In early 2021, American Airlines Group Inc. (“American Airlines”) and JetBlue Airways Corporation (“JetBlue”) launched a strategic partnership known as the Northeast Alliance (the “Alliance”). Under the Alliance, “the airlines coordinated their schedules, swapped slots and gates, and had frequent flyer reciprocity” on flights to and from Boston, New York City, and Newark.[i] The most notable features of the Alliance, however, was the creation of a codeshare partnership between the two airlines and the ability for loyalty members to benefit from “reciprocal loyalty benefits,” thus allowing the free transfer of frequent flyer benefits from one airline to the other.[ii]
The Alliance was approved by the U.S. Department of Transportation (“DOT”) on January 10, 2021, albeit with significant limitations and changes to its first iteration. In particular, the DOT required the airlines to amend the Alliance to incorporate certain commitments, such as prohibiting the airlines from “withdrawing, reducing or degrading the provision of slots and gates in response to, or to influence, the other’s competitive behavior” and requiring both carries to “maintain and provide to the DOT data and records pertaining to the [Alliance’s] performance,” which would include information on market capacity and slot utilization.[iii] However, even with the required changes, the Alliance ran afoul of other airlines and the incoming Biden administration.
In response to growing pressure within the airline industry due to what many considered to be a violation of antitrust laws by the Alliance, the Department of Justice’s (“DOJ”) antitrust division and seven states filed suit against American Airlines and JetBlue on September 21, 2021 under the Sherman Act, seeking to enjoin the airlines from proceeding with the Alliance.[iv] In their complaint, the DOJ argued that the Alliance was a corporate merger in disguise, stating that “[b]y consolidating their businesses in this way, American and JetBlue will effectively merge their operations on flights to and from the four airports” and in doing so, the Alliance “will 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.”[v] The DOJ stressed that the nature of the Alliance allowed for a shared revenue scheme that discouraged competition, adding that “neither airline will have the incentive to undercut the other on pricing because doing so would simply reduce the revenues each earns under the revenue-sharing arrangement.”[vi] The Alliance, therefore, essentially joined American Airlines and JetBlue at the hip, allowing them to coordinate on pricing, such as by exiting a market in which they competed with each other or reducing the numbers of seats in a particular market. This had the end result of significantly reducing competition and choices for consumers in an industry that has already been accused of being an oligopoly.[vii]
Taking the foregoing into consideration, on May 19, 2023, Judge Leo Sorokin of the United States District Court for the District of Massachusetts rendered his Opinion, finding that the Alliance violated the Sherman Act and enjoining American Airlines and JetBlue from further implanting the Alliance within thirty days of the Court’s Order.[viii] In reaching its conclusion, the Court focused on three primary factors: (1) the situations under which the Sherman Act applies; (2) the direct and indirect anticompetitive harm caused by the Alliance; and (3) the absence of legitimate justification or cognizable benefits of the Alliance.
