DOJ Has Few Good Arguments, Odd Timing As It Sues to Block American, JetBlue Alliance

American, Government Regulation, JetBlue

The long-rumored court action is finally here. Months ago, The Wall Street Journal broke the news that the US Department of Justice (DOJ) was considering challenging the American and JetBlue so-called Northeast Alliance (NEA). Then last week, the rumors picked up steam. A Friday letter from Sen. Blumenthal (D-CT) to DOT condemning the approval process was just an appetizer before the lawsuit filed by DOJ in a Massachusetts court Tuesday. Though there are some valid concerns in the lawsuit, most seem to have already been addressed by DOT. And more importantly, I can help but wonder… why now?

The lawsuit is filled with bluster and accusations, including the frequent use of the word “unprecedented” (five times in the press release alone) which — despite the actual meaning of the word — is meant to suggest something sinister is happening. The negative overtones are everywhere, even saying that American CEO Doug Parker is referred to internally as the Godfather of consolidation.

The overall tone of the lawsuit is that American is this big bad monster that is going to ruin everything about JetBlue, an airline which DOJ seems to consider the greatest airline flying. DOJ lavishes praise on JetBlue as being a “uniquely disruptive low-cost airline.” It says “JetBlue’s reputation for lowering fares is so well known in the airline industry that it has earned a name: the ‘JetBlue Effect.'” No it hasn’t. The Southwest Effect? That’s absolutely a thing. But I’ve never heard anyone call it the JetBlue Effect except for JetBlue itself.

DOJ continues by noting that “JetBlue has challenged the major airlines… by offering lower fares and better service.” In DOJ’s mind, this is the David to American’s Goliath. That stodgy, old line way of thinking seems to have framed DOJ’s mindset, and the Department has twisted its “proof” to try and make its case.

A Questionable Definition of Anti-Competitive

Broadly, the lawsuit seems to be lacking much substance. There are plenty of wild accusations — including a tremendous number of barbs being thrown at international joint ventures, so that’s a warning for the future — but they don’t seem grounded in reality. The ones that even remotely ring true seem to fail to grasp industry dynamics.

If we get beyond this determination that American is evil and JetBlue is great, what is really being argued here is that competition will be drastically reduced. To prove this point, DOJ turns to its favorite metric, HHI. This is something that usually gets used for mergers, and it seems unclear to me why DOJ can just use its merger template and apply it here, but apparently that is the plan.

HHI squares the market share of all airlines in a market, with American and JetBlue as separate carriers and then again as one carrier (using full year 2019). It then adds those numbers together. Anything over 2,500 is highly concentrated and an increase of 200 or more is considered significant. Apparently DOJ didn’t think it looked bad enough with a normal review, so it opted to arbitrarily decide that Newark along with its United hub aren’t really competitive options for domestic travel. I’m pretty sure millions of people in Manhattan, Staten Island, and parts of Brooklyn would disagree.

Even after eliminating Newark, DOJ could still only find 17 markets of concern from New York, and every single one of those is also served by Delta, so it wouldn’t turn into a monopoly even if American and JetBlue could coordinate on price, which they can’t. Further, of the 17, ten of them have service from another airline in addition to Delta.

This wasn’t just limited to New York, of course. In Boston, DOJ identified 11 routes, but 7 of those have competition from at least one other airline (or train in the case of New York). The remaining four — Charlotte, Phoenix, Rochester, Syracuse — do not have any others but the airlines volunteered to remove them along with Boston – Dallas/Fort Worth and Philly from the NEA as a concession to alleviate the concern.

DOJ also gets into connecting markets that will be impacted, but that’s just madness. JetBlue connects very little traffic on its own aircraft, and it doesn’t price low in order to get connections. Bringing these two together will not do harm in the connecting world, and in fact, it will most likely be positive. This is where I find myself so confused.

So Far, Positive Impacts Abound

What’s unique about this lawsuit is that the NEA is not being challenged in advance of anything being done. It has already been in place, and so far, everything we’ve seen has been positive. Here’s a rundown of just some of the consumer benefits we’ve seen:

  • American upgauged all regional flying in New York to use two-cabin airplanes with more seats than the old single-cabin 50 seaters.
  • American has launched long-haul flights from New York to Athens, Delhi, Santiago, and Tel Aviv.
  • American has added shorter-haul flights from New York to Bogotá, Cali, Kalispell, Kansas City, Key West, Medellín, Myrtle Beach, Oklahoma City, Omaha, Orange County, Pensacola, Providenciales, Rapid City, Savannah, and St Lucia.
  • American will launch service from Boston to Asheville, Columbus (OH), Guatemala City, Jackson Hole, Traverse City, and Wilmington (NC).
  • JetBlue will add New York to Boise, Charleston (SC), Denver, Kalispell, Kansas City, Key West Milwaukee, and Puerto Vallarta along with a slew of new Newark destinations.

