Why the Judge Ruled Against American and JetBlue’s Northeast Alliance

American, JetBlue

On the surface, it looked like American and JetBlue had a strong case to continue their partnership, but in a 94-page ruling released Friday, Judge Leo Sorokin painted a picture of ineptitude. He cited the airlines for contradicting themselves multiple times, failing to prove what they needed to prove, and putting forward biased expert witness testimony in what ultimately was made to look like a clown show. In the end, he definitively ruled against the airlines’ Northeast Alliance (NEA) and doomed it to end in 30 days, barring an appeal. This is not the end of the story, but it is a very sharp rebuke of the airlines’ plans and at the very least put the partnership’s future viability in doubt.

The NEA was designed to allow American and JetBlue to partner together within the New York and Boston markets. Beyond a traditional partnership, it was an attempt to allow the two airlines to operate nearly as one, coordinating schedules, swapping slots, and sharing revenue in addition to the usual frequent flier and codeshare partnership that wouldn’t have triggered the government to challenge the deal. Despite gaining approval from the Department of Transportation (DOT) with some concessions, the Department of Justice (DOJ) later decided to challenge the plan in court.

It took longer than expect for the ruling to be issued considering the trial ended late last year, but Judge Sorokin was quite thorough in his dismantling of the airlines’ case. As he explains at the beginning:

This case turns on what “competition” means. To the defendants, competition is
enhanced if they join forces to unseat a powerful rival. The Sherman Act, however, has a
different focus. Federal antitrust law is not concerned with making individual competitors larger
or more powerful. It aims to preserve the free functioning of markets and foster participation by
a diverse array of competitors.

In other words, the entire argument that the airlines would combine to create a third relevant rival in New York to counter Delta and United is irrelevant in his view of the law. That was the wrong case to be making entirely, and I think it’s where many analysts failed here, including myself. This is why you should always listen to your local anti-trust attorney. It’s not about rational thinking; it’s about what the law provides. And while American and JetBlue certainly disagree with this interpretation of the law, it’s the one that counts.

The question before the judge was whether or not the NEA is considered an “unreasonable restraint on trade” as required by the Sherman Act. This is not a black and white decision, but there is plenty of precedent to help frame how this gets reviewed.

The government first had to show that there was either a “sufficiently high risk” of or an actual “substantial anticompetitive effect” here. And on this point, the judge finds that harm has been proven in three different ways.

  • The NEA has eliminated competition between two of the four dominant carriers in the northeast
  • JetBlue has had to give up some of its independence and weakened its status as a disruptor or as the judge calls it, a “maverick”
  • The divvying up of routes between the two carriers is actually illegal on its face

There’s even more, but the judge didn’t need more. This was more than enough for the burden to then shift to the airlines to prove to the court that a “procompetitive rationale” for the NEA exists. They failed miserably.

As I already mentioned, the rationale that this would create a viable third competitor in New York was shot down. As the judge says, “strengthening their own position against one or two rivals—is not a valid justification, and cannot render an unreasonable restraint on trade reasonable, under the Sherman Act.”

Further, the pooling of slots to create a better offering isn’t valid as a rationale either. The judge uses the example of two companies pooling their joint resources as a way to fund something they couldn’t pay for on their own as a possibly valid reason. But in this case, they are just adding their slots together because they want to. They can each fly what they’re doing today without violating the Sherman Act. There is no 1+1=3 type of scenario.

In the end, the judge says the airlines did not prove any significant procompetitive benefit that would justify the anticompetitive behavior. This devastating ruling thoroughly and completely destroys the NEA. The question is, can it be salvaged in any way?

The airlines certainly have the ability to appeal. American’s statement suggests the judge doesn’t know what he’s talking about, and the airline will come back and fight.

We believe the decision is wrong and are considering next steps. The Court’s legal analysis is plainly incorrect and unprecedented for a joint venture like the Northeast Alliance. There was no evidence in the record of any consumer harm from the partnership, and there is no legal basis for inferring harm simply from the fact of collaboration. The Northeast Alliance has been a huge win for customers and anything but anticompetitive.

There may be an opportunity to fight here since much of what the judge does here is describe a very poorly run case by the airlines. He gives plenty of detail about efforts by the airlines to prove certain points that failed miserably. For example, the airlines said that their partnership drew a competitive response from Delta and United but the judged called their proof “milquetoast at best.” Claims that the growth in the northeast that resulted from this alliance also fall flat since they failed to prove that they weren’t just repurposing capacity that would have gone elsewhere.

