|Justice Department Preparing to Challenge American-JetBlue Alliance -- Update|
Dow Jones Newswires September 21, 2021 10:18:00 AM ET
WASHINGTON -- The Justice Department is preparing to file a lawsuit challenging American Airlines Group Inc.'s partnership with JetBlue Airways Corp. on antitrust grounds, according to people familiar with the matter.
The lawsuit, which could come as soon as Tuesday, is expected to argue that the recently forged alliance threatens competition and higher fares, the people said.
American and JetBlue announced their alliance in July 2020, saying boosting their offerings in the Northeast by marketing one another's flights on certain routes would allow them to become more formidable competitors at the three New York area airports and in Boston.
The carriers began implementing the partnership this year after agreeing to shed some takeoff and landing slots at airports in New York and Washington, to gain approval from the Transportation Department in the waning days of the Trump administration. American and JetBlue also agreed to certain restrictions on how they operate. The two airlines are allowed to coordinate schedules only within the scope of the partnership, and aren't allowed to discuss fares or pricing strategies.
The Justice Department, however, has expressed concerns that those conditions may not fully address threats to competition, the people familiar with the matter said, including what it sees as the potential for American and JetBlue to retreat from competing vigorously with one another on routes where the two have been direct rivals.
The lawsuit is the latest sign of the Biden administration's aggressive stance on antitrust enforcement. It also highlights that the department's antitrust division is moving forward on cases even though it continues to operate without a Senate-confirmed antitrust chief; President Biden nominated lawyer Jonathan Kanter for the post in July, and he is awaiting a Senate hearing.
A Justice Department spokeswoman declined to comment.
JetBlue CEO Robin Hayes said the alliance has allowed JetBlue to expand its low-fare offerings, effectively creating a viable competitor to go up against the dominant carriers in the Northeast. He said antitrust officials should monitor the alliance over the coming years rather than challenging it now.
"I don't believe DOJ has a case they can credibly bring against JetBlue, when all we're trying to do is bring low fares and choice," Mr. Hayes said. "If the DOJ sues us we will certainly be contesting that in court."
American in a statement said the alliance already is "providing more choices and better service for customers with more code sharing, new international and domestic routes, better schedules and expanded frequent-flier-program benefits. It's also provoking a competitive response from other carriers in the region by compelling them to step up their own products and services -- delivering clear wins for consumers."
The airlines have argued that working together gives them a better shot at challenging rivals at congested airports in the Northeast that are dominated by Delta Air Lines Inc. and United Airlines Holdings Inc., where otherwise American and JetBlue wouldn't be able to gain meaningful positions on their own. They told Justice Department officials that their partnership has helped them to take market share from rivals, according to some of the people familiar with the matter.
The carriers also have said their partnership has given them a lift in critical business markets and helped speed their recovery as travel rebounds in the wake of the global coronavirus pandemic.
The airlines now share codes, a practice where one airline puts its flight number on another airline's flight and sells it as its own, on 175 routes, and have launched 58 new routes under the auspices of the alliance, including new international service. They said they have increased the number of flights they offer on dozens more, giving travelers more choices.
Mr. Hayes said Tuesday the partnership with American is a "game-changer" for JetBlue. The airline has previously said the alliance is its only chance to grow at airports like LaGuardia and Newark, after years of trying to gain more access and relevance, and Mr. Hayes said JetBlue has already become a bigger presence at those airports thanks to the alliance. He has said the airline, primarily known for its leisure offerings, has used the partnership to capture more corporate customers in New York and Boston.
If the alliance weren't allowed to proceed, Mr. Hayes said, JetBlue would have to shrink and the biggest beneficiaries would be the legacy airlines that already dominate the region.
"They have for years represented to us that they wanted to see more growth from low-cost competition from airlines like JetBlue," Mr. Hayes said of U.S. officials. "This is getting us through the glass ceiling of competition."
The airlines say they continue to compete outside the scope of their alliance.
The Justice Department's planned lawsuit comes after a lengthy investigation and months of discussions with the airlines that failed to narrow the two sides' disagreements, the people familiar with the matter said. Some of the people said the airlines in recent days met with top antitrust decision makers at the department -- a step that typically takes place when department staffers running an antitrust investigation have recommended a lawsuit.
Across administrations, the Justice Department for years has been concerned that airline competition is dwindling - - and has been criticized by consumer groups and antitrust advocates for not doing more to push back. The department during the Obama administration opened a probe into potential airline collusion but then closed it without taking action. It also sued to block American's merger with US Airways in 2013 but later agreed to settle the case and allow the deal in exchange for concessions from the airlines.
At the Transportation Department, Spirit Airlines Inc. has called on that agency to revisit its decision blessing the American-JetBlue deal and instead conduct a more formal investigation of the agreement. Carriers including Southwest Airlines Co. have seconded arguments that there wasn't enough public scrutiny of the alliance. Some state attorneys general have been examining the agreement as well.
Sen. Richard Blumenthal (D., Conn.) last week raised concerns the agreement would lead to higher fares and " anticompetitive coordination" at key hubs. He called on Transportation Secretary Pete Buttigieg to conduct a full investigation.
Some analysts and industry observers have speculated that JetBlue, which prior to the pandemic was the fifth largest U.S. carrier, may eventually need to seek a merger partner to compete with larger airlines that have vast global networks. JetBlue unsuccessfully vied to acquire Virgin America but lost a bidding war to Alaska Air Group Inc. in 2016.
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