The NEA is dead! Long live the NEA!
Despite JetBlue’s announcement yesterday that it had “initiated the termination” of the NEA between it and American — deciding not to appeal the judge’s ruling that blocked the cooperation — the door is not completely closed on this partnership. There’s a lot to unpack here, but in short, JetBlue is playing the political game, and American is doing the dirty work. It could all come back around again in the future.
In JetBlue’s announcement, it said it would walk away from American so that it could “turn even more focus to our proposed combination with Spirit.” By turning away from American, it points out that this is entirely a political game.
As it relates to the Spirit combination, terminating the NEA renders the U.S. Department of Justice’s (DOJ) concerns about our partnership with a legacy carrier entirely moot.
DOJ hates the JetBlue/Spirit merger. JetBlue has made it clear it values buying Spirit more than it does partnering with American. So, if it can divorce itself from the big, bad legacy carrier, then DOJ should jump on the bandwagon, drop the lawsuit, and back the Spirit deal.
That’s not likely going to happen, but there is a possibility that I sketch out below. The more likely scenario though is that the lawsuit still goes to court in the fall as scheduled. It’s hard to see how eliminating a low-fare competitor like Spirit is just going to sail through. But this does remove one hurdle, and it gives less ammunition for DOJ to use in court.
This is the right thing to do if it helps the Spirit deal even a tiny bit. Why? Because JetBlue’s appeal decision was completely irrelevant to the long-term survival of the NEA.
In a separate statement, American announced it will continue to pursue an appeal of the court’s decision striking down the NEA. As I understand it, whether American appeals alone or JetBlue joins the fight makes no difference. This is about the interpretation of the law. Unlike JetBlue, American has no political position at stake here, so it might as well plow forward on its own. And at the very least, American wants to win an appeal so it can get it in the record that this kind of arrangement is legal. But I think there’s more to it than just that.
What happens in an appeal? Well, the chances of getting an emergency stay that blocks the implementation of Judge Sorokin’s ruling against the NEA is slim at best. If you assume that won’t happen — which as I understand it, everyone is assuming — then the NEA has to be unwound based on the terms of the final ruling regardless of what happens with an appeal.
On the off chance that there’s an accepted motion to expedite, the appeal could take around half a year. More likely is that there is no expediting and this takes over a year to make its way through the process. Only if American wins the appeal would American and JetBlue be able to reinstate the already-dismantled NEA.
If you’re JetBlue in this case, why would you ever join that appeal? JetBlue is pushing full speed ahead on the Spirit acquisition. That case will be heard this fall, assuming that all proceeds as currently scheduled. Let’s say that there’s either a settlement with DOJ or it goes to court and JetBlue wins. Then, JetBlue merges with Spirit. Meanwhile, the NEA appeal is still making its way through the courts.
If American wins that appeal, then JetBlue can think about reimplementing the NEA again. Sure, the situation will be different with Spirit having been acquired, but the point is this: JetBlue loses nothing by walking away now. It just defers the NEA decision until after it gets its highest priority done.
If I’m DOJ, I have to see this coming. For that reason, I do wonder if DOJ might pitch a settlement that allows JetBlue to acquire Spirit if it also agrees to never re-implement the NEA, or something along those lines. I suppose it would all depend on how strongly DOJ feels about its position… and how strongly JetBlue feels about its position.
Regardless of how this all plays out, the NEA is dead for now. Everyone except for the judge seems committed to an orderly wind-down. Revenue-sharing and network coordination will end. Everything else, however, remains to be seen. I have so many questions.
- Will American and JetBlue enter into a separate slot-lease agreement in New York?
- Will American dismantle its JFK long-haul hub?
- If not, will American work on some kind of feed agreement with JetBlue to fill those long-haul flights as it has with Alaska in Seattle?
I could go on, but I know I’m not getting answers right now anyway, so there’s no point. One thing I do know is that the NEA may look dead on the surface, but it’s not truly dead as long as American continues to pursue this appeal. What happens in between is all up in the air.
33 comments on “JetBlue Wisely Walks Away From the NEA, But This Partnership Isn’t Dead Yet”
Interesting that B6’s CEO has said that dismantling the NEA will lead to reduced staffing needs at BOS, LGA and JFK. Although he said they will avoid furloughs, it does sound like at least some of the AA slots used by B6 at LGA and JFK will be returned to AA.
I guess JetBlue saw how the political winds were flying & chose to terminate the deal.