The judge also absolutely destroyed the expert witness testimony that the airlines put forth, saying that their expert witnesses were all tainted by ties to the airlines. He found their testimony was biased.

The list of failings is long and paints a picture of a completely miscalculated trial strategy. Presumably the airlines could clean this up and actually present a competent defense in an appeal, but there are also several things that the airlines can’t fix. For example, there are reams of materials found in discovery, through depositions, and in testimony that show the airlines contradicting themselves over and over again. In one place, they say they’re still competing in the northeast but then somewhere else they aren’t. The list is long, and that can’t be changed.

It seems highly likely to me that the airlines will want to appeal. If for no other reason, the judge’s ruling that they must end further coordination within 30 days would seem to be problematic at best. If they can appeal and get a stay on the judgment until the appeal is heard, it would at least buy them time. But I can imagine a world where they might not feel so strongly about pushing ahead with the NEA in the long run anyway.

JetBlue has been tying itself in knots trying to get its acquisition of Spirit done, saying it’s a major competitor and disruptor versus the legacy airlines. It’s hard to say that when the airline is also trying to share revenue with one of those legacies. Continuing to push on the NEA could further cloud the airline’s efforts to fight the DOJ in the trial for its Spirit merger in the fall. (On the flip side, DOJ now has a blueprint for how to successfully fight that merger.)

At the same time, American has to be wondering what it got itself into with JetBlue, an airline that now wants to take over Spirit and provide more national competition to American in places where Spirit is stronger than JetBlue ever was, like Dallas/Fort Worth. Does American find it worthwhile to keep providing all these benefits to JetBlue travelers in a vastly expanded JetBlue assuming the merger goes through?

It’s not clear to me that the airlines can recover from this ruling, but once again, I’m not an antitrust lawyer. What I do know, however, is that the judge paints a very clear picture for how the airlines can move forward if they so choose. They can emulate what American and Alaska are doing in the West.

In order to shift this agreement into something that wouldn’t be viewed as anti-competitive, the airlines would have to stop sharing revenue on domestic routes and would not be able to coordinate scheduling decisions at all. Instead, American can continue to fly long-haul from JFK while JetBlue feeds that domestically. They can share revenue on that. And of course, they can continue to share frequent flier benefits and all that. They can even layer in a slot lease agreement on top that would allow JetBlue to fly more from LaGuardia as it has been doing.

This presents a whole host of other problems, of course. Without the sharing of revenue and joint scheduling decisions, American would not get the benefit of JetBlue’s presence in New York. It could bolster its long-haul operation, but it would be stuck with a ton of domestic slots with which it would need a new clear strategy. The old strategy of “squat on them with 50-seaters” isn’t an option any longer. This puts American at a crossroads.

In the end, this should cause some serious soul-searching at both airlines. While I do expect some kind of appeal, it would seem that both airlines should be actively preparing for a world where the NEA in its current form is dead.

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49 comments on “Why the Judge Ruled Against American and JetBlue’s Northeast Alliance

  1. The NEA will not be salvaged. The ruling indeed exposes a tsunami of ineptitude at both airlines. At B6, the sheer stupidity of how this company is run is fully exposed. The ruling has also put American’s deep struggles in the NY and BOS market under a spotlight like never before. This poorly stitched together partnership appears to have been born out of desperation more than anything else.

    JetBlue is large enough to command a strong slice of the JFK and BOS market (not so much in LGA and DCA). Its problem is its ambition. It wants to be bigger, but has never been able to run a clean operation. JetBlue’s maneuvering over Spirit also shows desperation and financial recklessness, in the form of a huge premium + the enormous costs of taking the NK fleet and integrating it into the JetBlue standard.

    American on the other hand showed its hand, and fully. Clearly, it can’t make money in New York and absorbs losses routinely. For AA to consider exiting JFK-SFO is just mind-boggling but part of the fabric of a long running story of just how much it can’t seem to get it right in NYC. AA has reassigned dozens of E175s to JFK and LGA as part of the NEA and to fulfill clauses within it. Those jets are likely headed back to PHL and other hubs, and what will replace them are likely to be CRJ700s for some markets, and wholesale exits in others.

