US attempt to kill US-JetBlue partnership is on trial

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Gene J. Puskar – staff, AP

FILE – In this Tuesday, March 31, 2020, file photo, here are some of the 88 American Airlines planes stored at Pittsburgh International Airport in Imperial, Pennsylvania. The government and two major airlines give very contrasting views on the impact of an airline alliance. Closing arguments were held on Friday, November 18, 2022, in federal district court in the government’s lawsuit to sever a partnership between American Airlines and JetBlue.

Lawyers for the airlines and the Justice Department presented sharply contrasting views on an alliance between American Airlines and JetBlue during closing arguments Friday in a case that will test the administration’s aggressive antitrust enforcement. Biden.

The partnership allows American and JetBlue to coordinate schedules and share revenue on many routes to and from New York and Boston, which the government says will cost consumers hundreds of millions of dollars a year at higher prices.

“This is a very important case for us…because of these families who need to travel and who want affordable tickets and good service,” justice attorney Bill Jones said in US District Court. Boston.

Airline lawyers said the partnership has spawned new routes that are good for travellers. They argued that during a month-long trial, the government had shown no evidence that the deal had harmed consumers.

“It’s just an idea,” said Daniel Wall, an attorney for American.

When the attorneys finished their arguments, U.S. District Judge Leo Sorokin said he was still reading hundreds of pages of documents submitted this week by both sides. A decision is likely weeks away.

The government’s case is intuitive – that two major airlines working together instead of competing will reduce choices for consumers and result in higher fares. The lawsuit, which has been joined by six states and the District of Columbia, is also speculative.

The case will come down to the judge’s reading of the antitrust law and his judgment on whether the government presented enough evidence to kill off the partnership, which the airlines have been rolling out since early 2021.

JetBlue’s proposal to buy Spirit Airlines, the nation’s largest discount carrier, for $3.8 billion is looming on trial. Spirit Airlines shareholders voted last month to approve the sale despite JetBlue’s refusal to ask Spirit to drop its partnership with American to reduce regulatory risk.

The lawsuit featured testimony from current and former airline CEOs and economists that differed wildly about the impact the alliance will have on competition and ticket prices.

The US Department of Transportation approved the alliance 10 days before the end of the Trump administration. Shortly after President Joe Biden took office, however, there were rumors that the Justice Department was taking a closer look, and he sued to kill the deal in September 2021. .

The case is a test of the Biden administration’s resolve to undertake mergers and other trade deals that it says stifle competition and cost consumers more.

“The Department of Justice has a very good case,” said Florian Ederer, an antitrust expert and professor of economics at Yale University who has followed the case. “The NEA hurts competition, it probably hurts consumers. (American) eliminated a disruptive competitor, a maverick.

The stakes are even higher because the Justice Department just suffered two losses in major antitrust cases this fall. He failed to prevent a merger of sugar refiners and could not block a major acquisition in the health insurance business.

Robert Britton, a former American Airlines executive who teaches marketing at Georgetown University, said the government was moving too quickly – before any harm from the alliance was clear.

“They say, ‘You haven’t done anything wrong so far, but you might do it in the future, so we’re going to arrest you now,'” Britton said.

American and JetBlue say the alliance is already helping them compete with Delta Air Lines and United Airlines in two critical markets. Their experts testified that by taking on well-established rivals, the American-JetBlue deal will save consumers up to $635 million a year.

American Chief Commercial Officer Vasu Raja testified that prior to the alliance, the company lagged behind its two major Northeast rivals. He said American flew nonstop to just 31 of the top 50 destinations from New York. Now he flies to 47 of them and works on the other three. Raja added that by coordinating their schedules, the additional JetBlue passengers have enabled American to offer new international routes, such as to Tel Aviv.

Government lawyers tried several times during the trial to use previous comments from US executives and JetBlue, including at times when JetBlue CEO Robin Hayes criticized joint ventures involving other airlines. . Hayes testified that this deal is different because American and JetBlue still set their own prices.

Executives from rivals Southwest Airlines and Spirit Airlines said the partnership had created unfair competition for low-cost carriers who also want to expand into New York and Boston.

Each camp has called on economists to back up its case. A Georgetown University professor, Nathan Miller, concluded that the partnership would reduce competition and cost consumers nearly $700 million a year in higher prices. An aviation consultant called in by the airlines, Darin Lee, tried to poke holes in Miller’s analysis, saying for example that he had largely ignored neighboring Newark, New Jersey – dominated by United – to measure the concentration of American and JetBlue on the New York market.

Justice Sorokin was nominated by President Barack Obama in 2013 and confirmed by the Senate 91-0. Sorokin took an active role during the trial, interrupting lawyers to ask questions of witnesses as he tried to understand industry idiosyncrasies, including how airlines set fares.

The judge was careful during the trial not to indicate whether he leaned one way or the other. Each time it rules, its decision is likely to be appealed by the losing party.

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