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Biden administration challenges airline alliance as antitrust trial begins

Experts see the lawsuit as one volley in a larger administration plan to tackle consolidation in key industries

JetBlue and American Airlines planes at Tampa International Airport. (Chris O'Meara/AP)

BOSTON — Federal prosecutors trying to halt an alliance between two air carriers in the Northeast painted the agreement Tuesday as one that could allow the carriers to limit capacity and harm fare-reducing competitors, costing consumers hundreds of millions of dollars each year.

The Justice Department’s antitrust trial began in federal court here, with prosecutors arguing that the Northeast Alliance — a jet- and revenue-sharing agreement between American Airlines and JetBlue Airways for certain routes in the Boston and the New York areas — threatens to limit competition between the airlines around the country in an already concentrated industry.

Attorneys for the airlines argued that the government’s case was based on speculation about the future, ignored oversight that was established in an agreement with the Transportation Department in 2021 and overlooked expanded capacity that the agreement has created between the two markets.

Experts see the trial as a volley in a larger Biden administration plan to tackle consolidation in key industries. At the same time, federal regulators are weighing JetBlue’s plan to purchase Spirit Airlines in a rocky year for carriers — stung by elevated flight cancellations and delays that caught the attention of Washington this summer.

The airlines say their agreement allows two relatively smaller carriers in the Northeast to compete more effectively against the two largest players there, United Airlines and Delta Air Lines.

On Tuesday, William H. Jones II, an attorney in the Justice Department’s antitrust division, said the airline industry has consolidated considerably over 20 years, arguing that American Airlines, one of the world’s largest carriers, was looking to influence a disrupting competitor in JetBlue.

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“The defense ignores what the deal has already done: eliminates a competitor at four major airports in the United States,” Jones said. “Just here from [Boston Logan International Airport], travelers went from having three big airlines at Logan to two, with two of those big three combining for practical proposes. To borrow a phrase from Mr. [Robin] Hayes, it wiped out a competitor,” Jones added, referring to the chief executive of JetBlue.

Beyond the routes between Boston and New York, the government argued the alliance could limit competition between the carriers on other routes around the country — especially JetBlue, considered a disrupter that lowers fares and improves the quality of service in routes that it enters.

“It lacks the incentive it had before to be that disruptive, independent competitor,” Jones said. “Now when JetBlue makes decisions, it has to take into account its effects not just on itself, but on its partner.”

Possibly restricting competition even more in the future, Jones argued, JetBlue has offered to buy low-fare carrier Spirit. The deal is subject to regulatory approval and would further consolidate an industry led by four dominant airlines: Delta, American, United and Southwest Airlines.

The airlines’ attorneys on Tuesday said much of the government’s case relies on faulty business analyses that conclude customers will be harmed. They called the possible Spirit acquisition irrelevant.

Richard Schwed, an attorney representing the airlines, said the alliance has expanded capacity along the New York-Boston route, adding more seats and more flights, with several regional-size planes upgraded to larger jets. He said United and Delta have gained market share along the route over the past eight years, while the American-JetBlue alliance has allowed two airlines that were smaller in that market to emerge as a real competitor.

“These are not hypothetical, predicted benefits. They are actual benefits based on actual flights and actual schedules,” Schwed said. “More output like we’re seeing here is highly pro-competitive and leads to lower fares.”

Prosecutors called Hayes as their first witness Tuesday after opening arguments concluded. The airlines’ attorneys did not question him Tuesday.

American and JetBlue have an agreement with the Transportation Department, finalized in the waning days of the Trump administration, that includes conditions to share seat, gate usage and other competition information with the federal government. The airlines have agreed not to share information with each other about fares and flights in other routes where they compete against each other.

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Both airlines also agreed to give up coveted slots at New York’s John F. Kennedy International Airport and Reagan National Airport outside D.C. to foster more competition in those busy facilities.

Agreements such as the Northeast Alliance are rare among domestic carriers, but they are common internationally. American is a founding partner of Oneworld, an alliance of international carriers that includes British Airways, Japan Airlines and others, sharing planes and airport space around the globe.

Brian Quinn, a professor at Boston College Law School who specializes in mergers and corporate law, said that if the Northeast Alliance survives the court challenges, it could lead to more alliances in other domestic routes.

“It could signal that you’re opening the door, and there’s no reason for people not to walk through it,” he said.

Aviation analyst Henry Harteveldt said federal officials are challenging the alliance because of concerns it will enable two former rivals to collaborate in ways that harm consumers, although he said the public has seen benefits from the agreement.

“Everything I have seen is that it makes things easier for travelers,” Harteveldt said. “It helps JetBlue compete against Delta, and it helps American against Delta and United.”

He said that if the Justice Department succeeds in unwinding the carriers’ alliance, American would have to rethink how — or if — it wants to be a player in the New York market.

The trial begins against the backdrop of an industry that has fewer competitors than it did 20 years ago, a consolidation that occurred through a combination of mergers and bankruptcies. According to the Justice Department, the top four airlines had 55 percent of the domestic air travel market in 2000, with a dozen smaller carriers competing for the rest. By 2020, the top four accounted for 81 percent of the market, alongside a dwindling number of smaller competitors.

The case is part of a broader effort by the Biden administration to push back on what it sees as attempts to reduce competition in certain industries.

Bill Baer, who led the Justice Department’s antitrust division from 2013 to 2016, said that in appointing Jonathan Kanter to head the antitrust division and Lina Khan to chair the Federal Trade Commission, the Biden administration selected two appointees who pledged to be aggressive about deals that reduce competition.

“This really is part of the Biden administration’s commitment to be very vigorous in opposing mergers and acquisitions that further consolidate already concentrated industries,” said Baer, now a visiting fellow in governance studies at the Brookings Institution.

In a speech this month at Georgetown Law’s Global Antitrust Enforcement Symposium, Kanter said the antitrust division is “working to use every tool we have available to promote competition and meet the moment.”

Since November, the division has challenged or obtained merger abandonments in six cases. In testimony before the Senate Judiciary Committee this month, Kanter said the department has seven pending antitrust lawsuits — the largest number of civil cases in litigation in decades.

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Justice Department lawyers have argued cases against mergers in publishing and health care in recent months, with mixed results. A federal judge ruled against the agency’s challenge to a merger between UnitedHealth Group and Change Healthcare. The department is awaiting a ruling in a case that involves a proposed merger between publishing giants Penguin Random House and Simon & Schuster.

Quinn, the Boston College professor, said the federal litigation signals a change from other administrations, where “bigger is better” had more bipartisan support.

“For years, antitrust has been a nonideological area,” he said. “I think this administration has focused on bigness as a problem not just in airlines, but Big Tech, agriculture — bigness across the board as a problem — and is looking to use these antitrust tools.”

American and JetBlue announced the Northeast Alliance in July 2020 and finalized an agreement with the Transportation Department in January 2021, before Biden’s inauguration, that allowed it to go into effect. The alliance began operating the next month.

That September, the Justice Department and attorneys general in Arizona, California, Florida, Massachusetts, Pennsylvania, Virginia and D.C. sued to break it up.