This doesn’t include all the loyalty benefits. I’ve written before about how American is an also-ran in New York while JetBlue is a leisure airline that just touches pockets of business (transcon, London). Alone they cannot compete for all business the way that United can with its Newark hub and Delta with its JFK and LaGuardia split hub. This combination changes that, but DOJ apparently doesn’t care about the actual, tangible changes. It’s just focused on all the “what ifs” that may come.

Why Now?

As the airlines say in their NEAflies.com website defending the agreement:

The DOJ also did not need to challenge the NEA now. The NEA is not a merger, and the DOJ is not operating under a deadline. The NEA is a contractual collaboration that could be unwound if, unlikely as it seems, it produced anticompetitive effects.

DOJ’s concern about big, bad American having undue influence over delicate flower JetBlue seems misguided. The thought is that because of American’s overall size advantage (despite JetBlue dwarfing American in these particular markets) plus the high level of overlap (70% of JetBlue’s routes are under this alliance) American can make JetBlue do things it doesn’t want to do.

The idea of American having too much influence is something that was a real threat for JetBlue to consider, according to the lawsuit:

…before entering the Northeast Alliance, JetBlue warned its Board of Directors that the Northeast Alliance created a risk of JetBlue being “co-opted by Connie [American] manipulation” and noted that potential ways to alleviate this risk might help preserve only some level of JetBlue’s independence.

Ah yes, gotta love code names. If American was Connie, well, then we know what JetBlue must have been….

You thought I would have gone with Electra instead of two notorious criminals? But I digress.

The point is that JetBlue had these concerns, but it had identified ways to alleviate the risk. What this complaint doesn’t say is whether JetBlue implemented those or not, but it would seem like negligence if they did not.

A Slot Question That Has Already Been Resolved

DOJ really hammers home this concern with the idea that American can give JetBlue slots if it is pleased with the airline and take them away if it’s displeased, acting like a true puppet master. That’s a great way to ruin a partnership, but it’s also not allowed. Remember, DOT and the airlines came to a settlement which allowed the NEA to move forward. In section III. C. of that agreement, it says:

  1. American and JetBlue will be prohibited from withdrawing, reducing or degrading the provision of slots and gates in response to, or to influence, the other’s competitive behavior, including but not limited to its pricing, within or outside of the geographies covered by the NEA.
  2. With respect to slots specifically, the NEA will be amended so that slots will be leased between American and JetBlue for a minimum of two IATA seasons [Ed note: that’s about a year], unless the slot lease is for seasonal flying only.

DOT already thought through this concern and resolved it to its satisfaction. If American is stupid enough to try to retaliate by withholding slots — which seems incredibly unlikely — then the government should and could go after the airline since it would clearly violate the agreement. DOJ knows this clause exists, but it doesn’t care. It really doesn’t seem to have high regard for anything DOT did here, trashing the agreement it negotiated with the airlines.

There will be much to say on this in the coming weeks, but this doesn’t actually appear to be a “just fork over some slots and we’ll call it a day” kind of thing as I originally thought. DOJ seems like it really wants to put the brakes on this alliance for good, even though the benefits have all been positive so far. This isn’t a merger. If there is harm, this can easily be dissolved, but so far, it seems like consumers have benefited and that seems like it should be the ultimate goal.

34 comments on “DOJ Has Few Good Arguments, Odd Timing As It Sues to Block American, JetBlue Alliance

  1. Your article clearly points out all the benefits in terms of more service that the B6/AA Northeast Partnership has resulted in since it was rolled out earlier this year. AA and B6 can’t grow in NYC without each other, which is pretty telling (and damning) about both companies and sheds the spotlight on just how bad US infrastructure is and how plainly awful NYC’s airports continue to be. AA/B6 levels the playing field sort of in the NYC market with DL and UA. Worth noting it is DL that has opted to trim services here and there (a decision that’s strictly theirs). I honestly do not understand the rationale for pushing back now on a relatively small partnership to make way for Spirit and Frontier (and Southwest, presumably) to grow in the NY market. WN has proven long ago it doesn’t understand NY and it has low POS for itineraries originating in NY anyway. NK can’t run a clean operation and is the airline people go to first when they want to brawl in flight or at check in. NYC doesn’t need ULCCs en masse. It needs better airports, better facilities, better infrastructure, and given its unique market dynamics when it comes to air travel, the chance to have not one (DL), not two (DL, UA), but three big players (+AA/B6) in its market. That’s what choice is all about.

