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Sunday, May 19, 2024 | Back issues
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Feds struggle to make case against American-JetBlue alliance

With a strategy focused on putting airline executives on the stand, the government has a long road ahead to make a case for antitrust.

BOSTON (CN) — Government antitrust lawyers peppered airline executives with questions but found little payoff Monday as a trial striving to break up an alliance between American Airlines and JetBlue Airways entered its second week.

“I can’t speak to JetBlue’s cost structure,” said American Airlines CEO Robert Isom as Justice Department lead attorney William Jones attempted to obtain an admission that the alliance had raised JetBlue’s costs and made it more like those of American, the country’s largest carrier.

When Isom suggested that the questions would be better asked of JetBlue, U.S. District Judge Leo Sorokin shut down the whole line of inquiry.

“You’d need a lot more foundation for that,” the Obama appointee admonished Jones, who tried briefly to salvage the situation before throwing in the towel. “I can move on, your honor,” he said.

The department wants to halt a joint venture between the two carriers in Boston and New York that will allow them to coordinate schedules, share revenue and offer reciprocal frequent-flyer benefits.

Jones noted that American had touted growth benefits when it merged with US Airways in 2013, much as it has done with JetBlue, but those benefits took five years to materialize.

Isom countered that some benefits, such as coordinated schedules, happened immediately, as has happened with JetBlue. But the US Airways deal was different because it was a merger, he said, and it took a long time to integrate the companies.

“Initially, US Air planes could only be flown by their team members and vice-versa,” he said.

One of the government’s arguments is that the JetBlue deal is a “de facto merger.” Isom refused to bend, however, as Jones tried to get him to admit that there’s no longer any difference between American and JetBlue service in Boston and New York.

“We have different amenities and services,” he said. “We’re not trying to merge our carriers or make JetBlue identical to American.”

The joint venture was announced in July 2020 as a way for the two companies to better compete against Delta and United, the dominant carriers in the Boston and New York marketplaces. It was approved by the Department of Transportation after a six-month review and began operating in February 2021.

Justice Department lawyer Kate Riggs grilled Scott Laurence, who was involved in negotiating the deal for JetBlue before taking a job at American. Riggs several times claimed to have “impeached” Laurence by pointing out minor differences between his testimony today and a prior deposition, although Laurence pointed to context in the prior deposition that suggested that there wasn’t much of a discrepancy — and it wasn’t entirely clear why any of the discrepancies would matter.

Even while he came across as a slightly slippery witness who quibbled over admitting even insignificant facts, Laurence shut down Riggs’ substantive attacks.

Riggs spent a long time trying to prove that the JetBlue deal had revenue-sharing provisions that were identical to American’s overseas joint ventures, which JetBlue’s CEO had criticized as anti-competitive. But Laurence detailed how JetBlue painstakingly negotiated different provisions regarding how revenue was calculated.

“But the formula is the same, is it not?” Riggs asked.

“Yes, the formula is the same, but the inputs are completely different,” Laurence answered.

Riggs also pointed to an internal JetBlue document suggesting that the deal would be most beneficial with regard to nonstop flights where JetBlue and American already competed directly, such as from Boston to Los Angeles. She implied that the two companies would conspire to reduce competition.

But Laurence said the reason that coordinating schedules on those routes was beneficial was that those are the routes that offer the most connecting passengers. “A lot more people flying from Boston to Los Angeles are making connections than people flying from Boston to Memphis,” he explained.

The government’s larger problem seemed to be that, even when it scored points, it was simply drawing analogies to mergers or alliances that are already in effect and are legal, or implying that the two airlines might misbehave at some point in the future, rather than offering evidence that the tie-up has actually harmed consumers through limited options, reduced service or higher fares.

The department has promised to provide evidence of potential economic harm later in the trial, although the airlines say the government’s analysis is deeply flawed and belied by the fact that there have been no ill effects in the year and a half that the deal has been in place.

An American Airlines representative who asked not to be identified suggested that the government has a philosophical objection to consolidation in the airline industry — where four companies have 80% of the domestic market — but it chose a poor case to challenge it because this particular alliance is actually helping consumers.

The government might still win, of course, but so far it seems to be disrupting the alliance mostly in the sense of being a nuisance. At one point Riggs asked Laurence if he had discussed a particular issue with his counterpoint at JetBlue. Laurence replied: “I haven’t had the time. I’ve been too busy preparing for this trial, frankly.”

Categories / Business, Consumers, Trials

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