Bad JetBlue deal gets the antitrust treatment

Airline alliances and codeshare agreements — which allow travelers to book tickets with access to more member destinations and airport lounges around the world — have been around since the beginning of commercial aviation. Customers love these partnerships otherwise they wouldn’t have lasted.

The Justice Department, in an antitrust lawsuit that began Tuesday, is seeking to nullify one such partnership, the Northeast Alliance between American Airlines Group Inc. and JetBlue Airways Corp. It allows carriers to coordinate flights and share revenue at the four major airports in Boston and the New York area. The government argues that the arrangement is essentially a merger and will drive up rates. (The case also has implications for JetBlue’s proposed acquisition of Spirit Airlines Inc., which is facing its own antitrust scrutiny.)

There is little evidence that the alliance hurts competition and drives up rates, and in fact it could strengthen options in the northeast. The deal is largely a distraction, and the government should instead focus on real consolidation that hurts consumers, like the deal with Spirit Airlines.

Airline alliances work because carriers save money by sharing facilities such as ticket offices or maintenance. Travelers benefit from easier ticketing and the ability to earn miles with an airline’s frequent flyer program even when another carrier is operating the flight.

These arrangements began as early as the 1930s and primarily involved two airlines sharing flights. That changed in 1997 when United Airlines Holding Inc., Deutsche Lufthansa AG and three others joined together to form Star Alliance. Two years later, American Airlines, British Airways and three other airlines created Oneworld. Not wanting to be outdone, Delta Air Lines Inc. cobbled together SkyTeam in 2000 with Air France-KLM and other partners.

The three major alliances now have just under 60 members with varying degrees of cooperation. Other direct alliances and code-share agreements abound between the world’s air carriers. In other words, the airlines have been linked for decades, even though they are owned and operated separately.

JetBlue does not belong to any of the Big Three alliances, so in early 2021 it began operating the Northeast Alliance, or NEA, with American, which offers JetBlue customers more destinations from the four participating airports: John F. Kennedy International Airport, LaGuardia Airport, Newark Liberty International Airport and Boston Logan International Airport. JetBlue plans to leverage American’s network to attract more business passengers and bolster revenue from its premium travel product Mint, which advertises reclining seats and suites.

For the American, it fills a void where its network is lagging behind the main competitors, United and Delta. In the New York area, which includes Newark, American carried just under 10 million domestic passengers in the 12 months to June, according to the Bureau of Transportation Statistics. Delta carried more than 18 million people and United 15 million. JetBlue carried 13.7 million domestic passengers.

“If you say no, you’re basically handing over the keys to Delta and United,” said Melius Research analyst Conor Cunningham. “From a competitive point of view, it is better for consumers to have a stronger third competitor” in the Northeast region. That balance would change, however, if JetBlue were allowed to acquire Spirit, he said.

The NEA already has certain competitive guarantees. He must report the details of the operation to the Department of Transportation, and if the two airlines do not meet the increasing targets that result in a 15% increase in seat capacity by 2025 at JFK and LaGuardia, the two airlines will have to give up take-off and landing slots at these two key airports.

Already as part of the NEA deal approval, the Transportation Department forced the two airlines to give up seven pairs of slots at JFK and six pairs at Ronald Reagan Washington National Airport. This is no small concession. Reagan National, along with New York’s two airports, are the only three where the Federal Aviation Administration controls slots, as the airports are known to have limited capacity.

This isn’t the first national alliance American has formed to plug a hole in its network. The Fort Worth, Texas-based airline entered into a similar deal, minus revenue sharing, with Alaska Air Group Inc. in February 2020. The deal gives Americans access to the Seattle Alaska hub and a pick-up point. departure to and from Asia. Alaska has also joined the US Oneworld alliance.

Don’t be surprised if JetBlue ends up on the US Oneworld team at some point. The move would align with JetBlue’s eagerness to expand international flights. The Long Island City, New York-based airline last year expanded a partnership with Qatar Airways, which is a member of Oneworld, and will end a codeshare deal with Emirates Airlines in October, which just concluded. an alliance with United.

The fact is that alliances do not eliminate competition and they bring certain advantages to passengers. The government should certainly block an American-JetBlue merger, but that is not on the table. It should carefully consider consolidation that raises fares or reduces flight options for passengers. The Department of Justice is suing the bad JetBlue deal.

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Thomas Black is a Bloomberg Opinion columnist covering logistics and manufacturing. Previously, it covered US industrial and transportation companies as well as Mexican industry, economy and government.

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