Hayes said, "I would much rather have someone fly on a JetBlue airplane."

The trial, which is scheduled to last up to three weeks, is expected to see testimony from American Airlines CEO Robert Isom, former CEO Doug Parker, and chief commercial officer Vasu Raja, along with further testimony by Hayes, the JetBlue CEO. Other stakeholders, including network planners for the airlines and former executive Scott Laurence, who architected the alliance on the JetBlue side. A decision from U.S. District Judge Leo Sorokin could take weeks or months.

TPG is reporting from the U.S. District Court in Boston, so stay tuned for the latest on the NEA trial.