Please dont forget that even with the NEA in place, AA still had a ton of feed on its own metal at JFK. LAX, SFO, DFW, ORD, DFW, AUS, DCA, BOS, IND, CMH,CVG, MIA, CLT, RDU, IND, and others are all destinations that AA still flies to on its own metal from JFK and still gets a lot of feed and local traffic from all of those flights. With the NEA terminating AA could take back slots from B6 and add additional flights for additional feed and/ or local traffic, if it makes sense from a strategic standpoint (cities such as MCO, TPA, and maybe SEA immediately come to mind). But they’ll be fine for now and I’m sure this wont lead to them abandoning the hub.
Will be interesting to see how things develop, that’s for sure.
But isn’t the reason why AA is so invested in the NEA is because it tried to fly all of those routes previously without success? They were getting squeezed by DL, UA, B6 for connecting traffic while simultaneously losing local share as well
It easy enough to say go restart JFK-TPA or MCO but if DL is 3-5x (all mainline 737/A321) plus B6 at 2x and 9x respectively (all A320/321) – which assumes minimal pull-back by B6 post-NEA, it would be hard to see AA coming in with a relevant offering (freq & product) that can compete profitably
Exactly right.
NEA dissolution will put added strain on nation wide pilot staffing. AA/JBLU were essentially pooling pilots as a human resource. Now some of that will end and each must hire more at the expense of regional airlines. I don’t have the data to try and quantify the impact. Put differently, car pooling is good for needing less cars and drivers.
The DOJ doesn’t like any merger. The B6/NK merger is unique in that it involves a carrier acquiring and dismantling a faster growing carrier with lower fares. B6 can provide remedies to get the merger approved and “uncluttering” their strategies is step one.
There is no basis for an appeal if the other party in an agreement doesn’t want to pursue it. No US court is going to entertain a hypothetical scenario just to answer the legal validity of domestic joint ventures.
I doubt if B6 will do a slot lease w/ AA right now unless it is quite small precisely because it will trigger a DOJ review and B6 cannot afford to be involved in another one.
AA could do a simple codeshare arrangement but the international routes needed B6 to assume some of the financial risk and that is no longer possible.
AA will have no choice but to return some slots at LGA and JFK; they have proven they just cannot operate them all profitably and AA’s current management is far less prone to fly money-losing routes for strategic reasons. LGA slots will be highly pursued and low cost carriers will benefit. There will be little interest in JFK slots (AA will not release the “right slots” for UA to build a viable schedule) and B6 and DL will each end up w/ more slots.
B6 is flying routes because of the JV that are not sustainable on a standalone B6 basis and will be dropped. AA has lost ground competitively in NYC and simply will not be able to go back to what it offered pre-covid and reinstate routes it cut. B6 gained access to a lot of very valuable AA loyalty data over the past 2 years and will use it to strengthen its own BOS and NYC presence.
AA’s international operation in NYC will shrink. PHL is their last, best hope for building a remotely competitive transatlantic network to what DL and UA offer in NYC.
With UA’s EWR operational problems which will lead to a smaller schedule and the end of the NEA for AA, DL couldn’t be in a better position in NYC and BOS. It won’t take long to see their schedules shift from protecting slots to growing their NE presence to gain share and revenue including to Asia which is a hole in DL’s NYC network that AA and UA at least partially cover.
Tim –What you say makes a lot of sense and I hope you are right vis-a-vis PHL, which is where I am located. It would be nice to see AA return to its robust international reach out of PHL like it had in 2019.
Tim, can you let us know what legal background, education or firsthand knowledge you have to make the following statement: “There is no basis for an appeal if the other party in an agreement doesn’t want to pursue it. No US court is going to entertain a hypothetical scenario just to answer the legal validity of domestic joint ventures.”
Do you have a source for this, or are we just trusting that you know?
Tim- You seem sure that AA will lose slots. I agree they won’t want to run money losing flights. I do wonder why you think they wouldn’t simply lease those slots to other airlines. That would be more profitable.
I do think they will try to lease slots but there are limited number of carriers that could the DOJ would allow to get more of them.
And there will be some carriers that will argue they should be given any available slots for free rather than as part of a bidding process; even when the DOJ has overseen slot transfers in the past, it has been a bid but w/ certain carriers excluded. Think the same thing will happen here which means AA might not get as much as they want for the slots.
As for the question of appealing, you can’t appeal when another party does not want the deal that you are jointly party to. And US courts simply do not entertain cases based on hypothetical situations.
Tim, you maybe have some knowledge to offer when it comes to your analysis of DOJ statistics and maybe when it comes to analysis of business plans. But your willingness to speak beyond your expertise (hundreds of words beyond your expertise, typically) becomes apparent when you start talking about legal and accounting concepts. And I’ll note that I asked you to justify your perceived expertise and you instead just repeated the same point you had already made.
