American Airlines Group Inc. and JetBlue Airways Corp. must dissolve a partnership covering flights across the northeastern US, after a federal judge agreed with antitrust enforcers that the alliance would reduce competition and boost fares for consumers.

The Northeast Alliance, “operating as it was designed and intended by American and JetBlue, substantially diminishes competition in the domestic market for air travel,” US District Judge Leo Sorokin said in a ruling Friday. The agreement has replaced “full-throated competition with broad cooperation,” he said, thereby hurting customers. 

Read the ruling here

The decision, which follows a monthlong trial that ended in November, hands a win to the Justice Department, which argued that the alliance, formed in 2020, gives the carriers too much control over competition in Boston and New York City and has led to higher prices. The judge permanently blocked the airlines from further implementing the tie-up, effective 30 days from the order.

“We believe the decision is wrong and are considering next steps,” American said in a statement. “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.”

JetBlue said the partnership was “a huge win for customers” and added it’s also evaluating its next action. 

“Today’s decision is a win for Americans who rely on competition between airlines to travel affordably,” Attorney General Merrick Garland said in a statement from the Justice Department. The airlines can appeal the decision.

First Airline Challenge Since 2013

The Justice Department’s lawsuit was the first challenge the government has brought against airlines since 2013, and is part of the agency’s renewed trust-busting efforts under the Joe Biden administration. The department has also sued to block JetBlue’s proposed $3.8 billion merger with Spirit Airlines Inc. A trial is scheduled for October.

“This was a bit of a surprise, as we believed with more than two years of data, the judge would rule in the airlines’ favor,” Helane Becker, a TD Cowen analyst, said in a note. The ruling “has negative implications” for JetBlue’s pending merger with Spirit, she said.

That sentiment was echoed by Francois Duflot, a Bloomberg Intelligence analyst, who said the decision makes the merger “more uncertain.”

JetBlue shares fell 1.8% Friday in New York, while American slipped 1.5%. The companies’ shares were little changed in light postmarket trading.

American and JetBlue are two of the four largest carriers operating in New York, and two of the largest three in Boston, Sorokin noted. Delta Air Lines is the only other carrier with a large presence in Boston.

‘Naked Agreement’

“Though the defendants claim their bigger-is-better collaboration will benefit the flying public, they produced minimal objectively credible proof to support that claim,” the judge wrote. “Whatever the benefits to American and JetBlue of becoming more powerful — in the northeast generally or in their shared rivalry with Delta — such benefits arise from a naked agreement not to compete with one another.”

He added that “such a pact is just the sort of ‘unreasonable restraint on trade’ the Sherman Act was designed to prevent.”

American and JetBlue argued the alliance gave them the size to compete with larger rivals Delta and United Airlines Holdings Inc. in Boston and New York and created more options for consumers. The government didn’t prove travelers had been harmed by the venture, they said.

Under the partnership, American has increased its presence at New York’s major airports after previously reducing flights from John F. Kennedy International and LaGuardia Airport, while giving American customers access to dozens of JetBlue flights out of New York and Boston. The partnership let JetBlue expand service, gaining access to coveted gates and 100 flight slots in New York held by American that the smaller carrier hadn’t been able to secure on its own.

Consolidation within the industry, mainly triggered by a series of bankruptcies, eliminated five of the 10 biggest airlines between 2005 and 2013. The Justice Department sued to prevent the $17.2 billion merger of AMR Corp., then parent of American, and US Airways Group Inc. in 2013. That case was settled and the combination allowed to take place. 

‘Common Sense’

The agreement between American and JetBlue diminishes competition “by combining the Boston and New York operations of two airlines that are among the most significant competitors in that region,” the judge found. “These two powerful carriers act as one entity in the northeast, allocating markets between them.”  

The court found there was “no credible evidence” that American and JetBlue have continued to treat each other as competitors in the northeast, despite claims from both airlines. In forming the NEA, the airlines “decided to stop competing and start cooperating with one another in the northeast,” according to the judge. Instead, he said, “competition between them has effectively ceased.”

The airlines focused on growing in New York at the expense of other cities, Sorokin said. For example, American “deprioritized” long-range plans to expand in Philadelphia in favor of service at Kennedy, while JetBlue put plans to increase service to Fort Lauderdale on hold, the judge wrote. 

The case is US v. American Airlines Group Inc. and JetBlue Airways Corp., 21-cv-11558, US District Court, District of Massachusetts.