    The future for both B6 and AA isn’t so much an AS/AA tie up, like the one that exists now (that, after all exists through AS’s entry into OW) but rather a full out merger. American’s finances have improved though they have a long way to go to reduce the debt load, largely attributed to the massive plane order from 2011, which, though cost-wise was enormous, was necessary to replace gas-guzzling MD80s which were the backbone of the fleet at over 350 frames. AA will find a way, through the Wall Street machine to merge with B6 and get what it wants, but it won’t be under the current administration and will require a stronger balance sheet to do so. For the interim, AA will likely axe a lot of JFK flying, potentially leasing out its slots to another airline (UA maybe?) and some of the TATL additions at JFK under the NEA will likely continue while the demand is sustained through premium leisure, but eventually, TLV, ATH, and even DEL will be axed. No point in moving TLV or DEL to PHL. The yields would be trash.

  2. I’m sorry but there is absolutely no chance American or JetBlue appeal this. Obviously they are going to put out a statement about how bad the decision is for their shareholders and to save face about a stupid decision they made. But there is no reasonable chance of succeeding on appeal here, would just add to their losses in lawyers fees.

    Ironically, this whole challenge started with Spirit at DOT which is now being acquired by B6 – turns out this decision at the same court could hurt that merger. If remember correctly Brett wrote some negative posts criticizing Spirit about bringing the challenging to NEA in the first place. Now look where we are.

  3. Your piece pretty much sums up my thoughts on the NEA, so there’s really no point to getting overly verbose. In the end, a law pretty much says what a judge thinks it says. I believe there’ll be an appeal, but only as a way to buy the time needed to unravel the NEA. Both the DOJ and judge basically told American and JetBlue what would “fly” (sorry, couldn’t resist), so I think we can look forward to that kind of arrangement in the future. Just my two cents worth – and you got it at a 100% discount.

  4. “This case turns on what “competition” means. To the defendants, competition is
    enhanced if they join forces to unseat a powerful rival. The Sherman Act, however, has a
    different focus. Federal antitrust law is not concerned with making individual competitors larger
    or more powerful. It aims to preserve the free functioning of markets and foster participation by
    a diverse array of competitors.”

    The judge believes we live in a free market? Hahaha! Recent history disproves that including in the airline industry.

  5. Judging by this write-up there are a couple of narrow avenues for appeal, particularly on the expert witnesses: a judge should not be arbitrarily discounting testimony from people with ties to the airlines, as they are still testifying under oath (or affirmation) and the presumption is that they are telling the truth as they understand it unless proven otherwise. But they’re really narrow and really don’t seen to amount to much more than the judicial version of HUCA.

    But your point to whether or not AA and B6 should even try is a good, other than using an appeal to give a little more breathing space on the unwind, 30 days is…aggressive, if not unrealistic. Final outcome? Not sure if JetBlue will want to go all-in on joining Oneworld, but some codesharing with slot leases at LaGuardia seems realistic (or no slot leases and JetBlue doesn’t give up Spirit’s slots (if that’s possible?) at LGA.

    As for slots at JFK? AA can really just release them if they don’t have a use for them and JetBlue will pick up the bulk, because who else would want them, and even if they did who has the gate space to use them? (I’m sure a certain commentator will be along shortly to argue that DL’s ultra-super-magical operational brilliance will let them absorb any slots opened up with their existing gates.) There’s a few foreign carriers that might want a few and have space in T4 they can use, and Porter might look for a few for their new E-jets and perhaps a couple of flights a day from Toronto Billy Raccoon City Island Airport, which would connect to JetBlue and whom JetBlue would likely find space for.

    As for schedules, if they do a codeshare B6 will still look at AA’s schedule and plan accordingly for flights with strong connection demand, they just won’t be able to work together. AA releases its schedule further in advance than JetBlue, and those schedules are public information.

    Not as good as the NEA, but lets both airlines stop spending money on lawyers and improves (at least marginally) the possibility of the B6/NK merger being allowed

  6. Well, with that out of the way for now, has anyone figured out why the hell JetBlue bought Sprit yet, since those airlines couldn’t be more-different? That will make the US/AA merger look like a pleasant, brief, stroll in the park in comparison, and we all know how well that went, and how long it took.

    1. For pilots and A320-family airplanes, and (presumably) for at least some of the focus cities, in particular DFW and LAS.

      That’s basically it, as far as I understand. JetBlue is in a position where they’re having trouble growing, hitting the limits of the NYC operations. If they tried to grow internally, they’d run up against the current lead-times for new aircraft and the lack of pilots, and the NK acquisition solves both problems at a stroke.

