Salem Radio Network News Tuesday, December 6, 2022

Business

U.S. challenges American Airlines, JetBlue alliance at start of antitrust trial

By Nate Raymond, David Shepardson and Diane Bartz

BOSTON (Reuters) -The U.S. Justice Department on Tuesday urged a judge to force American Airlines and JetBlue Airways to scrap a partnership in the U.S. Northeast, calling it an anticompetitive deal whose harms would be exacerbated if JetBlue acquires Spirit Airlines.

At the start of a three-week trial in Boston, Justice Department attorney William Jones argued the “unprecedented” partnership destroys airline competition at the expense of travelers, who face hundreds of millions of dollars in additional costs annually.

He said their Northeast Alliance, unveiled in July 2020, is a “de facto merger” of their operations in Boston and New York that allowed them to coordinate flights and pool revenue in and out of Boston and New York’s JFK, LaGuardia and Newark airports.

“The loss of the competition will cause prices to rise and quality to fall at those four airports,” Williams said in his opening statement.

He said the deal eliminates incentives for American Airlines to reduce prices to lure customers from JetBlue, a “historically disruptive” rival with often better fares, and gives the two airlines more than 80% market share in flights from Boston to Washington and six other airports.

But lawyers for the airlines said the hypothetical pricing and competitive harms that the Justice Department and the six states that sued alongside it claim do not exist in the real world, where the alliance had been in effect for 18 months.

They argue that the alliance has been pro-competitive and allowed them to become a viable competitor to the dominant airlines in the region, Delta Air Lines and United Airlines, by increasing capacity and flights.

“More output like we’re seeing here is highly competitive and leads to lower fares,” Richard Schwed, JetBlue’s lawyer, told U.S. District Judge Leo Sorokin.

The trial starts after a week in which U.S. judges ruled against the government in two antitrust fights: sugar and insurance.

Airline mergers in recent years have led to a highly consolidated industry, in which American, Delta, United and Southwest Airlines control over 80% of domestic travel, the government argues.

JetBlue is itself pursuing a $3.8 billion acquisition of low-cost rival Spirit Airlines.

Should that merger — which is subject to antitrust review — move forward, American Airlines will be a beneficiary, Williams argued, as it will now be able to “co-opt two disruptive airlines for the price of one.”

JetBlue Chief Executive Robin Hayes, the expected first witness, has said that no matter how this case ends, it will be good for JetBlue’s effort to buy Spirit.

“We’ve had unprecedented amounts of consolidation, which the DOJ has approved and now it’s about how do we make sure the rest of us can continue to discipline the legacy carriers and create that competition,” Hayes told Reuters earlier this year.

(Reporting by Nate Raymond in Boston and Diane Bartz and David Shepardson in Washington; Editing by Marguerita Choy, Jonathan Oatis and David Gregorio)

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