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DOJ and States Seek to Halt Takeoff of American Airlines and JetBlue’s Joint Venture

Posted  September 28, 2021
By James J. Kovacs

The United States Department of Justice, six states and the District of Columbia recently unveiled an innovative antitrust complaint filed in the U.S. District Court for the District of Massachusetts seeking to dissolve American Airlines and JetBlue’s “Northeast Alliance.”

While the complaint characterizes the agreements between the two airlines as a “de facto merger,” the antitrust enforcers take the unique tactic of not alleging a violation of Section 7 of the Clayton Act, and instead allege a conspiracy in restraint of trade under Section 1 of the Sherman Act.

According to the complaint, JetBlue operates as a disruptive low-cost competitor to American Airlines, the largest airline in the world.  JetBlue estimates that it saved consumers traveling to and from Boston’s Logan airport more than $3 billion dollars since 2004, often competing directly with American Airlines.

Notwithstanding JetBlue’s direct competition with American Airlines, in July 2020 American and JetBlue formed the Northeast Alliance, a joint venture touted to grant customers access to 57 new markets and better benefits, including enhanced rewards for loyal customers.  But the complaint alleges that the Northeast Alliance is nothing more than a façade to hide American Airlines efforts to eliminate competition with the lower-priced JetBlue.  Underscoring that competition, the complaint cites to internal JetBlue and American Airlines’ documents indicating efforts by both parties to vigorously compete on price, and JetBlue’s desire to expand into new markets like Philadelphia, Miami, and Los Angeles.

Against that backdrop, the antitrust enforcers’ allegations read as both a classic Section 7 claim as well as a conspiracy in restraint of trade.  For example, the plaintiffs heavily rely on the Herfindahl-Hirschman Index to examine and describe market concentration at a variety of airports throughout the United States both pre and post-collaboration between the defendants.  But as the parties are not technically merging, the plaintiffs instead allege that the practical result of the Northeast Alliance is the elimination of effective competition, particularly since the agreement contains a revenue-sharing element which will allegedly drive a variety of anticompetitive behavior, including coordinated price increases and limitations on consumer choice.

The complaint represents an increasing emphasis by state and federal enforcers to challenge potential antitrust violations, particularly in highly concentrated markets like the airlines industry where four companies control over 80% of domestic air travel.  As President Biden has made combatting “excessive market concentration” a pillar of his domestic policy, there are likely to be more challenges to both mergers and joint ventures within such markets.

Moreover, given the Fourth Circuit’s recent affirmation that, where antitrust injury is properly demonstrated, private plaintiffs may seek divestitures for previously consummated mergers, there are increasing options for parties seeking to challenge both mergers and quasi-mergers.

Edited by Gary J. Malone

Tagged in: Antitrust Litigation,