  2. This is something that looks to have been pushed by DL. Other airlines like WN and NK that complained about this for slot divestiture are going to be sorely disappointed, because getting more slots is all they are after.

    Some of the DOJ points are just badly researched. For example, they mentioned NEA causing JFK-SAN fares to go up by $20 to 40, but didn’t bother researching enough to see that AA has only operated that route for 2 weeks since April of 2019. DOJ looks like complete amateurs with this type of complaint.

    I’m all for competition. If they want to have more competition, they should start by creating some more slots at JFK/LGA/DCA for LCCs/ULCCs and forcing larger airlines to vacate more gates at LAX for LCC/ULCCs and forcing more prime hour runway departures available at EWR. They should also really go after the TATL JVs, which are actually about the more anti-competitive things out there. Or the transborder JV between UA and AC and the JV between DL and AM.

    1. TATL, please translate – thanks.

      This whole issue sounds so dumb to me, but maybe I’m missing something. If it’s a non zero some gain for both airlines & customers benefit at both ends I, e having service from B6 as well as AA or at least receiving flyer benefits by going between them, then what’s the problem?

      One issue not mentioned here does involve infrastructure at JFK. T7 will be demolished so a new T6 could be built for international flights from B6, but a pedestrian connector would also be added over to AA’s T8 so behind security transfers could be facilitated. This project will also include reworking of the various roadways & ramps between terminals for better traffic flow.

  3. This is a bit odd, I wonder if this is just a ploy by DOJ to extract some additional slot divestitures from them. So I guess we know who will get the 8 peak hour slot pairs in Newark? Not JetBlue right?

    1. Zack Rules – Well, DOT awards those slots, not DOJ, and there appears to be no love lost here so I don’t know that DOT cares what DOJ thinks at this point.

      1. Great point. I’m sure there were more than a few eyes rolling at DOT over the grandstanding by their showboating “friends” over at Justice.

        Even by the extremely low standards set by the Federal government, this is a complete waste of ink and paper.

  4. Interesting times, for sure. None of us knows how this will unfold. But, for the sake of argument, let’s imagine the NEA gets the death penalty. Completely undone. Kaput.

    Question: Who is the biggest loser, AA or JetBlue? My answer is JetBlue. We can all agree American is failing in NYC due to several factors, including costs. The revocation of the NEA essentially removes AA from life support in the Big Apple. So they continue shrinking and the others (Delta primarily) strengthen. Yes, this hurts American Airlines, but it does not alter their trajectory as NYC was inexorably becoming a lost cause for them. AA still has a very robust nationwide network with fortress hubs, massive name recognition, and intricate infrastructure.

    JetBlue, conversely, has Boston and New York. As the flights to London and the savvy pandemic moves at EWR indicate, they know they must bust out of their BOS/JFK strongholds and GROW the airline or forever be a powerful regional player and take-over target. Accessing (and expanding into) American’s network like a virus in a host was absolutely PERFECT for JetBlue. Free slots! FF tie-ins! Customer data sharing! And, even better, the opportunity to expand and grow the Alliance over time to other AA markets. JetBlue must be absolutely salivating over the potential to piggyback its way into significance in CLT, ORD, DFW, PHX…..etc. Without the NEA, JetBlue will we weaned from its host organism. It will be forced to do what all the other carriers have to do; namely, compete in the marketplace.

    1. Without the NEA, JetBlue will we weaned from its host organism. It will be forced to do what all the other carriers have to do; namely, compete in the marketplace.

      But also remember the old saying… the bigger they are, the harder they fall. Despite AA’s size, NYC, ORD, LAX & BOS aren’t strong gateways for them & that is why they needed to add both B6 as well as AS to hide there flaws in coastal markets other than MIA. As for ORD, UA has been so strong for so long that it shocks me a bit that AA hasn’t pulled down it’s entire hub there. I guess corporate contracts play somewhat of a roll in that choice to keep the hub going.

    2. In this case I picture JetBlue not as a “virus”, but as a dose of steroids to help them build their New York muscles. The rest of the deal is just what JetBlue gets in return.

  5. AA and merger partner USAirways have had assets to build the largest presence in NYC. As CEO of USAirways, Doug Parker oversaw the LGA slot giveaway which transferred ¼ of LGA slots to Delta. As CEO of American, the same Parker has overseen AA’s drawdown of NYC, the only carrier in the ten pre-covid years to become smaller in NYC. AA has had opportunities in NYC; it has just squandered them.

