American and JetBlue Await U.S. Antitrust Decision With Implications for Spirit Takeover

Photo credit: American and JetBlue planes at LAX Flickr / Sean Davis

A U.S. judge could any day rule in the Department of Justice’s antitrust suit against American Airlines and JetBlue Airways’ alliance in Boston and New York, with their decision having potential big implications for JetBlue’s proposed takeover of Spirit Airlines.

Arguments in the case ended in November with federal judge Leo Sorokin saying at the time that he needed some time to review the evidence before issuing a ruling. The Justice Department claimed that the airlines’ alliance is anti-competitive and hurts consumers, while American and JetBlue defended the pact saying it allowed them to add more flights and increase competition to the benefit of consumers.

Jamie Baker, an airline analyst at J.P. Morgan, wrote Thursday that he expects Sorokin’s decision by the end of January. A ruling in favor of American and JetBlue — or, allowing them to maintain their alliance as is — being the “most probable outcome,” he said. Baker was “not impressed” by the government’s arguments that, among other things, claimed consumers would pay $500-700 million in higher airfares as a result of the pact.

“The NEA stimulates competition in affected geographies and potentially siphons share away from competitors … which sounds to us like a laudable outcome for U.S. consumers,” wrote Baker. The NEA refers to American and JetBlue’s name for their pact, the Northeast Alliance.

American and JetBlue’s combined seat capacity in Boston and at New York’s three main airports — JFK, LaGuardia, and Newark — is up 9 percent in January compared to the same month in 2020, according to Diio by Cirium data. The outgoing Trump administration approved the pact in January 2021. The biggest increase was at New York JFK where combined seats jumped nearly 23 percent. By contrast, American and JetBlue’s seats were down nearly 12 percent in Boston.

The pandemic, however, had its hand in those capacity shifts. Airlines had restart their domestic — but not international — flights at JFK, LaGuardia, and Newark at the end of October 2021 when the U.S. Department of Transportation ended its Covid-era slot usage waivers. If airlines did not use these slots, they could lose them to competitors. There is no comparable requirement in Boston, which allowed carriers to continue to operate smaller schedules in line with travel demand.

Airfares at all four airports covered by the American and JetBlue alliance have also increased. Average fares were flat at LaGuardia to up 19 percent at Boston in the second quarter compared to the same period in 2019, according to the latest DOT data. However, nationally airfares increased 11 percent over the same period; only the increases at Boston and JFK were higher than the national average, by 7.8 and 1.3 points, respectively.

Executives at both American and JetBlue have repeatedly argued their partnership allows them to create a stronger third competitor in markets dominated by Delta Air Lines and United Airlines. Other airline industry executives have echoed this view, saying that neither American or JetBlue could expand separately as much as they can together in the Boston and New York markets due to operational constraints — particularly, airport gates in Boston and slots in New York.

The judge’s decision, whether for or against the Justice Department, will also have a significant impact on the proposed $3.8 billion JetBlue-Spirit deal. Many believe that, if the airlines win the antitrust suit, JetBlue could use the partnership as a bargaining chip with the government in exchange for approval of the merger.

“An NEA win would afford JetBlue a material negotiating asset as the merger review runs its course,” Baker wrote. “Our view since the inception of JetBlue’s efforts has been that if given a choice between the NEA and the merger, JetBlue would sacrifice the former.”

JetBlue has offered to divest all of Spirit’s assets in Boston and New York, as well as a number of its gates in Fort Lauderdale, in exchange for approval of the airlines’ merger.

“We view them as entirely complementary,” JetBlue President Joanna Geraghty said of the American alliance and Spirit merger at the Skift Global Forum in September. The former allows JetBlue to be a stronger competitor in its home northeast, while the latter would allow it to be a more “meaningful” airline — and competitor — in markets where it currently has little or no presence, for example the U.S. Midwest.

JetBlue and Spirit aim to close their merger by the first quarter of 2024. It was approved by the latter’s shareholders in October.