American Airlines Group Inc. and JetBlue Airways Corp. will defend their partnership in a trial starting this week against government allegations that they are squelching competition in New York and Boston and harming consumers throughout the country.
The Justice Department, along with six states and the District of Columbia, filed an antitrust lawsuit last year to block a 2020 agreement between the two airlines to sell seats on one another's flights along certain routes, pool airport slots, coordinate schedules and share revenue from flights within the scope of the partnership in the Northeast.
American and JetBlue have said that working together would make them more viable challengers at the three New York-area airports and in Boston.
The department has said the partnership is tantamount to an unlawful merger. The suit filed in Massachusetts federal court alleges the alliance will neutralize JetBlue, which previously was a "scrappy opponent" to the bigger airlines.
The suit is the latest test of the Biden administration's pledge to be more aggressive in challenging corporate deals that it believes will suppress competition -- an effort that faced a pair of notable setbacks last week after judges ruled against its attempts to block mergers in the healthcare and sugar industries.
The airline trial marks a rare courtroom showdown between the Justice Department and an industry it believes has seen too much consolidation over the years. And the suit comes as the industry is poised for more: JetBlue struck a $3.8 billion deal in July to buy Spirit Airlines Inc., a budget rival, to create the fifth-largest U.S. carrier.
"AA and JetBlue should not be permitted to extinguish the competition that, for more than twenty years, has lowered fares, increased choice, and improved service for millions of passengers," Justice Department lawyers wrote in a brief filed this month.
American and JetBlue have argued their Northeast Alliance is distinctly different from a merger. A year and a half into their partnership, the airlines say the fare increases and reductions in output predicted by the government haven't materialized. Rather than reduce competition, the carriers argue the partnership allowed them to expand and become a more formidable challenger to Delta Air Lines Inc. and United Airlines Holdings Inc.
"The effects of the NEA are real, observable and overwhelmingly positive, " said Daniel Wall, a lawyer at Latham & Watkins who represents American. "And yet DOJ wants to outlaw it based on academic theorizing and a blatant mischaracterization of the NEA as a merger."
Chief executives at American and JetBlue are expected to testify, along with executives at some of their competitors.
The trial comes as Biden-era antitrust officials are looking to notch a win in a litigated-merger case. The current crop of Justice Department enforcers is aiming to challenge more deals in court and build new legal precedents rather than accept a large number of settlements in which companies offer asset sales and other concessions to secure government clearance.
Last week a federal judge in Washington, D.C., ruled the department failed to prove its case challenging UnitedHealth Group Inc.'s $13 billion acquisition of health-technology firm Change Healthcare Inc. And a federal judge in Delaware said the department hadn't shown that a merger between U.S. Sugar and rival Imperial Sugar was anticompetitive.
The department is considering its next move in both cases. It is also waiting on a ruling in its lawsuit challenging Penguin Random House's planned purchase of Simon & Schuster. A trial in that case took place this summer and the government appeared to face a better reception than it did in the two cases it just lost.
The airline trial begins Tuesday, with U.S. District Judge Leo Sorokin, an Obama appointee, presiding.
Airlines are a particular flashpoint for the Justice Department. A wave of consolidation in the past two decades has left four large carriers -- American, United, Delta and Southwest Airlines Co. -- in control of about 80% of domestic U.S. air travel, according to the department.
Antitrust officials have closely scrutinized but ultimately allowed such deals in the past, provoking criticism from consumer advocates who have criticized authorities for not pushing back harder. The department challenged a merger between American and US Airways in 2013 but the airlines settled with the government, avoiding a trial by agreeing to divest slots and ground facilities at key airports around the country.
University of Pennsylvania law professor Herbert Hovenkamp said airlines are a prime target for a Justice Department that wants to take a muscular enforcement role.
The department "will pursue these things right to the end," he said.
American and JetBlue agreed to shed some takeoff and landing slots at airports in New York and Washington, D.C., to gain approval from the Transportation Department before implementing the partnership last year. The airlines aren't allowed to discuss fares or pricing strategies or to collaborate outside the region covered by the agreement.
American is the world's largest airline but had fallen behind in New York -- an important market for lucrative business travelers and international traffic. It had the capacity to transport passengers from around the U.S. to the Northeast, but said it didn't have a large enough presence at airports there to battle head-to-head with Delta and United.
JetBlue, on the other hand, had a large presence in Boston but was losing ground to Delta. It has said it was unable to secure enough takeoff and landing rights to grow more in New York.
The carriers have said they have been able to launch around 50 new routes from New York and Boston and add capacity on about 130 existing routes, boosting flying more together than they would have been able to on their own. The airlines said they had amended their agreement to exclude routes where they face limited competition, to assuage antitrust concerns.
Justice Department lawyers have cited comments from JetBlue and American executives that suggested the two airlines were poised to grow on their own, and argued that their rivalry would have pushed down fares as it has in the past.
JetBlue's proposed acquisition of Spirit, which still needs regulatory approval, hangs in the backdrop of the case. The low-cost carrier has been critical of the JetBlue-American partnership in the past.
JetBlue says its deal for Spirit is a sign of its independence from American.
"JetBlue remains JetBlue," the airlines said in a pretrial brief.
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