You say that this is a case where “another party does not want the deal.” JetBlue issued a statement saying that they oppose the ruling and believe in the benefits of the NEA. It seems that JetBlue made a tactical decision not to participate in the appeal. That is very different from them saying they don’t want the deal. https://www.dallasnews.com/business/airlines/2023/07/05/jetblue-airways-wont-appeal-antitrust-ruling-that-struck-down-american-airlines-alliance/
I’m no lawyer but I can easily imagine a scenario where two parties want to appeal a ruling, but one (perhaps the smaller party) decides they don’t have the wherewithal to participate in the appeals process. That doesn’t make the other party’s argument less valid, it just means that they’re bankrolling the appeals process. Do you really think that if AA is successful on appeal that JetBlue is going to say — in your own words — that they “(do) not want the deal”?
If you want to have credibility, you need to know what you’re talking about.
JetBlue has begun the process to terminate and winddown the NEA.
Tim, that is literally in the first sentence of Cranky’s article. We all know that. The point is that just because JetBlue has initiated the termination doesn’t mean that they don’t want the NEA to survive, doesn’t mean that AA can’t appeal, and doesn’t mean that they wouldn’t try to put the pieces back together if AA wins on appeal. The facts as we know them simply do not back up your statement that JetBlue “does not want the deal.” The facts suggest strongly that JetBlue is making a tactical decision not to appeal, probably due to some combination of not expecting to win and wanting to make it easier for Spirit to get approved. In some hypothetical world where Spirit is not approved and AA’s NEA appeal is successful (yes, an unlikely hypothetical world), you bet that JetBlue wants the NEA.
My only comment is that DOJ should not look only at fares in making decisions.
Saying the Spirit competes with the legacies is like saying Walmart competes with Nordstrom and Macy’s. Technically yes, but Spirit’s product is NOT the same as JetBlue’s.
If we want every airline to have 29” pitch and to charge for everything under the sun, then act as if the only dividing line is fares.
They should at the very least consider the average ancillary costs each passenger pays with the fare. Because yeah, a $100 fare with $100 in bag fees doesn’t beat out a $179 fare.
Very well said.
Excellent point. There is no lower fare that could make me fly Spirit therefore no competition
Lol at “up in the air” – nicely done!
Answers – AA/B6 codeshare for xatl feed at JFK, otherwise they might as well pull the plug on any terminal 8 expansion. And some sort of slot lease agreement at LGA.
I’m pretty sure that American and JetBlue’s management teams can figure out what to do going forward. Most top corporate executives aren’t quite as stupid as the much of public wants to believe.
Are you sure? I have seen a LOT of stupid decsions by airline managment team over the decades… Leadership 7.5, Allegis, countless mainline LCC subsidiaries, AA J product before the current one, WN deciding IT infra is for losers, we could go for a while
The DoJ is unlikely to approve a JetBlue/Spirit merger, given its general stance on consolidation and the sheer lunacy and stupidity that is B6’s pursuit of NK, which is not about building a larger airline at all, but rather to acquire planes, pilots, and other assets that it otherwise can’t do on its own quickly. The problem is the cost. B6’s pursuit of NK flies in the face of shareholder value and would require significant divestitures that would waste the DoJ’s time to delineate.
The NEA will eventually be repurposed into something more along the lines of a code-share, like what AA and AS have, and no slot swaps and other elements the DoJ found anti-competitive. B6 can’t quite make it alone in the NY market, and needs some of what AA can offer, though AA likely needs B6 more. AA can retain its operation at JFK pretty much as is, with the feed it has rebuilt, but the question will be whether they continue to maintain the Eagle operation as is, with E175s which were added as a nod to the NEA which required 2 cabin jets on all routes. There are also a lot of E175s at LGA and neither JFK or LGA currently have AA CRJ700s or smaller on Eagle routes. That may change and probably will.
AA isn’t going to build PHL into the next EWR at all. It may bolster the TATL operation there, but PHL has not only funded the JFK/LGA capacity expansions, it has also fueled growth for AA in BOS, DCA, CLT, and DFW + AUS, by shifting planes and resources there. The PHL hub likely isn’t the profit machine everyone thinks it should be, and will probably limp along as is. Yields out of JFK on long haul are firmer and more consistent year round.
JetBlue runs a lousy operation, with frequent delays and even its premium product on relatively new planes has been shown to feature plenty of wear and tear. A few 321LR flights to Europe is more of a problem for DL than it is for AA, quite frankly, at JFK, and DL has already responded by putting a 767-300ER on JFK-LGW, a route that likely isn’t profitable. Heck, it doesn’t even work all that well for BA.
