Judge ends American Airlines-JetBlue alliance, says it is anti-competitive

Breaking up is hard to do. But for JetBlue and American Airlines, there isn't much of a choice.

A federal judge ruled against the Northeast Alliance between American Airlines and JetBlue on Friday, ending a prolonged antitrust suit more than a year after the Department of Justice accused the partnership of stifling competition.

As part of the decision, the judge ruled that the alliance between the two carriers must end within 30 days from Friday. It was not immediately clear how the decision would be implemented, nor what it would mean for frequent flyers.

"The NEA [Northeast Alliance], operating as it was designed and intended by American and JetBlue, substantially diminishes competition in the domestic market for air travel. It does so by combining the Boston and New York operations of two airlines that are among the most significant competitors in that region," reads Friday's decision penned by Judge Leo T. Sorokin.

In the suit, the Justice Department alleged that by codesharing and collaborating to run complementary route networks through New York and Boston, the alliance would "eliminate significant competition between American and JetBlue that has led to lower fares and higher quality service for consumers traveling to and from those airports."

American and JetBlue, however, aggressively defended the pact, which the airlines said allows them to offer stronger competition against Delta Air Lines and United Airlines — which dominate the Northeast market — than either airline could do alone. While JetBlue has a strong presence in the Northeast, it remains relatively small and has less of a presence elsewhere in the country.

Although American Airlines remains large, its New York presence has shrunk significantly since the early 2000s, and it can't significantly add service due to slot restrictions in New York.

During a three-week trial in U.S. District Court in Boston, Sorokin heard testimony from current and former executives at both airlines, as well as competitors, along with industry experts and economists.

The airlines' defense centered on the argument that in the 18 months since the alliance began, the cost increases that the DOJ warned about in its initial complaint have failed to materialize. The airlines said they have increased capacity in the Northeast region and "improved the quality of travel to and from Boston and New York" through "collaborative scheduling, codesharing, and frequent flyer program integration."

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The ruling came as a surprise to many industry insiders who had expected the case to go the other way.

"This was a bit of a surprise, as we believed with more than two years of data, the judge would rule in the airlines favor," TD Cowen analyst Helane Becker wrote, noting that she believes the decision can be appealed.

What does this mean for the American Airlines and JetBlue partnership?

JetBlue said in a statement that it continued to believe that the alliance was a positive for customers.

"We are disappointed in the decision. We made it clear at trial that the Northeast Alliance has been a huge win for customers," JetBlue said. "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."

The federal judge ruled that the Northeast Alliance must be "permanently enjoined" 30 days after Friday.

American Airlines, in its statement, sent a strong signal that it would appeal:

"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."

JetBlue added that it was "studying the judgment in full and evaluating our next steps as part of the legal process."

For now, however, the ruling seemingly implies that the tie-up will end within the next few weeks, barring an appeal.

TPG will post updates as we receive them, but if you have upcoming travel booked with American and/or JetBlue, you may want to start reconsidering your options if you were planning to take advantage of Northeast Alliance perks such as reciprocal mileage earning and redemption options, elite benefits and club access.

The two carriers also expanded and reconfigured their networks to support the alliance. So, assuming that the ruling stands, many of the changes could need to be unraveled within a month.

The ruling could also have implications for JetBlue's planned acquisition of Spirit Airlines, which the Department of Justice has also sued to stop. On the one hand, without the American Airlines partnership, JetBlue can argue that it is now in a weaker position and needs Spirit in order to compete effectively.

On the other hand, the current decision could indicate that the Judiciary is opposed to further consolidation of the airline industry.

We believe this ruling has negative implications for the JetBlue/Spirit merger, where the Department of Justice sued to block it and where at least four state attorneys general joined the suit," Becker, the TD Cowen analyst, wrote. "The trial in that case begins in mid-October."

Additional reporting Zach Griff. This is a developing story and will be updated.