With respect to the applicability of the Sherman Act to this litigation, the Court stressed that the statute’s purpose is to prohibit “the formation of any ‘contract … in restraint of trade or commerce among the several States.’”[ix] In order to determine whether a partnership or other corporate entanglement is permissible, the Sherman Act evaluates “whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition.”[x] The Court further emphasized that although the Alliance was not a merger of American Airlines and JetBlue, a joint venture of this variety may nevertheless be subject to the same scrutiny as a merger given their shared similarities.[xi] With this in mind, the Court’s task was to determine whether the Alliance amounted to an “unreasonable” restraint on trade.[xii]
In evaluating the Alliance’s anticompetitive harm, the Court evaluated the direct and indirect evidence of such harm, concluding that “notwithstanding the defendants’ vigorous claims otherwise, the harms are considerable and obvious.”[xiii] With respect to direct harm, the Court analyzed the significant loss in competition in the northeast corridor following the formation of the Alliance. Notably, American Airlines and JetBlue are “two of the four largest domestic carries in the northeast,” resulting in what the Court described as the elimination of vigorous competition in one of the largest airway corridors in the United States and its replacement with “broad cooperation in pursuit of the shared interests of [the] partnership.”[xiv] As such, rather than competing as two distinct carriers, which the two airlines had done for decades, the Alliance resulted in the companies operating “as one combined carrier with a single ‘optimized’ network.” This is exacerbated by a notable feature of the Alliance, which allows American Airlines and JetBlue to “pool their resources and decide together what routes to fly within the [Alliance] and on what schedule.”[xv]
Moreover, the Court stressed that while the Alliance has resulted in American Airlines and JetBlue seemingly operating as a single carrier within the Northeast, the linkage between the carriers has negatively affected JetBlue’s standing in the aviation sector. By aligning itself with a global carrier such as American Airlines, “JetBlue has sacrificed a degree of its independence and weakened its status as an important ‘maverick’ competitor in the industry.”[xvi] While at first glance it may appear perplexing that JetBlue has suffered losses by partnering with the world’s largest airline, the reality is surprisingly straightforward. Aviation regulators in the United States and abroad focus on the composition of a carrier—its size, strength, and ability—when determining whether the airline should be granted a benefit, such as slots at an airport or runway timings. In the case of JetBlue, U.K. regulators determined that the carrier was “no longer eligible for highly valuable, long-term remedy slots that were available at [London] Heathrow,” while in the United States, the Federal Aviation Administration “awarded Spirit (rather than JetBlue) a set of runway timings at Newark earmarked for a carrier that would provide low-cost competition against United.”[xvii] In essence, the nature of the Alliance has diluted JetBlue’s independence and ability to obtain preferable allocations, a factor largely driven by the airline’s diminishing status as a low cost carrier and bulwark against encroachment from mainline “legacy” carriers, such as American Airlines, Delta, and United.
Lastly, the Court determined that the assignment of routes between American Airlines and JetBlue “closely resembles a restraint that is per se illegal.”[xviii] Describing the arrangement as “a straightforward example of market allocation,” the Court noted how the formation of the Alliance resulted in the two airlines dividing the market the way they saw fit, such as “by one partner exiting a market both previously served or by one partner tabling plans to enter a market already served by the other.”[xix] In other words, the Alliance allowed American Airlines and JetBlue to carve out their network throughout the northeast via a coordinated plan that ensured each airline would become the dominant carrier in each market, thereby eliminating competition and reducing the options available to consumers.
Based on the foregoing, the Court determined that the Alliance violated the Sherman Act and permanently enjoined American Airlines and JetBlue “from continuing and … further implementing the [Alliance]” within thirty days of the Court’s Order. In accordance with the Court’s holding, both carriers issued press statements in the days that followed announcing the termination of the Alliance and expressing their displeasure with the decision.[xx] However, although JetBlue announced that it would not appeal the Court’s determination, American Airlines opted to pursue a different path, announcing on September 26, 2023, that it would appeal the decision.[xxi]
While it remains to be seen how the First Circuit Court of Appeals will rule, the district court’s decision is evidence of a growing trend within the aviation industry to resist further consolidation efforts and protect competition. It is evident that the aviation sector, once an industry famous for its continuous cycle of buy-outs and mergers, may finally be entering an era of increased oversight and regulation following decades of indifference from the federal government. This is particularly evident in the DOJ’s recent decision to commence an antitrust suit against JetBlue for its intended merger with Spirit Airlines.[xxii] However, it must be understood that for all of the DOJ’s recent efforts to halt the decrease in competition across the aviation sector, it has been their lack of attention to this matter over the past several decades that has allowed for the proliferation of mergers and acquisitions, and, as a result, a simultaneous decrease in choices for consumers.[xxiii]
[i] Ben Schlappig, American & JetBlue End Partnership as of July 21, 2023, One Mile at a Time (July 21, 2023), https://onemileatatime.com/news/american-jetblue-end-partnership/.
