American Airlines and JetBlue entered into a partnership they refer to as the ‘Northeast Alliance.’ They have a frequent flyer partnership and they codeshare in and out of New York and Boston. American has moved some of its domestic flying to JetBlue, and JetBlue’s customers have made it possible for American to grow internationally out of New York. Now the government lawsuit to stop it starts today, even though the federal government had previously approved it.
In order to get government approval they gave several commitments to ensure more seats and competition in the market.
- The federal government approved this partnership in late 2020
- American and JetBlue agreed to give up slots in New York and DC as part of this. And if they don’t grow their flying they have to give up even more slots. JetBlue also can’t exit most of its routes from New York JFK. And they cannot coordinate fares.
- These two airlines were the third and fourth largest in the New York area. Separately they weren’t strong competitors to United and Delta. American in particular hasn’t had a viable strategy in New York since US Airways management took over. That’s changed. They’re signing up more frequent flyers, selling service to companies together, and becoming more relevant to New York.
Competitors don’t like it. Amy Klobuchar, from Minnesota of all places has been a vocal opponent. She represents Delta’s hub city of Minneapolis and has a close relationship with the Atlanta-based airline that has worked hard to be the preferred airline in New York.
Under intense lobbying pressure, the Department of Justice sued to overturn the deal which is bizarre simply from a rule of law standpoint. The government approved it, American and JetBlue invested to move forward, and then the government is trying to dismantle it. (They were for it before they were against it.)
That the deal was approved under the Trump administration and now opposed by the Biden administration shouldn’t change anything – both individuals and companies should be able to rely not just on consistent application of law but that the government honors the explicit deals it strikes. And this isn’t a political party issue in any case – the Northeast Alliance had the support of Democrat Senator Majority Leader Chuck Schumer.
And this deal can only increase competition. The idea that there’ll be less competition in the New York market is silly, because the government limits the number of flights at New York JFK and LaGuardia. The number of flights at those airports will remain the same. Now there will be larger planes flying more seats.
- JetBlue and American can’t coordinate on fares, and are required to increase seats. More seats means lower fares (basic supply/demand).
- They’ve given up slots, allowing for new entrants into the market.
- And that’s aside from the way this deal creates a viable competitor in New York, where neither JetBlue nor American had been one previously.
I haven’t been a fan of many of the moves made by current American Airlines management, and I’m skeptical of mergers and anti-trust exemptions in a world where incumbent airlines are protected from competition through foreign ownership restrictions and government-imposed restrictions on which airlines can fly into congested airports.
However this is a case where customers actually benefit, competitors don’t like it, and whether the Justice Department realizes it or not they’re carrying water for cronyist corporate interests and not passengers. If the Department of Justice succeeds in killing the Northeast Alliance, they take out American Airlines as a viable competitor in New York, reducing competition.
