JetBlue Airways Corporation (“JetBlue”) is currently defending two antitrust lawsuits brought by the U.S. Department of Justice (“DOJ”) in the District of Massachusetts. In the first, which was filed in March, DOJ challenges JetBlue’s proposed acquisition of Spirit Airlines, Inc. (“Spirit”). JetBlue and Spirit filed Answers in that action this week. The second lawsuit, which went to trial in Fall 2022, questions JetBlue’s Northeast Alliance with American Airlines Group Inc. (“American”). In both, DOJ contends that the relevant product market definition is scheduled air passenger service. Both cases remain pending.
DOJ Sues to Block JetBlue’s Acquisition of Spirit
In March 2023, DOJ sued to block JetBlue’s proposed $3.8 billion acquisition of Spirit. In its Amended Complaint, DOJ asserts a claim under Section 7 of the Clayton Act, 15 U.S.C. § 18, which prohibits a company from acquiring another when “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.” 15 U.S.C. § 18.
DOJ alleges that Spirit’s “ultra-low-cost business model has increased competition and brought low fares to hundreds of routes across the country” and that JetBlue’s acquisition of Spirit would “eliminate the unique competition that Spirit provides[.]” Amended Complaint at 1. Specifically, DOJ argues that JetBlue’s acquisition of Spirit would harm travelers in three ways: (1) it would eliminate head-to-head competition between JetBlue and Spirit, which benefits cost-conscious travelers; (2) it would eliminate the largest ultra-low-cost carrier and thus increase the risk that the remaining airlines would raise prices in parallel or reduce capacity on certain routes; and (3) it would deprive customers of the option to choose Spirit’s unbundled fares, which separate costs for some aspects of flying, such as carry-on baggage and seat assignment. Id. at ¶ 30.
According to DOJ, JetBlue’s proposed acquisition is presumptively illegal because it would “substantially increase JetBlue’s market share on routes that already have limited competition,” including more than 40 nonstop routes. Id. at ¶¶ 31-32. DOJ defines the relevant product market for the acquisition as “scheduled air passenger service for all passengers.” Id. at ¶ 62. DOJ asserts that is the relevant market because air travel has distinct features compared to other modes of transportation, such as cars and trains. With respect to the relevant geographic markets, DOJ contends that “origin-and-destination pairs” are the appropriate markets because travelers generally travel from the areas in which they live and work and wish to arrive at an airport close to their destination, and they would not switch their routes based on what DOJ describes as “small but significant” fare increases. Id. at ¶¶ 65-66.
Finally, DOJ alleges that the anticompetitive effects of JetBlue’s proposed acquisition will not be offset by new entrants into the airline industry or expansion of existing airlines because there are significant barriers to entry and expansion, including difficulty in obtaining access to landing rights at airports. DOJ further pleads that the acquisition will not result in any procompetitive efficiencies that would benefit travelers. Id. at ¶¶ 74-76.
DOJ filed its initial Complaint on March 7, 2023 and then filed its Amended Complaint on March 31, 2023. On May 8, 2023, JetBlue and Spirit filed Answers to the Amended Complaint. In its Answer, JetBlue denies DOJ’s claims and its allegations that JetBlue’s acquisition of Spirit would be anticompetitive. JetBlue also asserts various defenses, including that DOJ’s claims are barred because it has failed to state a relevant product or geographic market and that the proposed acquisition is procompetitive and in the public interest. Spirit also asserts those defenses and denies DOJ’s claims in its Answer.
DOJ Sues to Stop Northeast Alliance
In Fall 2022, DOJ, JetBlue and American participated in a bench trial in front of Judge Leo T. Sorokin in a lawsuit brought by DOJ to stop JetBlue and American’s “Northeast Alliance.” In July 2020, JetBlue and American entered into an agreement, known as the Northeast Alliance, which requires them to use commercially reasonable efforts to coordinate their services for routes in the Northeast, including with respect to airports in Boston and New York City. Pls.’ Proposed Findings of Fact, Dkt. No. 332, at ¶ 57; Defs.’ Proposed Findings of Fact, Dkt No. 324-1, at ¶¶ 160, 164-168. JetBlue and American’s agreement also contemplates that they will jointly market and sell their services within the Northeast Alliance. Dkt. No. 332 at ¶ 58. Among other things, JetBlue and American have also agreed to lease some of their airport slots to each other, and they have agreed to share ticket revenues for domestic flights to/from the relevant airports. Dkt. No. 332 at ¶¶ 65-67; Dkt. No. 324-1 at ¶ 183-200.
At trial, DOJ argued that the Northeast Alliance violates Section 1 of the Sherman Act, which prohibits unreasonable restraints of trade. Rather than contend that the Northeast Alliance is a per se violation of Section 1, DOJ asserted that the court should evaluate the Northeast Alliance using the rule of reason, which requires the factfinder to weigh the circumstances at issue to determine whether the challenged agreement promotes or suppresses competition. Pls.’ Proposed Conclusions of Law, Dkt. No. 320, at ¶¶ 11-17. DOJ claimed that the Northeast Alliance creates three unreasonable restraints on competition: (1) an agreement not to compete, (2) an agreement to fix output, and (3) an agreement to share revenue. Id. at ¶ 29. As in its more recent case against JetBlue and Spirit, DOJ argued that the relevant product market is scheduled passenger service and that the relevant geographic markets are origin-and-destination pairs. Id. at ¶¶ 51, 56. DOJ asserted that it has proven that Defendants have market power in the relevant markets based on JetBlue and American’s market shares, as well as the high barriers to entry or expansion by other airlines. Id. at ¶¶ 61-78. Finally, DOJ contended that the Northeast Alliance unreasonably restrains trade by diminishing JetBlue and American’s incentives to compete with each other, by diminishing JetBlue’s disruptive effect on airline prices and service quality, and by facilitating collusion across the industry. Id. at ¶¶ 88-99.
On the other hand, JetBlue and American argued that the Northeast Alliance is procompetitive. Defendants claimed that DOJ ignored the actual effects of the Northeast Alliance, including increased output without higher fares. Defs.’ Post-Trial Brief, Dkt. No. 322-1, at 18-23. Defendants also provided evidence that since the Northeast Alliance has been in effect, JetBlue and American have taken many steps that benefit travelers, including launching nearly 50 new non-stop routes and 17 new international routes and increased frequencies on more than 130 routes. Id. at 47. In addition, Defendants contended that DOJ has not established market power because Defendants do not have the requisite market share in most routes and because DOJ has not proven that Defendants have the ability to raise prices by restricting output, including because other airlines constrain Defendants’ exercise of market power. Id. at 23-27. Thus, overall, JetBlue and American argued that DOJ failed meet its burden to prove that the Northeast Alliance leads to actual or likely harm to competition.
The parties filed their post-trial papers in late 2022, and the court has not yet issued a ruling.
The outcomes of both lawsuits have the potential to impact the airline industry. We will continue to monitor them and report back as they develop.