[ii] Sean Cudahy, The JetBlue-American Airlines Partnership is Ending, NerdWallet (Aug. 22, 2023), https://www.nerdwallet.com/article/travel/judge-blocks-jetblue-american-airlines-partnership.
[iii] Termination of Informal Review of the American/JetBlue Northeast Alliance, U.S. Dep’t of Transp. (Jan. 13, 2021), https://www.transportation.gov/office-policy/aviation-policy/termination-informal-review-americanjetblue-northeast-alliance.
[iv] See Dan Papscun, American Airlines Appeals Ruling That Ended JetBlue Alliance, Bloomberg L. (Sept. 26, 2023), https://www.bloomberglaw.com/product/blaw/bloomberglawnews/us-law-week/.
[v] Complaint at 2, United States v. American Airlines Group Inc., 2023 WL 3560430 (D. Mass. May 19, 2023) (No. 1:21-cv-11558).
[vi] Id. at 10.
[vii]See Troy Segal, The North American Airline Industry, Investopedia (Aug. 16, 2022), https://www.investopedia.com/ask/answers/011215/airline-industry-oligopoly-state.asp (“As of May 2022, four major airlines—American Airlines, Inc. (AAL), Delta Air Lines, Inc. (DAL), Southwest Airlines (LUV), and United Airlines Holdings, Inc. (UAL)—had nearly 67% of the domestic U.S. market share.”).
[viii] See United States v. American Airlines Group Inc., 2023 WL 3560430, at *44 (D. Mass. May 19, 2023).
[ix] Id. at *28 (quoting 15 U.S.C. § 1 (2023)).
[x] Bd. of Trade of Chi. v. United States, 246 U.S. 231, 238 (1918).
[xi] American Airlines Group Inc., 2023 WL 3560430, at *28 (“Because a joint venture can involve some of the same features as a merger–for example, the pooling of assets or resources–courts can, and often do, call upon principles and tools of merger analysis when resolving antitrust challenges to joint ventures.”).
[xii] Complaint at 61, American Airlines Group Inc., 2023 WL 3560430 (No. 1:21-cv-11558).
[xiii] American Airlines Group Inc., 2023 WL 3560430, at *32.
[xiv] Id.
[xv] Id. at *33.
[xvi] Id. at *34.
[xvii] Id.
[xviii] Id. at *35.
[xix] American Airlines Group Inc., 2023 WL 3560430, at *36.
[xx] Press Release Details, JetBlue Issues Statement on Its Northeast Alliance with American Airlines, JetBlue Newsroom (July 5, 2023), https://news.jetblue.com/latest-news/press-release-details/2023/JetBlue-Issues-Statement-on-Its-Northeast-Alliance-with-American-Airlines/default.aspx (“For these reasons, we strongly disagree with the court’s ruling against the [Alliance] and stand behind the procompetitive impact of the alliance.”).
[xxi] Papscun, supra note 4 (“In a Monday filing in the US District Court for the District of Massachusetts, American announced its appeal to the US Court of Appeals for the First Circuit in Boston. Company executives committed to appeal in May.”).
[xxii] Justice Department Sues to Block JetBlue’s Proposed Acquisition of Spirit, U.S. Dep’t of Just. Off. of Pub. Affs. (Mar. 7, 2023), https://www.justice.gov/opa/pr/justice-department-sues-block-jetblue-s-proposed-acquisition-spirit (On March 7, 2023, the DOJ filed an antitrust lawsuit against JetBlue seeking to prevent the airline from merging with Spirit Airlines, an ultra-low-cost carrier, and one of JetBlue’s primary competitors. In a press release following the filing, the DOJ stated that “[b]y eliminating … competition and further consolidating the United States airlines industry, the proposed transaction will increase fares and reduce choice on routes across the country, raising costs for the flying public and harming cost-conscious fliers most acutely.”).
[xxiii] U.S. Airline Mergers and Acquisitions, Airlines for Am. (Jan. 17, 2023), https://www.airlines.org/dataset/u-s-airline-mergers-and-acquisitions/ (outlining the high number of successful airline mergers in the United States).
