United and JetBlue carefully crafted their Blue Sky partnership to avoid any regulatory concerns. The airlines aren’t codesharing, there is no pricing or schedule coordination, and in general, they’ve followed the guidance that the judge who shot down the Northeast Alliance (NEA) between American and JetBlue gave on how to construct a legal partnership. But that doesn’t mean that everyone is happy just letting this happen without a fight. Nobody should be surprised to hear that Spirit is now trying to do what it can to block this partnership.
Spirit has proudly taken the lead on challenging couplings in the past, most notably the NEA. That fight resulted in an impressive act of juggling since it was just shortly after that it agreed to be acquired by JetBlue. It was twisting itself in knots, but it has always tried to make the same point… that the big US airlines partnering with smaller carriers is anticompetitive. It won the NEA fight, but it lost its own merger bid with JetBlue. But don’t worry — the standalone Spirit apparently still has its lawyers on retainer.
No federal review of the JetBlue/United deal is required, but the Department of Transportation (DOT) and Department of Justice (DOJ) can always decide to challenge anything. Spirit wants to encourage that. This particular objection from Spirit is filed as a complaint with the Department of Transportation (DOT). Spirit wants the review period extended by 60 days. It also wants to see the agreements released publicly for review, and it says there should be a public comment period. Why? Because this is anticompetitive, damnit. How? Well, that’s the whole point of this post. Here are the four main thrusts:
- Even though the airlines won’t coordinate on pricing and schedules, “tacit coordination appears obvious, and one would have to believe in the tooth fairy not to recognize that, given United’s massive size and JetBlue’s dominant position in New York and Boston that, at least in the Northeast, this combination will lead to both higher fares and higher award point requirements….”
- JetBlue will need to purchase United miles to award to its customers when they opt to fly United, and that is expensive. “That incremental cost must necessarily be covered by higher JetBlue fares.”
- This agremeent will result in “coordination on high-value corporate accounts.”
- The two airlines working together “helps perpetuate the unchanging lack of access in both New York area and Boston airports to new entrants and limited incumbents offering competitive prices to the public.”
So, basically, it’s saying that this will lead to less competition and higher fares. We’ve all heard that argument before, but does Spirit have an actual case to support these accusations?
Spirit’s complaint winds around a variety of concerns that feed into these anticompetive arguments, even going down the slippery slope by saying that this will spur both American and Delta to enter into similar agreements with other small carriers. I don’t want to burst their bubble, but American already does this with Alaska. And Delta? Yeah, right.
Of course, Spirit points out the route overlap here, saying that United and JetBlue have 18 overlap routes plus another 55 that United flies from Newark which JetBlue flies from JFK. This is all true — presumably, I didn’t check — and that would matter in a merger or joint venture that required antitrust immunity. I don’t imagine that the feds will buy the argument that this should be evaluated the same way since this is just a loyalty partnership with a few fringe benefits.
So, Spirit gets creative in trying to highlight issues in two specific areas of this unique partnership. I have learned that it really loves the word “unprecedented” in this filing.
Linked Loyalty Programs
Spirit calls this United/JetBlue tie-up an “unprecedented integration of the United MileagePlus and JetBlue TrueBlue loyalty programs.” I find that hard to believe considering the integration between Alaska and American that exists today. What am I missing here?
Anyway, the argument is that people in these loyalty programs would fly their preferred airline, but they would then consider all other airlines when their airline didn’t have a good option. Now they will look to the partner airline first and ignore the other airlines.
Ticket Sales and Interlining
We are again in “unprecedented” territory here as Spirit says that DOT needs to consider whether “unprecedented selling of both airlines’ tickets on each other’s website, coupled with an interline agreement, is effectively a codeshare.”
I’m trying to understand exactly why this is unprecedented. I guess it’s the idea that both airlines would sell the other airline’s flights on their own websites without a codeshare and without a connection on that airline. I mean, I can go on Alaska’s website today and buy a flight solely marketed and operated by American. But if I go to American’s website, I believe it only sells Alaska flights that are codeshares. I think the idea here is that Spirit wants to argue that this is effectively a codeshare without the actual codeshare, so it is unprecedented for an interline agreement.
Spirit ties this all together in the end by saying that once this is in place, the hooks are in and it can’t easily be unwound. Why not? Remember, United will be using JetBlue’s Paisly for non-air sales while JetBlue will use United’s Kinective Media for seatback screen advertising. Once those relationships are going, there are higher switching costs involved in dismantling this thing.
So what do I make of all this? It feels like an uphill battle. I certainly don’t blame Spirit for trying, because it has nothing to lose. If the wheel is squeaky enough, maybe it’ll get some slots grease. But I can’t imagine this whole thing being shot down based on these arguments. If there’s one thing that the judge’s ruling in the NEA case did, it outlined a clear path on what kind of partnering would be problematic. This doesn’t seem to fit that mold.
