On September 21, 2021, the Department of Justice (DOJ) filed a civil antitrust suit against American Airlines (“American”) and JetBlue in the United States District Court for the District of Massachusetts. The suit alleges a violation of § 1 of the Sherman Act1The Sherman Antitrust Act of 1890, 15 U.S.C.A. § 1. and seeks to enjoin an alliance formed between the two airlines.2Brent Kendall & Alison Sider, Justice Department Files Antitrust Suit Challenging American-JetBlue Alliance, Wall St. J., Sept, 21, 2021. https://www.wsj.com/articles/justice-department-preparing-to-challenge-american-jetblue-alliance-11632232697?st=ftqkgeov1kv3g4g&reflink=article_copyURL_share. Back in July 2020, in the heart of the uncertainty of the COVID-19 pandemic, American and JetBlue formed the “Northeast Alliance.” According to the DOJ’s complaint, under this alliance the two rival airlines agreed to “share their revenues and coordinate which routes to fly, when to fly them, who will fly them, and what size planes to use for flights to and from four major airports.”3Complaint at 2, United States v. American Airlines Group Inc. & JetBlue Airways Corp., (filed Sept. 21, 2021). https://www.justice.gov/opa/press-release/file/1434621/download. These airports all come from Boston and the New York metro area, including Boston Logan, JFK, LaGuardia, and Newark Liberty.
The complaint alleges numerous facts that, if true, would seem to suggest forthcoming tangible anticompetitive effects on the market for domestic travel as a result of this alliance. The DOJ alleges that JetBlue is an important player in the highly concentrated airline industry. Whereas just four airlines control 80% of domestic air travel (American, United, Delta, and Southwest), JetBlue has built a reputation for itself as a low-cost airline.4Id. at 3. The “JetBlue Effect,” in which JetBlue offers lower fares and better customer service, has allegedly led JetBlue to become Boston’s leading airline since launching service at Logan airport in 2004.5Id. at 4. Moreover, the complaint quotes JetBlue itself saying that it is a “disrupter,” helping consumers save billions of dollars, especially in Boston and New York. Additionally, before the formation of the Northeast Alliance, it appeared the two rivals were poised for intense competition as American sought to “win Boston back” by offering added routes, new gates, and increased capacity.6Id. at 5. According to the DOJ, the Northeast Alliance eliminates the possibility of consumer benefits that this competition might have produced.
Under its authority over slot transactions that stem from airlines mergers and acquisitions, the Department of Transportation (DOT) approved the Northeast Alliance.7U.S. Department of Transportation Notice of Practice Regarding Proposed Airline Mergers and Acquisitions, 80 Fed. Reg. 2468 (Jan. 16, 2015). At the time of approval, the DOT could have prohibited the alliance if it found such conduct to be comparable to antitrust violations.849 U.S.C. § 41712 However, in light of the DOJ’s lawsuit, the DOT deferred its judgement to that of the DOJ. In response, American and JetBlue have already pushed back on the lawsuit. While no official answer has been filed yet, both airlines have made press releases claiming their alliance is “entirely procompetitive.”9Washington Post Live, the Path Forward: The Airline Industry with American Airlines Chair & CEO Doug Parker, Wash. Post, Sept. 21, 2021. https://www.washingtonpost.com/washington-post-live/2021/09/21/path-forward-airline-industry-with-doug-parker-american-airlines-chair-ceo/. American Airlines CEO Doug Parker reasoned that without the alliance, neither airline will effectively compete with the strong Northeast presence of Delta and United. The alliance thereby creates more airline choices for the consumers. It is likely that the DOJ would refute this point as the complaint provides appendices displaying the combined market share of American and JetBlue, which hovers around at least 50% for almost all major flights out of the relevant airports.
As the litigation is still in its early stages, it is difficult to ascertain whether this case was brought largely on its merits or as a Biden Administration disapproval of a Trump era soft antitrust enforcement. Nevertheless, it is clear that a few of the alleged facts in particular will play key roles in the outcome of the case. First, approximately two-thirds of JetBlue’s business comes from Boston and New York. This fact strongly favors the DOJ’s contention that the alliance is effectively a merger of two-thirds of the low-cost airline, which raises concerns related to the next key alleged fact. Second, JetBlue has a history of being a low-cost competitor that has benefited consumers. When agreements or decisions are made that drastically change the ordinary course of business, courts tend to become wary of unlawful intent. Here, the ordinary course of business includes JetBlue as a strong competitor in a heavily concentrated industry. Moreover, if the alliance has the same effect as a merger for two-thirds of JetBlue’s business, this will strengthen the DOJ’s argument that competition will be restrained. Third, and most importantly, while the complaint alleges the alliance is sure to hurt consumers through fewer flights and higher prices, this will be difficult to prove given how recently the alliance was formed and the enormous industry-wide changes the last year has presented airlines as a result of the COVID-19 pandemic. So far, the complaint does not offer evidence that prices have actually risen. Instead, it merely suggests that similar agreements tend to reduce output and increase prices. However, given that this is not an outright horizontal price fixing agreement, we can expect the court to engage in a rule of reason analysis or a quick look analysis, under either of which the actual economic effects of the agreement could be dispositive for the case.
In the meantime, we can expect the Biden Administration to continue its aggressive stance on antitrust enforcement. In the last three months, President Biden has signed an executive order urging his administration to protect competition, especially in the airline industry, even without a senate-confirmed antitrust chief. It is also interesting that the DOJ brought this complaint against the Northeast Alliance without presenting data about the actual effect on prices and output. If its case is as strong as it suggests, then the DOJ could have waited perhaps a year to accumulate more data reflecting anticompetitive effects. It may simply be that the DOJ is so sure this alliance is an unlawful restraint on trade on its face; but it may also be a sign of the pressure the DOJ feels from President Biden’s order.