American Airlines Group Inc.'s now-dismantled alliance with JetBlue Airways Corp. remains in jeopardy after a panel of First Circuit judges signaled potential agreement with a lower court’s decision to end it.
The appeals court’s ruling could advance legal precedent around the antitrust analysis of joint ventures, where two or more parties work together to accomplish a shared outcome. American argues that adopting the lower court’s reasoning would call nearly any joint venture into question on antitrust grounds.
The district court found a number of anticompetitive effects associated with the alliance, including “decreased capacity, lower frequencies, and reduced consumer choice” related to flights, Judge William J. Kayatta Jr. said during oral argument at the US Court of Appeals for the First Circuit. “I see no argument in the appeal brief that any of those findings were clearly erroneous. How do you get around that?” Kayatta asked American’s attorney.
“I don’t think you can disentangle the legal errors from what you’re describing as the factual findings, your honor,” said American’s attorney Gregory Garre, a partner at Latham & Watkins LLP. “The District Court committed two fundamental and overarching legal errors that cut through all of its factual findings and require reversal.”
American and JetBlue’s Northeast Alliance began in 2021 and operated for 20 months before it was halted over its anticompetitive effects by Judge Leo Sorokin of the US District Court for the District of Massachusetts. Under the alliance the airlines shared infrastructure including airport gates, sold tickets on each other’s flights, coordinated their schedules, offered reciprocal loyalty programs, and shared revenue.
American is appealing the ruling because it “prevents us from entering into any similar arrangement” with JetBlue. American would “seriously consider” another partnership in the future, Garre said.
The outcome of the widely watched antitrust case could have a significant impact on low-cost airline customers in the Northeast, whom the Justice Department argues would be harmed by higher prices if American and JetBlue were allowed to work together again.
Legal Errors?
Courts evaluate whether a joint business agreement harms competition under a three-step framework. Plaintiffs first have to show that the partnership has a substantial anticompetitive effect. Next, defendants must demonstrate that they actually had a procompetitive rationale for the agreement. Lastly, plaintiffs must show that any benefits that increase competition are outweighed by the impact of stymied competition.
The Justice Department claims the anticompetitive harms of the Northeast Alliance significantly outweigh its benefits by reducing consumer choice and driving prices upward.
“Decisions on who flies on which routes were decided under a committee of American and JetBlue executives, not by the free market. That makes the market unresponsive to consumer preference,” said Justice Department attorney Daniel Haar.
American argues the District Court was wrong to find “actual and substantial harm to competition” by reducing the number of competitors in the Northeast “by one, leaving consumers with one fewer option when traveling” in certain markets.
It’s a legal error to base “findings of anticompetitive harm solely on the reduction of competition to two joint venture participants in and of itself,” the airline argues. That reasoning would mean that joint ventures will nearly always fail step one of the court’s analysis since they reduce competition between the parties involved, it says.
Chief Judge David J. Barron asked Garre what his best argument was for claiming it doesn’t count as a significant anticompetitive effect that either American or JetBlue exited some markets they both previously served due to the alliance.
That finding was relevant to just “two routes out of 175,” and production actually increased on those routes because the airlines offered more seats on those flights, Garre said.
The second legal error the District Court committed was when it “categorically refused to consider the procompetitive benefits of the collaboration,” Garre said.
“I guess I didn’t see it as a refusal. I saw he listened to the experts that the defendants put forward and assessed their testimony, and expressly found they were biased and largely not credible,” Kayatta said.
Judge Gustavo A. Gelpí asked Haar about the impact of the lower court’s decision on American and JetBlue’s future ventures. The injunction “is, in a hypothetical world, not a 100% straitjacket? They might come up with some new agreement tomorrow, and the US DOJ might say well, this is different, and we have no problem with that?” Gelpí asked.
“Absolutely,” Haar said.
The case is United States v. American Airlines Group Inc., 1st Cir., No. 23-1802, oral argument 6/3/24.