    2. As others have mentioned for the pilots and planes.

      If that merger goes through, I expect it’ll look a lot like the Southwest purchase of Airtran.

      JetBlue will continue to fly Spirt branded flights on Spirit planes with legacy Spirt flight attendants, and they’ll slowly move airplanes and flight attendants over to the JetBlue operation. They might keep the pilots on the Spirit or JetBlue sides, but I can’t see it really mattering one way or the other.

      If JetBlue tried to do anything other than that (say a DL/NW, AA/US, or UA/CO merger) their management should be fired promptly. Both of NK & B6 airlines have dramatically different products, just how FL & WN had dramatically different products. You can’t realistically codeshare, because someone buying a JetBlue flight will be very unhappy if they get a Spirit plane. (I remember people complaining about the E145 that B6 contracted in years ago to sub in for the E190s that were having issues, people complained quite a bit.)

  7. Do these arguments apply to the mega mergers DL-NW, AA-US, and maybe to a lesser extent UA-CO?

    Why are those allowed if the NEA is plainly illegal in the ruling?

    1. A combination of the Biden Administration having a more aggressive stance against mergers that concentrate market share than those mergers (both Obama, IIRC) and the current state of the industry – mergers are more likely to be approved when trading conditions are weaker, especially if one of the companies is in danger of failing. AA was in chapter 11 at the time it were acquired. DL and NW had (relatively) small route overlap, so it wasn’t seen as a particularly anti-competitive merger.

      Also, it’s just a matter of there being fewer and fewer airlines and the DoJ seeing a need to draw the line somewhere, especially when you’re dealing with NY/DC/Boston and higher barriers to entry in terms of slots/”runway timings” (slots by a different name) and terminal/gate shortages. If they’d just tried Boston it might have been allowed (although it would still push combined concentration very close to 50%).

      Right now, any merger involving a Big 4 (domestically) airline is probably a non-starter, except maybe for an acquisition of AS by AA, and even that’s pushing it. Any two of NK, F9, and G4 would probably be approved. Mergers involving the Middle Two (AS, B6) are iffy, B6 more so (again, Northeast.)

      1. I think AS and B6 would be fine, even in this environment. Very little overlap.

      2. The Delta and NWA merger was approved in the last days of the GWB administratin. Plus, they had very little route overlap and airlines were not in a very strong position at the time.

    2. All be it being a different administration at the time, you do bring up a valid point. I asked Cranky several years ago what would have happened if the mergers you sighted were never allowed? His response was… you would have six weak airlines.

      The problem now is that set a valid precedent for B6 & NK to merge as AA/ TW, AA/ US, DL/ NW & UA/ CO were allowed. Why is this one different?

      1. Because the consolidation has already occurred and there are now 4 “major” US carriers instead of 9. Obviously fewer competitors means far more issues with market share and that’s where the antitrust arguments and competition arguments take effect.

  8. Brett, you mentioned the slot squatting with 50 seaters is no longer an option. I probably missed the specifics, and I agree it’s a bad strategy, but why is it no longer an option?

    Also, do you see AA and B6 drawing flights down this summer with the slot waiver now that the coordination will be wound down?

    1. I can answer that one for Brett…the reason is there aren’t enough pilots available to waste on 50-seaters holding down slots.

    2. I assume part of the reason has to do with the large number of 50 seaters they retired, so they don’t have as many as they once used to.

    3. Mark – My point is more that the 50 seaters just aren’t in the fleet anymore. They’d need to dedicate more 76-seaters at a time when they are short on regional flying anyway. There are something like 50 slot pairs JetBlue is using at LaGuardia that are American’s. That’s a lot of capacity AA would have to pour in.

      1. Could they lease slots to B6? I know that’s happened at other airports but figured there’s a different rule for everything.

        1. Bill – Yes, they can lease slots to JetBlue. A large slot transfer might get some scrutiny but there is certainly room for that to happen to some extent.

          And while yes, the knowledge transfer has been done, shutting off the revenue sharing changes the calculus. So if you’re AA, you now probably need to go fly into Boston – LaGuardia just as one example. JetBlue needs to be there too. What’s the right amount of capacity? It will be more than they had planned independently. So the math changes a lot.

          Lastly, the feed from JetBlue into AA is very important for the long-haul expansion. They could do that on their own the same way American and Alaska did their deal.

