Surprise: Florida AG’s office signs on to DOJ antitrust American/JetBlue lawsuit. Why?

We’ve spent plenty of time on this site analyzing the American/JetBlue partnership (dubbed the Northeast Alliance) in multiple articles arguing the alliance between the two large airlines can either be seen as anti-competitive or pro-competitive for Floridians based on your perspective. The alliance is based around Boston and New York, which from a business traveler perspective are two of the five largest US markets. However, we have no idea if business travel will recover to pre-pandemic levels anytime soon, so the initial impacts of the alliance are more based on leisure travel.

Earlier this week, after a lengthy review, the Biden Administration’s US Department of Justice filed an antitrust lawsuit challenging the linkup. A number of states signed on to the lawsuit – unsurprisingly most who signed on have Democratic Attorney General’s but interestingly enough, Florida under AG Ashley Moody, a Republican signed on.

We’ve laid out previously why the alliance puts pressure on Delta Airlines in particular. But we’ve seldom discussed the leadership role Fort Lauderdale-area based Spirit Airlines has taken in advocating changes to the alliance. Spirit has been vocal in its opposition to the alliance, feeling it undercuts the airline’s ability to offer low-fare competition from New York and Boston as well as allows what is effectively a single-entity in American and JetBlue to collude and hoard slots at New York’s airports.

Delta which serves more Florida cities than any other airline has clearly been the target of the alliance, since JetBlue and American were individually both fighting losing battles against Delta in New York. Delta individually had a greater market share at both New York City airports than American or JetBlue but now trails JetBlue at JFK and is well behind a combined JetBlue-American alliance (I would argue that once travel to Europe rebounds, Delta probably overtakes JetBlue individually but still is behind a combined American-JetBlue alliance) . At LaGuardia, Delta continues to be the number one carrier but faces a struggle to hold that against the alliance.

It’s worth reminding readers that in the initial press release when the partnership was launched in February, enhanced schedule coordination between New York & Boston and South Florida was a highlighted point, which at the time I found suspicious.

The below items are from a press release.

New York and South Florida

JetBlue will offer up to 27 daily flights.
American will offer up to 20 daily flights.
The combined 47 daily flights – with service between New York’s John F. Kennedy international Airport (JFK), LaGuardia Airport (LGA) and Newark Liberty International Airport (EWR) and Fort Lauderdale-Hollywood International Airport (FLL), Miami International Airport (MIA) and Palm Beach International Airport (PBI) – will provide customers with more than hourly service.

Boston and South Florida

JetBlue will offer up to 14 daily flights.
American will offer up to eight daily flights.
The combined 22 daily flights – with service between Boston Logan International Airport (BOS) and Fort Lauderdale-Hollywood International Airport (FLL), Miami International Airport (MIA) and Palm Beach International Airport (PBI) – will provide customers with more than hourly service.

So let’s try and analyze why AG Moody would sign on to this lawsuit, which is convenient for Biden’s DOJ because it does help make the effort appear bipartisan (not that antitrust enforcement should ever be partisan but these days everything seems to be so it’s nice to see some working across the aisle on this).

Since the alliance launched in February, Delta who is by any standard the target of the partnership, has cut frequencies of flights from both Boston and New York to West Palm Beach. In both markets American has placed its code on JetBlue’s existing BOS/EWR/LGA/JFK-PBI service.

In theory, American and JetBlue compete on services from Boston and New York to both Fort Lauderdale and Miami, but the schedule coordination piece of the alliance has served to overwhelm Delta and Spirit on these routes. However it is worth remembering at this point American and JetBlue can coordinate schedules as part of the alliance but importantly NOT fares. If they did coordinate fares it would be seen as a price-fixing and form of collusion not permitted under Antitrust laws, since this alliance does not have antitrust exemption (unlike several Transatlantic joint ventures involving US airlines).

It is worth noting that because airlines are desperate to fill planes due to the downturn in travel thanks to COVID, we won’t know until some sense of normalcy returns whether or not American and JetBlue are colluding on fares or if the alliance will lead ultimately to higher air fares. We can speculate now, as DOJ’s lawyers are likely to do, but in my opinion we just don’t know at this point. No doubt American and JetBlue will argue fares have gone down since the alliance began, but they would have gone down anyway, in my opinion.

In terms of flights to and from Boston, Orlando and Fort Lauderdale are the top two domestic destinations passenger wise from Logan Airport per Department of Transportation data. Miami and Tampa are both in the top ten as well. The Northeast alliance gives JetBlue and American an absolutely massive advantage over competitors like Delta, Spirit and Frontier on these routes. Of note is United Airlines flying seasonal Boston and New York LaGuardia to Florida flights last winter when the alliance was not yet in place and this year pulling off the routes.

When combined American and JetBlue control about 54% of the market from Boston’s Logan Airport. Delta controls about 16%, so what the alliance potentially will do is create a single-entity that controls over half of one of the most important US markets.

One place where the JetBlue/American partnership is almost certainly a good thing is in share is at Newark’s Liberty Airport, where United Airlines controls over half the market. On flights from Newark to Florida, Spirit Airlines is providing pretty consistent low fare competition to both United and the alliance. Spirit controls close to 8% of the Newark market (more than American individually or Delta) and most of that share is due to Florida flying.

But when we get back to New York City airports and Boston, Spirit is at a distinct disadvantage in providing low far competition and gaining market share. As a low fare leader AND a Florida-based company, AG Moody’s office is probably smart to join the lawsuit if only for this reason.

Even beyond Spirit, the potential that market share for Florida to Northeast routes could be dominated by the alliance eventually, when travel rebounds pushing fares upwards is another consideration for our AG’s office to consider.

My thinking is continuing to evolve on this subject and I believe the alliance might in fact be mildly pro-competitive in New York, but highly anti-competitive in Boston. I also think specifically for Florida, it’s anti-competitive probably to both markets, when carving Newark out of the New York market. How a court would remedy this, I am not exactly sure.

We will continue to keep track of the alliance’s development as well as the lawsuit in the coming weeks and months.