    The case is not about codesharing or other marketing processes because AA-AS is not part of the case

    The issue is schedule coordination esp. in slot controlled airports, processes which have not been allowed in any other domestic codesharing arrangements – which is the definition of unprecedented. The DOJ says AA-B6 have gained most of the benefits of a merger in specific markets.

    There were objections to the NEA before it was approved and they came from NK and WN which wanted more slots, not from DL and UA. Some AA-B6 labor groups have objected to the agreement which might be a factor behind the scenes.

    AA and B6 execs do not understand US antitrust law. You don’t brag about being number one when you have used market concentrating measures to grow to number 1. There is no legal justification for violating antitrust law in order to create an additional competitor. Adding more markets does not justify market concentration in others.

    AA and B6 have filed schedules with one or both of AA and B6 adding capacity in markets where the two already had a majority of capacity in the market which is the definition of predatory behavior.

    International JVs do not involve domestic markets and there are relief measures put in place where international markets become more concentrated because of JVs which the DOJ says don’t exist in the NEA.

    The DOJ is deciding the case with the support of 6 states plus DC (AA/B6 hubs); the rest of us just get to have opinions.
    Despite objections here, it is doubtful the NEA will survive in its present form.

    1. The DOJ is deciding the case with the support of 6 states plus DC (AA/B6 hubs); the rest of us just get to have opinions.
      Despite objections here, it is doubtful the NEA will survive in its present form.

      And how do you know this Tim?

      1. SEAN – And to be clear, DOJ doesn’t decide anything. It’s the court in Massachusetts that decides this, and I think it is far from a foregone conclusion that the NEA will have to be altered.

    2. “ AA and merger partner USAirways have had assets to build the largest presence in NYC. As CEO of USAirways, Doug Parker oversaw the LGA slot giveaway which transferred ¼ of LGA slots to Delta. As CEO of American, the same Parker has overseen AA’s drawdown of NYC, the only carrier in the ten pre-covid years to become smaller in NYC. AA has had opportunities in NYC; it has just squandered them.”

      Peddling your nonsense and lies all over the internet, huh? Just because you copy/paste your nonsense from one site to another doesn’t make it true.

      The US Airways and delta LGA slot swap was far before the merger with AA. 3.5 years before, in fact. In March, 2010 when this slot swap happened, a quick google search would inform you US Airways still thought they’d be merging with United.

      The DOJ forced AA/US to give away more LGA slots as a condition of merger giving delta an even more dominant position at LGA than it already had even against the combined slots of aa/us at LGA.

      AA/US has never given a slot away or lost one at LGA or JFK willingly since merger. They’ve had legal waivers but never lost a slot. There are aircraft changes at those airports, but That’s about it.

    3. This whole thing is about politics. The lawsuit was deliberately filed in Massachusetts because they knew they would probably get a judge who would be friendly toward Delta. That’s how sham political trials work. I don’t know about all of the attorneys general, but Arizona’s is running for the U.S. Senate seat currently held by Mark Kelly. That seat was originally John McCain’s. McCain was reelected in 2016 for a six-year term. When he died in August of 2018, our governor appointed Martha McSally to fill the vacancy until the next election, which was in 2020. But McCain’s term expires in 2022, which means that Kelly has to run in 2022 to be elected to a full six-year term. All of this is to say that Mark Brnovich, Arizona’s Attorney General is involved in this suit simply for show. The NEA barely impacts Arizona, as Southwest provides plenty of competition for American and jetBlue (which has an extremely limited presence here).

    4. I’d LOVE to know how you think AA and B6 have violated antitrust law. So their execs (and millions of dollars worth of outside counsel) don’t know antitrust law but you do? I guess we’ll just have to take your word for it since you provided no evidence to support that claim.

      2. AA did not “give away” (just FYI, it’s two words, not one) any LGA slots. Something tells me you already know that. What you failed to mention was they exchanged them for slots at DCA which allowed them to consolidate their hold and become the dominant carrier at that airport in lieu of banging their heads against the wall at LGA.

      1. Bill,
        I’m sure you are aware that there were many more LGA slots in the deal than DCA slots – so the deal from the start was tilted in DL’s favor. It also included about $60 million in cash but the equivalent of a daily Brazil frequency.
        Surely you also remember that already had more than 50% of the slots at DCA so the DOJ required AA/US to divest just about the equivalent of either the pre-merger AA DCA slot portfolio which was also about the number of slots that came from DL in the LGA-DCA slot swap.

        The divested DCA slots ended up going mostly to low cost competitors WN and B6. DL was able to request more Brazil frequencies to replace the ones they traded away and then the US and Brazil signed Open Skies.

        The net-net was that DL gained 125 LGA slot pairs for about $60 million.

        And, again, you have to ask how DL has been able to make LGA work but US Airways could not AND why Parker did not see the value in the LGA slots and seek a better deal, esp. given that he ended up having to trade away what was acquired at DCA. You can’t understand antitrust law and its application in the airline industry and fail to realize that 50% market concentration is seen as problematic in the US airline industry, esp. if competitors cannot freely enter the market. btw, United got smacked for the same thing due to poor EWR slot usage.

        AA/B6 don’t understand antitrust law because if they did they would not be bragging about their size given that they had obtained it through market concentrating measures – which btw does include slot controls. When you have an advantage that others cannot overcome, you don’t tout it; that should have been obvious from the NK and WN complaints before the deal. Nothing is ever set in stone and AA/B6 thumbed their nose at their competitors – and the government took notice, which is why we are here today.

    5. The reality is that AA/B6 has added far more new markets out of NYC/BOS than markets where they were competing against each other. That’s even if you buy the argument that both airlines staying on the same routes means losing 1 competition. Given that they can’t coordinate on pricing or revenue share like a JV, that’s a very aggressive argument to be making.

      It should be noted that the most affected market, NY, chose not to join this suit and will not join this suit. They have however complained about legacy domination of slots at JFK/LGA, which is far more anti-competitive in NY area than this partnership.

      DL is the DOj whisperer here. WN and NK really just want more slots in their complaints. DL was always the biggest loser of this deal and has the most to gain from NEA not surviving in present form.

      AA & B6 will now move toward aggressively showing that their partnership of adding new markets have positive affect on pricing and DOJ’s complaints are unfounded. It should be pretty easy to show that markets like BOS-IND/CMH/STL/CVG will have lower fares from additional competition.

  6. If DOJ loses, then they look like idiots who just needed SOMETHING to work on. If DOJ wins, then perhaps the result is Alaska + JetBlue?

  7. I smell politics in the background of this. Could just be the the Biden Administration’s DOJ trying to look tougher on mergers and similar actions after the Trump years of “hey, anything goes”, or responding to labour’s pull (as Tim Dunn points out, some AA/B6 labour groups have voiced opposition).

    From Tim Dunn: “There is no legal justification for violating antitrust law in order to create an additional competitor.”

    Two observations:

    1) This statement is a little premature – we don’t know if they have actually violated antitrust law, that’s for the court to decide, especially since…

    2) Antitrust law, by its very definition, is intended to prohibit actions that reduce competition to the point where the violator gains significant pricing power in the marketplace. Even if the NEA results in the cooperating AA/B6 having increased market share in certain city pairs, unless that market share is large enough to give them disproportionate pricing power it doesn’t meet the traditional standard for antitrust action.

    It’s also suspicious the way the DOJ left EWR out of the analysis used in the filing. Why? Even many people in northern New Jersey use JFK and LGA over EWR if the price or schedule for their flight is preferable. This is very suspicious and I hope the AA/B6 legal team jumps on this point.

    I don’t see a total end to the AA/B6 partnership, in the worst case it would just get downgraded to a relationship similar to AA/AS, perhaps with B6 joining Oneworld and more of an arms-length relationship on slots. Reduces competition, and who would benefit from that? Hmmmmm….

  8. I’m generally in favor of the government setting boundaries in a market economy to prevent issues such as monopolies. However, the DOT’s actions here and in Newark are extremely troubling, ineffective, and show a serious lack of understanding of the industry. As Cranky pointed out, American and Jetblue’s alliance can offer a formidable competitor to both United and Delta in NYC that neither airline can be alone. If the DOT wants to quash anti-competitive behavior, they are looking in some of the places which are in the least need of more competition: New Yorkers have 3 airports and 3-4 major airlines to choose from, not to mention the countless international carriers for long haul travelers. Similarly, Boston is one of the few airports in the US to have a sizeable presence of all major US airlines where no airline dominates. Lack of competition is a much bigger issue in smaller US cities, ex-hubs such as STL, and in fortress hub cities with only one major airport such as CLT.

    I also find it interesting that Southwest seems to be able to get away with almost whatever they want in this area. In its more established markets it seems to me that Southwest is the most anti-competitive airline in the US: they only publish fares on their own website which makes it difficult for consumers to comparison shop, they don’t participate in interline agreements to rebook stranded travelers, and they have much more of a monopoly over airports such as DAL, HOU, and MDW than the US3 could ever dream of at even their largest fortress hubs (they have a 96% market share at DAL and MDW).

    1. WN has a dominant market share at DAL,HOU, and MDW, but these are the secondary airports for their markets. That’s only an issue if the primary airports (DFW, IAH,and ORD respectively have barriers to entry – none are slot-controlled, but there could be gate limitations, I’m not sure.

      IAH is a hub for UA, but Spirit has had no trouble ramping up there and AA and DL offer vast connecting service through their hubs, so WN’s share at HOU doesn’t necessarily offer much anti-competitive pricing power. Same situation at DFW/DAL, and ORD/MDW, except ORD is a hub for both AA and UA so it’s even less of a factor there.

      As long as there are alternative goods/services available, market share alone doesn’t mean the monopolist or near-monopolist has pricing power.

      A good example was when Sirius and XM Radio merged – some people complained that they’d have a monopoly on satellite radio.. And they do. But there are plenty of alternative services: terrestrial radio, streaming services like Spotify, even (for people with old tech at hand) CD players. They have no ability to extract rentier profits from their service, so the fact that are a monopoly on one specific channel of service delivery is irrelevant.

  9. Sounds like Delta is pulling the strings of the current DOJ, they seem to be afraid of any competition look at their hubs. LAX and SEA seems to be the only true fight for market share they have.

  10. First, I’m going to copy what I wrote above in response to Tim Dunn, but I added a sentence about Mark Kelly’s U.S. Senate election that I should have included. Here’s my response to Tim:

    This whole thing is about politics. The lawsuit was deliberately filed in Massachusetts because they knew they would probably get a judge who would be friendly toward Delta. That’s how sham political trials work. I don’t know about all of the attorneys general, but Arizona’s is running for the U.S. Senate seat currently held by Mark Kelly. That seat was originally John McCain’s. McCain was reelected in 2016 for a six-year term. When he died in August of 2018, our governor appointed Martha McSally to fill the vacancy until the next election, which was in 2020. McSally lost to Mark Kelly in 2020. But McCain’s term expires in 2022, which means that Kelly has to run in 2022 to be elected to a full six-year term. All of this is to say that Mark Brnovich, Arizona’s Attorney General is involved in this suit simply for show. The NEA barely impacts Arizona, as Southwest provides plenty of competition for American and jetBlue (which has an extremely limited presence here).

    For my stand-alone comment which is largely speculation on my part, I’ll add the following:

    I tend to agree with Tim’s conclusion that the NEA won’t survive as it is currently constituted. There will be some alterations, especially in Boston. I’m guessing that was part of the reason the lawsuit was filed there. I also doubt the suit will ever go to trial. As is the case with the vast majority of these kinds of politically motivated sham show trials, there will most likely be some kind of settlement. No one knows how a judge will rule, so the vast majority of lawsuits get settled. There’s an old saying that one is better off with the devil one knows than the devil one doesn’t. The two main parties behind the suit, Delta and Spirit, will probably get a few bones but that’s about it. There’s simply not enough credible evidence to support the lawsuit’s hyperbolic claims.

    Here’s my prediction:

    Spirit will probably pick up a few additional slots at LaGuardia to satisfy DOT and DOJ’s sham policy (my cynicism is showing, isn’t it?) of increasing “low cost” competition. Competition is competition. Spirit isn’t a charity. It’ll charge what the overall market will bear. I wonder why any airline would want to go to New York as those who have a more limited presence there tend to be more profitable – on a percentage basis – than those who have a larger presence. Maybe it’s an ego thing.

    I’m guessing that Delta will probably get a fair amount of additional real estate in Boston. But that’s about it.

  11. If Doug Parker, as CEO of USAirways prematurely disposed of assets in preparation for a merger that never happened, then he bears responsibility for the strategic miscalculation. The question has to be asked of Parker why American has shrunk in NYC, Chicago, and Los Angeles, underperforming DL and UA in average fare performance in both domestic and international markets. The DOJ noted that Parker has been a long advocate of further consolidation and he and other AA execs spoke of internal growth only to ditch that in favor of a relationship with B6 that is far deeper than what has been permitted between any two previous US airlines in the domestic market.