          1. first, if AA couldn’t make money flying alot of these domestic routes on their own and thought they would only work as part of a joint venture at B6 labor rates, then it is doubtful they will work again. The chances of AA trying to rebuild JFK and even stay in a number of the LGA routes is very, very slim. There just is no reason to fly routes like BOS-LGA if AA is focused on the major hub and transcon markets and not trying to compete for all of the point to point markets which DL and UA serve.
            second, AA’s problem from JFK is as much about not having their most economical longhaul planes – the 787 – based there which hurts profit margins. The same thing is true about the A321T on JFK-SFO; it is too premium configured and their new A321NEO configuration which appears to be 4 class and about 150 seats (like DL) would likely work but AA has repeatedly had the wrong planes in the wrong places – and NYC is as much if not more of a victim of that than any other AA hub.
            third, in the longhaul market, TLV is the only market that both DL and UA serve; EWR-DEL is UA’s only remaining India route and DL has shown no interest in JFK-DEL (which the A350-900s could do) but rather JFK-BOM (which the most capable A350-900s – of which DL doesn’t have enough) would be pushed to fly – the A350-1000 is better matched for that route as long as Russian airspace restrictions are in place. And then DOH is simply a nod to QR’s ownership in BA and AA’s desire to be able to access markets in S. Asia. Bottom line is that none of the most questionable JFK longhaul routes are really strategically necessary.
            AA’s bigger issue w/ NYC is figuring out what to do with all of the slots that are for domestic flights and which work best when feeding longhaul routes (those at JFK).
            AA’s best choice in NYC is to reduce its presence down to key markets from both LGA and JFK and deal w/ whatever competition comes in. They have more than enough history to know that they did not succeed trying to be all things to all people. They have pulled back too often for the corporate market to take them seriously and even the court filings show that they gained no new corporate accounts under the JV in the entire time it was in place.
            AA has enough strength in it southern US hubs – but only one of three global legacy carriers w/o a decent presence in the NE will be a very unique for AA to be in.

  9. It seems like United would have been hoping to benefit from any JFK slot divestiture that resulted from the NEA.

    Does this dash their hopes of getting into JFK in the near future?

    1. How many markets could UA fly from JFK that they don’t currently fly from LGA & or EWR today excluding code-shares with star? Not all that many I’m afraid.

      1. They want to serve JFK to LAX and SFO for their left coast frequent flyers who want to arrive at JFK not EWR. Which they had been doing for years and should be doing currently.

    2. It is doubtful that any of B6, DL or UA could pick up slots at JFK or LGA if AA abandons them and they are made available to other carriers besides AA. A large scale slot divestiture or lease will trigger a DOJ review. The court documents show that AA has leased 100 slots (50 slot pairs) to B6 as part of the NEA which likely hits the threshold of a DOJ review. The DOJ is simply trying to kill the NEA first and then worry about redistributing assets to increase market access by small or new players, something the DOT did not do in allowing AA and B6 to create the NEA instead of surrender slots. As CF has noted previously, AA has planned deeper cuts in its NYC schedules than other carriers this summer, indicating they have more than 100 slots they aren’t using. The DOJ considers NYC one market so UA is not going to be in a position to argue that they are a minority player in the NYC market even if they don’t fly to JFK. if the DOT decides to maintain the same number of slots and no other carriers show interest esp. in JFK slots, the chances are high that they would be made available equally to B6, DL and UA.

      Both airports are still heavily concentrated in the hands of a few large carriers w/ JFK even worse. The few smaller carriers in NYC – Southwest, Spirit, etc – that do serve NYC do so from LGA where there is less of a case by anyone being left out but a few carriers are very small.

      A more likely scenario from a competitive standpoint is that JFK reverts back to slot controls just during the peak morning and afternoon/evening periods.

  10. I’ve watched American so long and have always felt their network does not live up to the UA and DL networks. I remember a long time ago when it was touting a significant improvement in LA which was nothing more than switching out mainline to regional service. I covered their five-corner strategy and watched as it was dismantled. I always wondered how they were able to compete against the better networks at United and Delta. But the NA alliance to me was confirmation that it did not have a network that was up to snuff. It gave away NY to DL when it abandoned its five-corner strategy.

