PC: The New York Times
In the Northeast United States, an agreement between American Airlines and JetBlue Airways that has been in place for a year and a half is being challenged by the Justice Department in court in Boston on Tuesday.
The carriers claim that the agreement enables them to more effectively compete with larger airlines. The Biden administration, though, argues that the arrangement amounts to a merger and will raise travel costs. The agreement was approved in the final days of the Trump administration, but the Justice Department and the attorneys general of six states and the District of Columbia sought to have it halted last September.
The Justice Department of President Joe Biden, which has been tasked with taking a tough position against dangers to competition, will be put to the test by the antitrust trial.
The antitrust campaign has had challenges, though. A federal judge rejected the Justice Department’s request to halt UnitedHealth’s acquisition of Change Healthcare earlier this month. Another federal judge rejected the DOJ’s attempt to block the merger of two significant sugar refiners in the United States last week.
The trial against the airline alliance is taking place at the same time that JetBlue is attempting to buy discount airline Spirit Airlines for $3.8 billion in order to become the country’s fifth-largest airline. However, the acquisition of Spirit Airlines is not a part of the lawsuit, and it faces significant regulatory obstacles.
The eccentric New York-based airline JetBlue calls itself a low-cost carrier but still offers high-end services like its luxurious Mint class. Last year, it began offering flights from New York and Boston to London. For growth, the carrier has turned to alliances and is currently considering an acquisition.
Samuel Engel, an aviation expert at consulting firm ICF, said: “I think what we’ve seen through this and via the Spirit acquisition is management believes they have a struggle to scale growth and they consider the pace of organic development as too slow.
The Northeast Alliance, which the airlines claim helps them more effectively compete against rivals United Airlines and Delta Air Lines in the congested airspace in and around New York City and Boston, enables them to share income, coordinate itineraries, and sell seats on one other’s aircraft.
According to ICF data, American and JetBlue account for around 31% of the departing seats from the major airports serving New York City, compared to 24% for United and 22% for Delta. In Boston, the NEA-member airlines account for 45% of all departing seats, compared to 24% for Delta and 8% for United.
According to the Justice Department’s lawsuit, the agreement “would eliminate significant competition between American and JetBlue that has resulted in reduced rates and improved quality service for consumers travelling to and from certain airports.” It will also inextricably link JetBlue’s fate to that of American, reducing JetBlue’s incentives to challenge American in all major markets.
In a court brief submitted on Saturday, American and JetBlue claimed there is no proof that the alliance has hurt consumers and that it enables them to grow in airports with limited capacity where they couldn’t otherwise.
Top officials from the airlines are slated to testify, with Robin Hayes, CEO of JetBlue, scheduled to be the first witness on Tuesday. Executives from other airlines could potentially give testimony.
In response to an uptick in cancellation and delay rates throughout the summer, Biden and other administration officials have taken a tough stance against airline performance as the trial gets underway.
On Monday, Biden unveiled a plan for a new regulation that would oblige travel websites and airlines to advise customers of the cost of add-ons like seat selection when they are looking for fares. The Transportation Department put up stiffer guidelines for customer refunds during aircraft cancellations or delays over the summer.
According to Matt Colbert, the founder of the consulting company Empire Aviation Services and a former operations and strategy manager for multiple U.S. carriers, “No one’s ever lost votes for being critical of airlines.”