    We can have our opinions about the outcome of the case but we cannot logically argue that AA-B6 is being treated any differently re: analysis that is applied to mergers using AA/B6’ own statements and presentations. The states that have joined the suit all believe that AA’s size as the largest US airline combined with being a hub for AA and/or B6 elevate the NEA to an antitrust violation because of its structure. AA/B6’ own schedules filed since the NEA was begun are used as evidence against it – just months into implementation.

    We can argue about politics but the states involved are Red and Blue and the parties involved including Senators not from those states have long histories of antitrust enforcement and consumer protection.

    Delta does not and never has had a majority of slots at any slot-controlled airport and even by AA/B6’ own presentation is not the largest airline in NYC or BOS even though DL is the largest slot holder in the US and at both LGA and JFK. DL is not the target of this lawsuit and has not been charged, so far as I know, with failure to fully use its slots as AA and UA have been. EWR is no longer slot controlled and there are steps being taken to inject more competition there.

    Masters’ question is worth considering and I believe AA desperately needed B6 while B6 saw enormous opportunities to grow at AA’s expense. If the goal of the NEA was to gain business, the uncertainty regarding its future will be chilling on AA/B6’ ability to win over customers.

    I too expect a settlement that will involve reducing the ability to coordinate and share as well as limitations on AA/B6 size in specific O&D markets.

    1. It’s easy for armchair CEOs (plural) with 20/20 hindsight to be critical of what was done years ago. It makes zero difference now. American has to play with the hand it has, not what could have been. I don’t know what the settlement will entail. I was merely guessing, as you are. Maybe Cranky can run a prediction forum, a la New Years, and see who comes closest to the actual terms. LOL!!!

      An airline doesn’t need to have a majority of slots at an airport to be dominant, if the other carriers have relatively fragmented shares.

      Again, I ask the armchair CEOs ( again, plural) when it became a crime for airlines to be different? The constant comparisons among carriers on airline blogs make it sound like there’s only one acceptable business model and all others are inferior. Those CEOs (again, plural) might ask Southwest why it’s consistently made money even though it doesn’t fly to Shanghai, Sao Paulo, or London. Those CEOs might also ask Allegiant, Spirit, Hawaiian, Alaska, or Frontier, why they consistently made money pre-pandemic even though none has a 30% market share in New York.

      The schedules being flown now aren’t being flown during normal times. But maybe politicians don’t take those kinds of details into consideration when they’re grandstanding. And it has nothing to do with red or blue. Grandstanding and pandering are diseases shared by politicians of all stripes. Maybe I’m too cynical again, eh?

      The past is the past. It can’t be changed. What’s important is the future. And no one knows what that will bring. Stay tuned. There’s rarely a dull moment in Airlineville.

      1. Since I can’t embed a graphic, I will reference the one AA/B6 used to compare themselves to DL and UA in NYC which precisely shows the problem.

        In Sept 2019, AA and B6 were each roughly half the size of Delta which was larger than United in terms of NYC (3 airports) seats.

        In Nov 2021, AA and UA will be 18% larger than their 2019 size and 20% larger than DL or UA was in 2019 – neither of which has published schedules returning to their pre-covid size.

        DL and UA each served all 50 of the top 50 NYC markets while AA and B6 each served 30 – but combined they only serve 43, meaning they are adding a whole lot of extra capacity to still not cover as many of the top markets as DL and UA.
        There are a number of markets that will be much more concentrated by the NEA – and the fact that AA and B6 can coordinate and share alot of data which others cannot is why the DOJ is going after this.

        Also, note that the DOT approved this deal but the DOJ is objecting, essentially in a turf war over who gets to make the call about antitrust. The DOT didn’t think there were antitrust issues but the DOJ does, and they get the final say in the US; the DOT is deferring to the DOJ in the case.

        The Biden Administration said it was going to take a tougher approach to big business and they are. Other agencies and Senate committees are looking at other industries including Big Tech. After the massive bailouts and poor airline operations this summer, the focus was going to be on the airline industry.

        We don’t have profitability by hub data but the chances are high that both DL and UA have been profitable in NYC for years – as has B6 – but B6′ profitability has fallen as DL and UA have grown in NYC and DL has grown in BOS.

        Different is good but the US is not interested in seeing the big 4 concentrate any further. I personally doubt that AS and B6 will want to merge given their different models – but I could be wrong.

        1. I read on many sites that Delta was losing money in New York up until about 4 or 5 years ago. But no one on the outside really knows for sure, even though they like to think they do. Obviously, Delta’s built up a very good business in New York, and more power to them for doing so.

