A judge’s ode to small competitors as he struck down the American Airlines-JetBlue alliance intimates the cloudy legal outlook JetBlue faces in its quest to acquire Spirit Airlines Inc.
Judge Leo T. Sorokin sided with the Justice Department’s antitrust division in ruling last week that the Northeast Alliance (NEA)—a joint venture by American Airlines Group Inc. and JetBlue Airways Corp. in the region—"substantially diminishes” airline competition and harms consumers.
Sorokin’s references to the competitive balance provided by smaller competitors—in this case, JetBlue—could be yet another weapon that the DOJ can flip and use in its effort to block JetBlue’s own $3.8 billion deal to buy an upstart rival, Spirit.
The court rejected JetBlue’s reasoning for the Northeast Alliance that it needs to team up with American Airlines to better compete with other leading air carriers.
“Federal antitrust law is not concerned with making individual competitors larger or more powerful,” Sorokin wrote in his ruling from the US District Court for the District of Massachusetts. “It aims to preserve the free functioning of markets and foster participation by a diverse array of competitors.”
That’s a holding the DOJ can use again since JetBlue is defending its acquisition of Spirit with the same logic, said Stephen Calkins, a professor at Wayne State University Law School.
“Bottom line is that this opinion describes the airline business as lacking sufficient competition and a business in which any additional coordination must be viewed with great suspicion,” Calkins said. “Really a huge win for DOJ.”
Taking on the ‘Big Guys’
JetBlue’s Northeast Alliance with American Airlines lessened the pro-competitive impact that JetBlue, as a low-cost carrier, would have unleashed on the Boston-New York routes, said Sharis Pozen, regional managing partner, Americas at Clifford Chance.
With his ruling, Sorokin is effectively saying that “the scale tips here, and competition will be lost. We are not going to buy the argument of coming together to take on Delta in this instance,” Pozen said.
Spirit has proliferated across airports nationwide as another low-cost maverick that drives down rivals’ prices in routes where they overlap. JetBlue’s acquisition of it would eliminate the Spirit effect, Pozen said.
JetBlue and Spirit argue that their tie-up is necessary because the industry is heavily concentrated among a few bigger carriers.
That’s a common argument made to support mergers in already-concentrated industries. But Sorokin roundly rejected it, finding the competition brought by even the smaller carriers isn’t worth sacrificing for a merger that may be harmful to consumers.
The ruling “rejects persuasively the argument that we should eliminate competition that currently benefits consumers under the unproven assumption that a bigger firm might be more effective in taking on the big guys in other markets,” said Bill Baer, a visiting fellow at the Brookings Institution who oversaw the DOJ’s 2013 attempt to block the US Airways-American Airlines merger.
Florian Ederer, a professor at the Yale School of Management, saw Sorokin’s decision differently. The ruling may actually work in JetBlue’s favor in its Spirit acquisition, he said.
If Sorokin had allowed the alliance to continue, the DOJ could have been in a position to argue that the alliance makes JetBlue’s competitive position stronger in the Northeast corridor, and that allowing it to buy Spirit would only exacerbate the loss of competition, Ederer said.
“But now that the NEA—the Northeast Alliance—looks in much more doubt,” JetBlue remains a weaker competitor not as well-positioned to secure significant market dominance via the Spirit acquisition, Ederer said.
The airlines have indicated interest in appealing the ruling.
“We believe the decision is wrong and are considering next steps,” American said in a statement. “The court’s legal analysis is plainly incorrect and unprecedented for a joint venture like the Northeast Alliance.”
The cases are United States of America et al v. American Airlines Group Inc. et al, D. Mass., No. 1:21-cv-11558, decided 5/19/23, and United States of America et al v. JetBlue Airways Corporation et al, D. Mass., No. 1:23-cv-10511, filed 3/7/23.
To contact the reporter on this story:
To contact the editors responsible for this story: