Fri 05/19/2023 17:41 PM
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Judge Leo Sorokin of the U.S. District Court for Massachusetts entered a 94-page order this afternoon granting the U.S. Department of Justice’s request to permanently enjoin American Airlines and JetBlue’s Northeast Alliance, or NEA. “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. Such a pact is just the sort of ‘unreasonable restraint on trade’ the Sherman Act was designed to prevent,” Judge Sorokin writes.

Under the order, American and JetBlue are permanently enjoined from continuing or further implementing the NEA, effective 30 days after the order.

The judge describes the NEA, which the companies announced in July 2020, as a “sea change in the relationship between two airlines” that were previously “direct and aggressive competitors with decidedly different business models and cost structures.” “There is no doubt that savvy executives representing both defendants earnestly believe” that the NEA promotes both companies’ interests “in their rivalry against Delta (and, to a lesser extent, United) in New York and Boston,” the judge adds.

The judge finds, however, that “there is simply no credible evidence that American and JetBlue have continued to treat each other as competitors within the NEA.” The alliance is “not a venture with an overarching legitimate purpose” under antitrust law, but is instead a “naked assault on competition,” the judge writes.

The judge observes that prior to the NEA, JetBlue “stood largely alone as the only low-cost airline” for the New York and Boston markets, and JetBlue and American “vigorously competed on everything from fares to the features they offered customers.” After entering the alliance, “American and JetBlue transformed themselves from competitors to collaborators, joining forces to create a single ‘optimized network,’” the judge writes. Additionally, the companies under the NEA shared revenues and worked together to determine “which airline will fly which routes in and out of the NEA region, how often and on what schedule they will serve each route, and which aircraft (i.e., how many seats) will be used on each route.”

In concluding that the NEA “plainly violates” section 1 of the Sherman Act, which prohibits unreasonable restraints on trade, Judge Sorokin writes that the alliance “makes the two airlines partners, each having a substantial interest in the success of their joint and individual efforts, instead of vigorous, arms-length rivals regularly challenging each other in the marketplace of competition.”

The judge rejects claims made at trial by the companies’ executives that they continue to view each other as competitors in the area in which the NEA operates. Such assertions “are unsupported by specific examples or objective evidence,” the judge concludes. “[T]he record confirms what common sense suggests: in forming the NEA, American and JetBlue decided to stop competing and start cooperating with one another in the northeast,” writes the judge (emphasis added).

Judge Sorokin finds that the DOJ met its burden to prove that the NEA “already has caused actual and substantial harm to competition.” In addition to replacing competition with coordination, the DOJ showed that JetBlue, by aligning itself with a global network carrier, “sacrificed a degree of its independence and weakened its status as an important ‘maverick’ competitor in the industry” (emphasis added).

The judge also finds that American and JetBlue’s assignment of routes as part of the purported “optimization” of the NEA network “has led to decreased capacity, lower frequencies, or reduced consumer choices on multiple routes.” Judge Sorokin found this behavior to be “a straightforward example of market allocation,” which is per se illegal under the Sherman Act.

American and JetBlue were unable to produce “substantial, credible, and empirical evidence establishing the procompetitive benefits they claim arise from the NEA,” according to the court. The court did not credit the airlines’ argument that the purpose of the NEA “strengthening their own position against one or two rivals” - referring primarily to Delta - “is not a valid justification, and cannot render an unreasonable restraint on trade reasonable.”

The judge also finds that this “spirit of partnership” between the companies “will diminish competition between the defendants outside the NEA region.” The companies, when entering the NEA, “intended to form a long-term partnership,” the judge says, noting they have a “mutual interest in the success and survival of the other within the NEA and beyond.” “The defendants cannot evade scrutiny of their deliberate decision to eliminate competition between them by calling it a ‘joint venture’ and pointing out that other joint ventures have often produced efficiencies,” writes the judge.

The judge orders the parties to submit a proposed order “reflecting their joint or separate positions regarding the text of the injunction.”

The DOJ first sued to enjoin the NEA in September 2021. The trial concluded last fall.

The DOJ in March filed a separate action in the U.S. District Court for the District of Massachusetts seeking to block JetBlue and Spirit Airlines’ pending merger. The trial is scheduled to commence in October. U.S. Attorney General Merrick Garland said in March that the JetBlue-Spirit merger would “exacerbate” the anticompetitive impacts of the NEA but that the merger violates antitrust law regardless of whether JetBlue is a part of the NEA.
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