Herring sues to block alliance between American Airlines, JetBlue
Attorney General Mark R. Herring has joined the U.S. Department of Justice and six other attorneys general in filing suit to block a series of agreements between American Airlines and JetBlue through which the two airlines will consolidate their operations in Boston and New York City.
The civil antitrust complaint alleges that this extensive combination, which they call the Northeast Alliance, will not only eliminate important competition in these cities, but will also harm air travelers across the country by significantly diminishing JetBlue’s incentive to compete with American elsewhere, including Reagan National Airport in Virginia, further consolidating an already highly concentrated industry.
“There are already a limited number of airline options for Virginia travelers and this Alliance could make that industry even more concentrated,” Herring said. “The creation of this Alliance would allegedly take away any incentives that JetBlue has to compete with American and the other three major airline carriers on both price and quality, such as offering free WiFi, other inflight entertainment options, and upgraded business travel features. As attorney general, my top priority is to protect Virginia consumers, and this alliance would decrease competition in the airline industry and provide Virginians with fewer quality options.”
The Northeast Alliance combines American’s and JetBlue’s operations at four major airports: Boston Logan, John F. Kennedy, LaGuardia, and Newark Liberty. The airlines have committed to coordinate “on all aspects” of network planning, including which routes to fly, when to fly them, who will fly them, and what size planes to use for each flight. The two airlines will also share revenues earned at these airports, eliminating their incentives to compete with one another. The Northeast Alliance will also allow the parties to pool their gates and takeoff and landing authorizations, known as “slots.”
According to the complaint, this unprecedented combination would raise prices and reduce choices for air passengers traveling to and from Boston and New York City.
As alleged in the complaint, American is the largest airline in the world. Just four airlines — American, along with Delta, United, and Southwest — collectively control over 80 percent of domestic air travel. According to the complaint, American has relentlessly pursued a strategy of industry consolidation in the United States and around the world. Unable to combine with foreign airlines through formal mergers, American has instead pursued consolidation through a series of international joint ventures. The complaint alleges that JetBlue’s CEO stated, “it may look as if a dozen or more airlines [are] providing service. But when you go under the surface, it’s really just three big mega-alliances controlling 87% of the traffic…Consumers effectively have very little choice in markets where JVs have a stranglehold – and they also face higher fares.”
The Justice Department alleges that American now seeks to import this strategy to domestic air travel.
According to the complaint, JetBlue has positioned itself as an important source of competition against American and the other large airlines, particularly in the northeast. According to the complaint, JetBlue’s reputation for lowering prices is so established that the industry refers to it as the “JetBlue Effect.” JetBlue’s own internal estimates show that it has saved customers at least $10 billion since its launch, offering lower fares and better service, and forcing its competitors to do the same.
According to the complaint, the Northeast Alliance will cause hundreds of millions of dollars in harm to air passengers across the country through higher fares and reduced choice. The complaint alleges that prior to entering the Northeast Alliance, JetBlue and American both planned to compete more intensely with one another, including in Boston and New York City, but also in other areas.
If allowed to proceed, the Northeast Alliance would eliminate this important existing and future competition — creating, as American’s senior executives put it, “further domestic consolidation.” The Northeast Alliance will dampen American’s incentive to expand service elsewhere in its network and will significantly reduce JetBlue’s incentives to challenge its much larger partner across the country.
Joining the U.S. Department of Justice and Herring in filing the lawsuit are the attorneys general of Arizona, California, the District of Columbia, Florida, Massachusetts, and Pennsylvania.