American and JetBlue airlines must end alliance, US judge rules

By Diane Bartz and David Shepardson

WASHINGTON (Reuters) -American Airlines Group must end its alliance with JetBlue Airways (NASDAQ:) Corp, a federal judge ruled on Friday, agreeing with the U.S. Justice Department that the arrangement means higher prices for consumers and ordering the companies to part ways within 30 days.

The decision represented a victory for President Joe Biden’s administration, which has taken a hard line on consolidation and tie-ups in the aviation industry. The Justice Department, six states including Massachusetts as well as the District of Columbia sued in 2021 to unwind the deal announced in 2020, calling the “Northeast Alliance” a “de facto merger” of the American and JetBlue Boston and New York operations that removes incentives for them to compete.

In his ruling, U.S. District Judge Leo Sorokin said the partnership “substantially diminishes competition in the domestic market for air travel.”

“These two powerful carriers act as one entity in the northeast, allocating markets between them and replacing full-throated competition with broad cooperation,” the judge wrote.

American is the largest U.S. airline by fleet size and low-cost carrier JetBlue is the sixth largest. The airlines use the alliance to coordinate flights and pool revenue.

JetBlue shares fell 1.8% for the day, while American closed down 1.5%.

Both airlines said after the ruling they were evaluating their next steps.

JetBlue said it was disappointed with the decision and that the “Northeast Alliance has been a huge win for customers” by extending the airline’s low fares “to more routes than would have been possible otherwise.”

American said, “The court’s legal analysis is plainly incorrect and unprecedented for a joint venture.” It added that the alliance “has been a huge win for customers and anything but anticompetitive.”

U.S. Attorney General Merrick Garland described the judge’s decision as “a win for Americans who rely on competition between airlines to travel affordably.” Garland said the Justice Department will continue to protect competition and enforce U.S. antitrust laws across industries, including the airline industry.

The JetBlue-American partnership was approved by the U.S. Transportation Department shortly before the end of former President Donald Trump’s administration.

The Justice Department in the lawsuit said the alliance would put nearly $700 million in extra annual costs on consumers and gives the airlines more than 80% of market share in flights from Boston to Washington and six other airports including the New York area’s JFK, LaGuardia and Newark.

Lawyers for JetBlue and American have said the alliance has not raised air fares or resulted in fewer flights, has expanded flights and made the two airlines more competitive with Delta Air Lines (NYSE:) and United Airlines on U.S. northeast routes.

Sorokin said the alliance’s “effects resemble those of a merger of the parties’ operations within the northeast” and that “American and JetBlue no longer compete with one another within the scope” of the partnership. The judge gave the airlines 30 days to end the alliance.

Massachusetts Attorney General Andrea Joy Campbell called the ruling essential for fair competition and “a significant victory ensuring a more level playing field for Massachusetts consumers and all those traveling in and out of (Boston) Logan.”

Separately, the Justice Department, joined by four states, filed a suit in March aimed at stopping JetBlue from buying discount rival Spirit Airlines (NYSE:), saying the planned $3.8 billion merger “will lead to higher fares and fewer seats, harming millions of consumers on hundreds of routes.” The suit is set for trial in October.

TD Cowen analyst Helane Becker said she believes the American JetBlue ruling “has negative implications for the JetBlue/Spirit merger.”

Airline mergers in recent years have led to a highly consolidated industry in which American, Delta, United and Southwest Airlines (NYSE:) control 80% of domestic travel, the department said.