    What is of more interest to me is why pilots put up with this alliance when one of the big issues today is outsourcing to various alliances. Just don’t get it. Cheers — Kathryn Creedy

    1. I don’t think pilot or flight attendant contracts are (were) affected at all by the NEA. AA pilots fly AA flights like before with no scope clause changes, JetBlue pilots fly JetBlue flights like before. It doesn’t make a difference to pilots how those flights are marketed, priced, and sold.

  11. So, let’s assume (for argument’s sake) that the NEA is well and truly dead. Does anyone here thinks this means that any of the “American Airlines Shuttle” services will make a comeback? (As I understand it, LGA-BOS belongs to jetBlue now, and the LGA-ORD and LGA-DCA services are no longer marketed as a “shuttle”.)

    If jetBlue and American are going to have to give up the NEA, having no LGA-BOS service seems like a significant blow to American (to me). Will jetBlue be forced to return the service to American?

    I understand that none of these services – including the Delta Shuttle – are any longer really “shuttles” as per the one true faith (i.e., no reservation/show-up-and-go/guaranteed seat service), but not having a service between LGA and BOS seems like quite the proof (to me, anyway) that the slow-but-steady improvement in Amtrak services on the Northeast Corridor have dealt a death blow to “true” air-shuttle operations. Fascinating.

    1. The shuttle market used to be more relevant to corporate travelers, especially for a handful of key corporate accounts. I think the airlines now view the market as a less relevant loss leader and are trying to minimize their financial exposure while still serving those accounts that remain. I think DL leaving the MAT to open connecting opportunities by serving the market via the main terminals is a prime example. Given the staffing struggles at regionals lately, there are probably better places to stick their limited RJ flying.

      1. See_Bee – Agree on all counts. I think the “relevance” has been diminished (even pre-COVID) by Amtrak’s overall improvement in the Northeast Corridor. Furthermore, the relevance is even more clearly diminished in that (as you point out) so many “Shuttle” services are on regional carriers and aircraft – these are services that used to be flown by single-class mainline aircraft, with backup sections on (slightly smaller) single-class mainline aircraft – and all with a dedicated fleet, mind you!

        I find the diminishment of “true” shuttle service – and the modal shift to intercity rail – to be a fascinating dynamic.

        1. Agreed that alternatives such as Amtrak are making a big push. And now virtual conference calls and the stigma associated with the carbon emissions for such a short flight are increasingly relevant.

          Another “shuttle” product I found interesting but quickly died was DL’s west coast shuttle for LAX-SFO (and later expanded to LAX-SEA & SEA-SFO?) https://www.prnewswire.com/news-releases/delta-launches-los-angeles-to-san-francisco-shuttle-217938911.html

          Pieces of this concept are probably still around like gates close to security, but free beer/wine and newspapers even for economy pax can get expensive quickly when half the flights were on mainline!

  12. Incredibly well written article, CF. The fact that you took the time over the weekend to think through what happened, analyze the court documents, and admit you were wrong for believing the NEA could be defended is laudable.
    Three key points stand out:
    1. The judge highlighted that AA – which has decades of experience with antitrust law – knew that the construct of the NEA was legally problematic, considered the possibility of an AA/AS relationship which does not have revenue sharing, joint capacity planning or slot swap provisions but decided to go w/ the far more complex and less defensible NEA anyway.
    2. The judge accurately noted that the goal was for AA and B6 to join forces in their common rivalry w/ DL but, not only did they ultimately not succeed but they left a blueprint for DL’s post NEA strategies as a result of the scores of documents that show AA and B6’s weaknesses, all of which were subpoenaed and now public knowledge.
    3. There is nowhere near enough being said about the public indictment of the DOT’s Antitrust Division by the court and the DOJ which was a major subtheme of this case. The DOJ never liked that the DOT approved the NEA in the first place because it infringed on the DOJ’s antitrust enforcement power and they laid out very clearly why approval of the NEA in the name of trying to get AA to use its slots was fatally flawed – and undoubtedly why the DOT’s antitrust division should not be allowed to ever touch a domestic case again and even their international authority might be in question.

    The real questions are the way forward for AA and B6.

    The NEA as it exists has to be dismantled fairly quickly. I expect both are asking for emergency appeals to extend the process in the name of customer impact over the busy summer.

    AA has to figure out how to use the slots that it couldn’t figure out how to use 5 years ago – ala USAirways at LGA.

    A number of AA’s longhaul international routes from JFK won’t work w/o B6 feed which AA was probably paying a premium for. AA’s longhaul and entire NE strategy is once again in question.