The longer game is B6 eventually merging, but not on its own terms. AA will probably find the resources, finances, and engineering to pull it off.
The reason why the B6/NK merger is more problematic than other mergers is because it involves merging with another “type” of airline which is not the same as what happened w/ other airlines. The big 3 merged with other legacy airlines and WN acquired AirTran which was also an LCC. B6 said from the beginning that its intent was to acquire NK assets and grow the original B6 model which automatically increases fares and reduces the number of seats on an aircraft which reduces capacity.
B6 and NK significantly overlap in FLL and, while they argue about the amount of share that the legacy airlines have in their hubs, that amount of share has largely existed for decades and came heavily from organic growth of those hubs and did not significantly increase through a merger. B6 management has to address those realities and not false equivalencies.
B6’ business model was always a disconnect w/ AA’s model. The legacy carriers attract premium passengers because of their universal premium cabin offering on their mainline fleets – and most of their regional fleets – as well as airport lounges, alliances and global loyalty programs. AA might have had no choice but partnering w/ B6 has hurt their ability to compete with DL and UA that provide their domestic feed “in-house.”
B6’ transatlantic expansion is, according to their execs’ own words, an attempt to create networks which compete with the big 3, specifically DL which is B6’ most direct competitor at JFK and BOS. The amount of capacity on a B6 A321 into any European city just doesn’t move the needle competitively other than to allow B6 to get into new markets that will evoke a competitive response no different than in domestic markets.
We don’t know the profitability of any specific route for any airline. B6 now reports profits for Latin America and transatlantic and they have said both regions are profitable other than a quarter here or there since 2020 even though they report huge losses on their domestic system. Take that however you want.
AA, DL, UA or WN simply cannot merge w/ B6 or any other airline from a regulatory standpoint.
AA doesn’t have to build PHL into a competitor to DL at JFK or UA at EWR but AA does need a viable hub that serves the majority of the key markets in Europe on a year-round basis (not just seasonal service). The A321XLR could rotate w/ widebodies for peak summer travel to Europe and peak S. American travel in the US winter.
20 years after 9/11 and more than 10 years after its merger with US, AA still can’t figure out a viable, long-term international strategy outside of Latin America that involves more than just DFW. THAT is what hurts AA compared to DL and UA and that is also part of why they can’t succeed in direct international competition w/ DL and UA.
A lot of the usual Delta-fanboy nonsense here, with a nugget of somewhat smart insights elsewhere.
No, AA doesn’t have the global network on its own metal relative to United and Delta, but it does have very strong partners across OW notably in BA, IB, JL, QF, and when it figures out what to do with AS, there too. United and Delta both have a surplus of paid down or nearly paid down, aging wide bodies that can be deployed on secondary and tertiary intercontinental markets, seasonally and year round and squeeze more revenue. AA doesn’t have that luxury, having under-invested in its 767-300ER fleet for decades, and then having shed them, plus the 757s and arguably, the 330 fleet as well. So, AA flies to core markets globally, and profitably, and leans heavily on partners to move traffic around. Is it a good strategy? Maybe. AA has always shown little patience to allow international markets to mature and its route planning is riddled with starts and stops of routes that never seemed to work out. But, AA’s strategy isn’t DL’s or UA’s. It is squarely focused on reducing the debt load, running an operation that is as clean and reliable as possible (and by that last measurement, is significantly further along than DL and UA this summer and this year). AA’s argument is that the schedule (and the network) is the product, and for many, that’s just fine.
B6 can’t build a viable alternative to the US3. It’s hubs are both its assets and the root cause of its problems. B6 is having a moment on TATL flying leisure travelers but the bread and butter for these routes when things normalize is corporate traffic, and B6 has weak corporate point of sales and is overlooked heavily in that smaller, but still key source of revenue. A messy merger with Spirit will only further challenge B6.
The current administration won’t look favorably on ANY merger, but the US Government is loathe to bail out an industry that is an engine of the economy and will look the other way if the economy sputters and fuel spikes, and COVID makes a material comeback.
The future long, term of B6 is a combination with American. No one would have thought Northwest, a basket case of an airline for decades, would ultimately merge into Delta but that’s exactly what happened in an epic moment of coordinated collusion that was their simultaneous bankruptcies in 2005.
Has AA never quite figured out NY? Yes, true. But B6 is big enough to be too small in the NY market too. If they are overstaffed in NYC and Boston, that tells you just how poorly run a company B6 really is.
Just a few data clarifications – which is most definitely non fanboyism of any kind.
AA’s 777-200ER fleet is the exactly same age on average as DL’s 767-400 fleet and UA’s is almost identical. The 764 is much more efficient than the 777-200ER. DL’s 330CEO fleet is 2/3 the age of AA’s 777-200ER fleet and even better relative to UA’s 777s.