          I’ve seen the graphic to which you refer. Size matters, but it doesn’t necessarily have to be exactly the same, but it has to be substantial enough to adequately serve a particular market the way a carrier wants to serve it. I think that’s part of Spirit’s beef, and it has a point. I’m being half facetious when I mention that many of the most profitable airlines are the ones that have the least exposure in New York, although the irony is there. But any airline that purports to be a national carrier has to provide at least a modicum of service to the largest and most important business market in the country.

          As for potential mergers, the only ones I can see are American/jetBlue (with substantial divestitures in both Florida and Boston – which may be why they formed an alliance instead of trying to merge, but that’s sheer speculation), Alaska/Hawaiian, as I think they complement each other nicely, and Spirit/Frontier for the same reason. But I could be dead wrong, and I’m merely speculating anyway. It’ll be interesting to see which of our settlement scenarios is closer to what happens.

          1. Not being sufficiently discussed in this conversation is that the US just shelled out tens of billions of dollars to keep the US airline industry afloat in the midst of covid; it didn’t do near as much post 9/11, multiple airlines ended up in bankruptcy, the industry consolidated down to 4 carriers which control 80% of traffic. There has been a whole lot of dissatisfaction with the industry which is why it is a surprise in some ways that the government spent so much money propping it up. There is a clear intent to slow the growth and power of big business – not just airlines – and to provide more access to smaller players. The AA/B6 deal is essentially AA asking to be able to consolidate across most of B6’ network after receiving the most money in the bailouts. Service levels in the industry are in the tank and neither AA or B6 are anywhere near the top of the heap. Sen. Schumer supports the deal but he was also involved in trying to get B6 to stay in NY; nearly every other state that filed had nothing else to gain and a lot to lose.
            I will predict that AA/B6 will be forced to create a deal much more like AA/AS but I disagree that assets will be passed to DL. The government is not interested in allowing the top 4 airlines to grow at all esp. in the most limited access markets.
            I do think there is a good possibility that JFK slot controls might be rolled back even if to everything except the peak afternoon period. There was talk of that pre-covid. JFK has the most runway capacity of the big 3 NYC airports and is only as close to LGA as any 2 major US airports are; it is hard to imagine how capacity at LGA can be increased. Without the NEA, AA might be forced to give up slots if JFK remains slot controlled. If slot controls are removed, all JFK carriers will have to write down their slot holdings. At BOS, the airport has committed to add gates and those need to be made available to any other carriers that want to grow and not just AA, B6 or DL.

            thanks for the great conversation!

    2. “ If Doug Parker, as CEO of USAirways prematurely disposed of assets in preparation for a merger that never happened, then he bears responsibility for the strategic miscalculation.”

      Right… because CEOs should make strategic choices based off What Ifs they don’t even know about yet…

      Where do you even come up with this logic?

      1. The Delta/Northwest merger had already occurred, you just said above that talks between United and USAirways had already failed, and Parker was talking consolidation so who else do you think USAirways could have merged with?
        The future wasn’t unknown. Parker wanted consolidation and yet prematurely gave away assets that could have positioned AA/US to be stronger in NYC.
        I know it might be hard for you to admit, but how about consider the possibility that US should have negotiated a merger settlement with someone FIRST and then disposed of the surplus assets.
        and facts actually show that even AA-US would have had over 50% of the slots at LGA – so maybe Parker AND Delta knew that he wouldn’t have gotten a merger approved that allowed US plus someone to be so dominant in NYC with either UA or AA so he did the deal with Delta because it actually had enough to offer at DCA and, even with 30% of LGA slots before the slot deal, DL wouldn’t have grown above the 50% size that is so problematic that a deal couldn’t get done. DL and US both had standard slot divestitures with their deal but the AA/US merger crossed the red line in number of slots at DCA that the DOJ said US could not cross so AA/US had to divest the slots they gained either from AA in the merger or from the DL slot swap (which were about the same number of slots). Maybe, just maybe, the slot negotiation deal went on for 2 years because there was no other alternative for US to get rid of LGA slots and DL was able to convince the DOJ and US that they offered the best deal.

        And you still haven’t answered the 2nd part of the question as to why AA shrunk in NYC as late as the year before covid…. AA was smaller at both JFK and LGA in the summer of 2019 than they were in 2018. And runway construction at JFK was not the answer because B6 and DL were both larger.

        AA decided a long time ago that they couldn’t compete in NYC, started cutting flights, and now want consolidation to fix their inability to compete… and now the DOJ has said that they do not want the big 4 to grow any larger, esp. in airports where competitors cannot freely expand. The DOJ is saying that AA/B6 has nearly all of the benefits of a merger which is why they are challenging it.

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