    B6 has to figure out how to get the NK merger over the finish line while undoing a number of BOS and NYC routes that it was able to operate only because of the NEA.

    Again, outstanding article.

    AAL and JBLU are leading airline stocks down this morning

    1. Look at the first JV payment B6 was required to pay… something north of $200M which AA wrote down to maybe 10% of that? I don’t recall the details but saw it on another blog. Clearly something isn’t working the way intended if AA is incurring enormous losses. This is an easy way for B6 to exit this engagement and not have be a checkbook for Vasu’s dartboard longhaul route strategy out of JFK.

      1. Mark – Yes, it was $200 million and written down to $27 million. That was cited in the ruling as yet another reason the judge didn’t trust the airlines to even obey the agreement’s terms. But anyway, much of those losses are on long-haul. American has Delhi, Doha, Tel Aviv, and more that have lost a lot of money. So the question for JetBlue is whether it thinks it needs those routes to be relevant. If so, then it can try to find a way to support the routes through an Alaska/American-style agreement.
        Otherwise, it’s toast.

    2. @Tim
      How is AA’s longhaul strategy in question again??? NYC doesn’t work for them. However, they have gateways that work fine elsewhere such as MIA, CLT, DFW, PHL.

      In fact, one could argue that AA’s overall long haul network gets stronger once AA finally admits NYC won’t work for them and focus on the remaining hubs for long haul.

  13. Two thoughts that came to my mind:
    -30 days is a very short amount of time to untangle the NEA. AA/B6 will probably appeal if nothing more to buy more time to figure out their network and RM recalibration
    -B6 probably doesn’t care as much about the NEA anymore given the NK merger and would rather focus efforts winning there. The NEA case served as a test run for them to learn and still have the ultimate prize ahead. While the NEA ruling could give the DOJ ammo later this year, it at least “weakens” their position without the AA tie-up and gives them the DOJ playbook

  14. Great analysis.

    My main question in all of this – how much incremental benefit did B6 and AA think the NEA arrangement would have provided compared to a more traditional code sharing, frequent flyer tie up?

    1. Traditional code sharing by itself wouldn’t do much for the airlines since it doesn’t say anything about coordinating schedules and pricing.

      1. I can’t be the only one that thinks code sharing airlines do a fair amount of wink wink, nudge nudge schedule coordinating, right? I mean we know they all de facto coordinate pricing since when one major airline changes pricing on a route, the others match within a day.

        1. Schedules and prices naturally will match each other somewhat since that’s supply and demand, but the point is that it’s natural rather than coordinated.

          If they start intentionally discussing fares or schedules, the antitrust regulators really don’t like that.

    2. Bill – I don’t think anyone has numbers (at least, nobody who would be able or willing to share), but the key point is the revenue sharing capability on domestic flights. They were able to divvy up domestic routes and not compete with each other. Without the ability to coordinate their networks, that’s where the biggest hit would lie.

      1. 1) You can’t walk back the intellectual property regarding route coordinating, they’ve done that already. They obviously couldn’t continue to do this but it would seem that, for the time being, the knowledge transfer has occurred and each airline is extremely familiar with the goals and needs of the other.

        2) How significant is the feed from B6 to making AA’s and Oneworld’s transatlantic flights work? Seems like this could still be accomplished via codeshare.

  15. Both The DOJ and The Courts use of The Law and Case Law look at Concentration, especially as an industry consolidates and Competitors decline across 8 –> 7 –> 6 –> 5 –> 4 –> 3.

    One firm is a a monopoly, while two firms is a duopoly thus the 5 –> 4 –> 3 path is given HEAVY scrutiny by both DOJ and The Courts. If NEA resulted in a Big3 and little else then this was perhaps the MOST challenging 4 –> 3 path.

    There is an Old Saying that there has never been a Law Firm that didn’t want to Take-&-Make-&-Litigate The Case when Retained but then amazingly always wants to Settle before Trial as this allows the Law Firm to have massive billable hours!

    Pro-competitive and Anti-competitive are key concepts in Anti-Trust Law and the AA/B6 NEA case appears to have been weakly developed by The Defendants in this area. My judgement would be that is make sense for NEA AA/B6 to appeal in order to develop and test stronger Pro-competitive arguments in advance of any B6/NK scrutiny where the same expectation will exist.