DL execs just said on their investor call that the 767-300ER will shrink to to “mid-30s” after next summer which seems to indicate they will use their 9 330-900 deliveries next year to replace 10 or so 767-300ERs.
AA, DL and UA all have similarly sized fleets of new generation aircraft (A350/330NEO/B787s).
AA’s intention is to return their international system to profitability but the data they have reported to the DOT so far does not indicate they have achieved the same levels of profitability (or reduced losses) as DL or even UA. Focusing on partner hubs is indeed good if that results in the greatest profits. DL just said flights to its partner hubs are 2X more profitable than to other destinations and I would bet that is similar for AA and UA.
AA is reducing their debt and I believe that will do wonders for their financial health. It does leave them w/ very few new aircraft to deploy which is also part of why those that think that AA will rebuild its NYC schedule on its own will probably be disappointed.
As for operational reliability, AA is vastly improved but data so far doesn’t say they are leading the industry but what I see is that they are closer to DL than any carrier ever has been in a long time.
I have said all along that AA will be fine w/o the NEA but will have to finally recognize that it won’t have a major presence in NYC any longer; accepting that reality might come harder for some AA fans than AA execs. We’ll have to see what that does for AA’s ability to attract major national corporate contracts but I think they will not be any worse off.
AA’s fleet problem is directly related to Boeing’s 787 delivery woes.
They have 42 more 787-9s on order, and they retired the 767s and 330s with the idea that they would be receiving these promptly. Hasn’t happened and they are squeezed a bit because of it.
AA’ debt reduction will help financially, but I can’t help but think once they are in a good financial position, they will attempt unsuccessfully again to try to build up NYC because they can “afford” to do so and then repeat the same cycle they have over the past few decades
And to think decades ago when AA’s Headquarters was in NYC they owned NY.
Even for a few years after they moved to Dallas.
Yet, they slowly but surely frittered their position away
JetBlues issue is that they are overly concentrated in the NE, and so they are more subject to disruptions from localized storms or other issues than other airlines.
It has less to do with their own operation and more with where they operate.
Their entire pursuit of NK is part of an overall effort to grow out of that trap. They can’t do it without planes and pilots, and in 2023 the only way to get pilots quickly is to buy another airline.
So the choice becomes do we allow a mid range airline to grow abs try to prosper, thus giving more competition to the big boys? Or do we just want legacies and cheapies?
Of all the mergers, both proposed and consummated, have the feds ever actually succeeded in blocking one?
None that I can remember.
The closest I can think of was when United and US Airways tried to merge in 2000. But that ended because it became too political, what with the proposed carve out of “DC Air” and all.
So UA called it off.
Any others?
In the end, business always wins and finds a way to get what it wants.
Just need to pay off…I mean…convince the right people.
It doesn’t really seem like AA has a coherent strategy for NYC. The NEA was an attempt to patch that up. But it’s really kind of a cop out. AA’s cost structure really hurts its ability to operate its own international feed on a profitable basis.
AA also has a poor international route system outside of Latin America. AA hasn’t fully committed to any hub other than DFW (which isn’t well-located for Europe or Asia) and MIA for Latin America. AA could have chosen to focus on Chicago, which is a couple of flight hours closer to both Europe and Asia, especially when UA was weaker but UA has solidified its position and will be hard to displace. AA could choose to make PHL or CLT Europe hubs but has been non-committal.
Just like AA is noncommittal about SEA, although it’s not attractive to your elite members to outsource your connecting domestic traffic, and they are second fiddle to DL at SEA.
I guess AA makes enough money on domestic flying at their fortress hubs in CLT and DFW that there hasn’t been the discipline to figure out their international route system. But UA/Star and DL/Skyteam are set to eat AA’s lunch internationally. LHR isn’t an attractive place to make connections, nor is HKG any longer, and HND/NRT suffers from a split operation.
You should call AA on all this. Weak internationally and weak in NYC.
Exactly this.
Ever since DL patiently decided to own NYC east of the Hudson, AA has had no answer. DL did the LGADCA swap with US, filled the LHR hole (JV with VS), invest in NYC sales (they brought over AA’s ex VP of Sales), sponsored NYC events/ sports, keep the feed going to its TATL network, and got LA to come over from oneworld.
The fact that AA – the largest carrier in revenues at one time – had to get into a relationship with B6 (and AS) showed its weak hand.
With UA hammering away at ORD, AA is reduced to a US southern tier airline – DFW, MIA, CLT – with a rump at PHL.
Brett… that photo is one of your best work