By Nate Raymond, David Shepardson and Diane Bartz
BOSTON (Reuters) – The US Justice Department on Tuesday urged a judge to compel American Airlines (NASDAQ) and JetBlue Airways (NASDAQ) to cancel their partnership in the northeastern United States, calling it an anticompetitive deal that would worsen if a JetBlue takeover. Spirit Airlines (NYSE:).
At the start of a three-week trial in Boston, Justice Department Attorney General William Jones said the Northeast Alliance, unveiled in July 2020, is a “virtual merger” of America’s and JetBlue’s Boston and New York operations. This allowed them to coordinate flights and collect revenue to and from Boston, John F. Kennedy, LaGuardia and Newark airports in New York.
“Losing competition will result in higher prices and lower quality at those four airports,” Williams said in his opening statement.
He said the deal eliminates incentives for Americans to cut fares to lure customers from JetBlue, a “historically troubled” competitor with often better fares, and gives airlines more than 80% market share on flights from Boston to Washington and six other airports.
But the airline’s lawyers said the hypothetical fares and competitive damages that the Justice Department and six states sued on their side have claimed do not exist in the real world, where the alliance has been in place for 18 months.
They argue that the alliance has allowed them to become a viable competitor to the region’s dominant airlines, Delta Air Lines (NYSE:) and United Airlines, by increasing capacity and flights.
“More production as we see here is very competitive and leads to lower prices,” JetBlue’s attorney Richard Schwed told US District Judge Leo Sorokin.
JetBlue CEO Robin Hayes, the first witness, was asked about instances where JetBlue has moved to market, such as the Boston-Washington Reagan route, and the fares charged by legacy airlines have fallen.
Hayes noted that JetBlue has been a target of competitors’ efforts, when asked by Justice Department attorney John Davis about measures such as predatory pricing to take out low-cost airlines.
Hayes acknowledged that he was critical of previous joint ventures similar to the Northeast Alliance.
“All of these joint ventures have been approved by the regulators with very few guarantees,” he said, without specifying them.
The trial began a week after US judges ruled against the government in two antitrust battles: sugar and insurance.
Airlines mergers in recent years have created a very tight-knit industry, with American, Delta, United and Southwest Airlines (NYSE 🙂 controlling 80% of domestic travel, the government says.
JetBlue is seeking to buy $3.8 billion from low-cost rival Spirit Airlines, which is subject to antitrust review.
Williams argued that America would benefit if this merger continued, as it would be able to “choose two idle airlines for the price of one”.
Hayes said that no matter how the fight over the Northeast Alliance ends, it would be good for JetBlue’s efforts to buy Spirit.