    There is no doubt the Biden Administration is more focused on Competition than Consolidation. It will be interesting to see if Competition Law gets applied to what the Industry call Fortress Hubs as it would appear to me that a simple DOJ HHI calculation on either Flight# or Gate# at places like ATL, DFW, SFO, and SEA would cause concern for the local origination market’s competitive dynamics.


    LAX exists to illustrate a competitive market where CF shares the industry norm on its competitive dynamics and thus profitability challenges. The NEA AA/B6 case was about BOS and JFK, and is creating Case Law to apply to other airports such as DFW, ATL, SFO or SEA.

    While not 100% technically accurate, the US Airline industry has consolidated to a Big4 (AA, UA, DL, WN) and Other (AS, B6, NK, etc, etc) BUT this does not mean there is a Big4 at every airport and if industry attempts (NEA, B6/NK) result in a Big3 at any airport then one can assume intense “..whole of Government..” (DOJ, FTC, DOT, etc) Antitrust Scrutiny from the Biden Administration.

    Always interesting to watch the changes in Chief Legal Counsel at any F500 firm, as I question how many of the exists are due to the CEO (..and BOD?..) not taking the Chief Legal Counsels advice on matters of M&A? It will be interesting to follow the career paths of the Chief Legal Counsels at each of AA, B6, and NK!

  16. I think it’s safe to say that both American and JetBlue know how well or poorly their respective flights are performing financially – and I’m also pretty sure that they know far more about it than any of us can – including Tim Dunn. I’m guessing the airlines will probably do what they believe is in their best interests going forward.

    1. Since multiple people including the author of this blog have noted that a number of AA’s longhaul international routes from JFK don’t work financially and that is supported by comments in the court filings, it is clear that AA has to change its network strategies.
      The current mgmt has no desire to lose money flying “strategically necessary” routes as AA has done in the past.
      AA has tried a whole lot of things at JFK over the past 20 years so the number of options that might work is getting smaller and smaller.
      It is only a matter of time before AA “LAX”s its JFK operation. A number 2 or 3 position in a market is not a bad place to be – but AA clearly was subsidizing the NEA just as it has w/ other NE strategies.
      And to Eric’s comment above, yes, AA will be financially stronger if they quit trying to be what they can’t be in a financially successful way. AA has a number of successful southern hubs including CLT, MIA, DFW and PHX.
      The real question is how well a global carrier does w/ solely a niche position in NYC relative to DL and UA which have global hubs and both are growing despite the anemic business climate in NYC.
      As for B6, some of the routes they have started as part of the JV might work on a standalone basis but B6 is still handicapped by not offering the tools that DL and UA have as global carriers – lounges, premium cabins etc.
      It is also likely that B6 will not try to pick up many slots from AA in the near term so that they can get the NK merger approved with the least amount of noise.
      They will likely convert some of their operation to a simple codeshare and slot lease agreement but the size remains the question.
      Both will undoubtedly start in earnest to redeploy aircraft based on their decisions re: the future of their partnership in the winter time period.

      AA and B6 have homework to do since the judge gave them 3 weeks to come up w/ a plan to dissolve the NEA and several days have already passed.
      I trust CF will add more articles as the situation develops including at the likely 3 week check-in AA and B6 have w/ the court.

  17. While I very much appreciate the ‘deep dive’ into this – thanks CF – I also appreciate the many well written comments! Many thanks to all!

  18. this seemed to me like a high payoff bet with decent chance of failure (which ended up being)–i think JB/AA knew this but what’s a few millions in lawyers/lobbiers/economists for such big corporations compared to the potential payoff should it have succeeded (heck they got dot approval)

    Jetblue had pushed out AA out of the Northeast domestic market and now AA wanted to re-establish its dominance through a virtual merger. it reminds me of what DL/UA/AA did by merging…..they had lost their market/pricing power through controlling 75-80% of the market back in time as Southwest/jetblue grew so they merged with each other (US/CO/HP/NW) and re-established their pricing dominance.

    Jetblue will probably lose out on the spirit merger….a gop in power might be the only way to save the deal. So, i think they need to regroup and strategize because the failures of these two strategic/tactical moves are not good.

  19. agree re b6/as. i have not fully understood why this has not happened. i thought that stockholders still see the present value of growth opportunities as stand-alones to be better than merging them. at some point it may go beyond the breakeven point and a merger a may be

    perhaps this aa/b6 failure and a rejection of the spirit deal may leave b6 vulnerable to a merger/takeover by as. but who knows.

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