Mon, Sep 26, 2022 4:46 PM
By DAVID KOENIG, AP Airlines Writer
DALLAS (AP) — The government's antitrust lawsuit against American Airlines and JetBlue begins Tuesday and the outcome could determine how closely the Biden administration examines other airline deals, including JetBlue's pending attempt to buy Spirit Airlines.
The Justice Department and six states are suing American and JetBlue to break up their partnership in the Northeast, namely New York and Boston.
It is a significant test of the administration’s opposition to mergers — even though the American-JetBlue partnership is not a full merger. The government argues that the alliance will reduce competition and lead to higher fares.
The Trump administration approved the alliance, but the Justice Department began taking a closer look shortly after President Joe Biden took office.
American and JetBlue will argue that the partnership has already been in effect for about 18 months and has allowed each airline to offer new routes that would not be economical for either on its own. They say there is no evidence that the deal is hurting consumers.
The current and former CEOs of American and JetBlue's CEO, along with senior officials from other airlines, are among potential witnesses identified by the two sides. Delta Air Lines tried to prevent two executives from testifying, saying they are too busy in Atlanta, where the airline is based, to attend the trial in federal court in Boston. The judge ruled Monday that one of them, a senior vice president, must be available to testify.
U.S. District Court Judge Leo Sorokin has set aside nearly three weeks for the trial. There will be no jury. Sorokin could take weeks or even months to issue a decision, which is likely to be appealed by the losing side.
When the Justice Department filed the lawsuit a year ago, Attorney General Merrick Garland called the American-JetBlue alliance “an unprecedented maneuver” that would lead to higher fares, fewer choices, and poor service for travelers.
The Justice Department's top antitrust official, Assistant Attorney General Jonathan Kanter, echoed those arguments during a hearing last week before a Senate subcommittee. He said that while new airlines have entered the business over the years, leading to lower fares and better service, too many of them have been swallowed up by mergers and acquisitions.
“We remain committed to fighting airline concentration when it breaks the law," Kanter told the senators. "We are looking very carefully at our approach to airline consolidation ... we have numerous other matters under review.”
Kanter didn't say what those other matters are, but one likely could be JetBlue's proposal to buy Spirit for $3.8 billion. Spirit CEO Ted Christie, who preferred a merger with Frontier Airlines, fought JetBlue for months by arguing that antitrust regulators would never allow his low-fare airline to be swallowed up by JetBlue, a more conventional and higher-priced carrier.
Under the alliance, American and JetBlue sell seats on each other's flights and share the revenue. They say they coordinate on schedules but not prices. And they give customers reciprocal benefits in the frequent-flyer programs.
American and JetBlue argue that their alliance is not a merger and helps them compete against United and Delta in the Northeast. They say the alliance has let them add 50 new routes, add flights on previous routes, and increase their share of the Northeast market from 16% to 24%.
The carriers profess to be confounded by the Justice Department's claims that the deal is anti-competitive.
“They are wrong, and we'll prove it,” Doug Parker, then American's CEO, said around the time that the lawsuit was filed. He said blocking the deal would “take away consumer choice and inhibit competition, not encourage it."
The government argues that the alliance will further reduce competition among airlines and cost consumers hundreds of millions of dollars a year. JetBlue was once a “scrappy opponent” and American's most nettlesome competitor in New York.
“But now, JetBlue has sold out and cashed in,” government lawyers say in one filing.
The government says that together, American and JetBlue will control more than 50% of the market — sometimes more than 80% — on routes from New York and Boston where they previously competed head-to-head.
The Justice Department seems to be expressing buyer's remorse about many previous airline mergers that went largely unchallenged. Those deals eliminated Continental, Northwest, US Airways, AirTran, TWA and other airlines, and they led to the downgrading of once-bustling hub airports including St. Louis, Cleveland and Pittsburgh.
Consumer advocates say those mergers have led to higher prices and lower service, particularly from the four biggest airlines: American, Delta, United and Southwest.
“They have gotten too big to fail and too big to care,” said Bill McGee, an aviation expert at the American Economic Liberties Project, a group that opposes concentrated power within industries. “We feel that there should be a moratorium on all mergers in the airline industry until (federal regulators) go back and look at all the negative effects of all the consolidation."
Sen. Richard Blumenthal, D-Conn., said last week that a lack of competition caused the widespread flight problems that aggravated travelers this summer.
"Americans are beyond furious about cancellations and delays by airlines, and they are beginning to understand that the reason why airlines mistreat them and why they are mismanaged is because of consolidation,” he said.
The case is 21-11558 in U.S. district court in Massachusetts. In addition to the federal government, other plaintiffs are the states of Arizona, California, Florida, Massachusetts, Pennsylvania, Virginia and the District of Columbia.