Tempers flare at close of airline antitrust trial

BOSTON (CN) — Lawyers for American Airlines and JetBlue Airways delivered a spirited and at times vitriolic attack on the Justice Department on Friday to close out a trial aimed at shutting down their joint venture in Boston and New York.

“I feel like I’m at a MAGA rally where we’re just going to indulge in alternative facts,” American’s lawyer, Daniel Wall of Latham & Watkins, complained after pointing out that one of the government’s top economic experts had based his entire report on the assumption that the carriers would act in a way that was directly contrary to the terms of their agreement.

“Let’s leave politics out of it,” U.S. District Judge Leo Sorokin admonished Wall, who proceeded to leave politics out of it but not outrage, deriding the government’s other contentions as “insane,” “absurd” and “just nonsense.” As a bench trial, the case will be determined by Sorokin without jury involvement.

JetBlue and American announced their joint venture 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 markets. It won Department of Transportation approval after a six-month review and began operating in February 2021.

The airlines are coordinating their schedules in the two cities, as well as sharing revenue and offering reciprocal frequent-flyer benefits.

Working together will allow the companies to reduce flights and increase prices in an industry that is “rife with dysfunction” with four carriers controlling more than 80% of the domestic market, the government’s lead lawyer, William Jones, warned.

“This isn’t merely theoretical. We’ve seen this happen out in the real world” in other situations, he said. “They can huddle together and decide among themselves.”

“With competitors like that, who needs friends,” Jones commented, adding a rare bon mot to his otherwise rather plodding delivery.

The government’s problem, however, is that its concerns really are theoretical in this case because during the monthlong trial it wasn’t able to put on any evidence of actual consumer harm.

There has been “no evidence of any harm in any form,” JetBlue’s lawyer, Richard Schwed of Shearman & Sterling, emphasized. “Their own expert said there is no evidence of any fare increase in this case,” and in fact average fares in Boston went down by 12%.

The joint venture has resulted in 50 new nonstop routes, 90 nonstops with added capacity and 17 new international routes, Schwed said, representing “massive growth and massive consumer benefits” that he valued at $511 million to $635 million a year.

Schwed said the airlines “created a seamless network at great expense. They wouldn’t do that if the goal was reduce capacity and increase fares.”

Wall ridiculed the government’s reduced-capacity claims as “an awful lot of time wasted on something that makes no sense.” He said the government’s only proof of an intent to reduce capacity was a single document about Covid responses that was taken completely out of context and was “entirely frivolous.”

Jones’ response was that there is always a danger that the airlines will reduce flights and increase prices because, “if something is to their benefit, they will do it.”

But that’s not enough, Wall said. There are no antitrust cases, “flat-out none, where a court has found conduct was anticompetitive in the face of increased output. The Supreme Court says you have to show reduced output.”

Although a government expert forecast adverse effects from the alliance, “none of this has happened,” Wall said. “It’s a theoretical prediction from a college professor with no experience in the airline industry, wanting you to believe that something that hasn’t happened in 20 months is somehow magically going to occur.”

The government argued that any growth at the airlines in Boston and New York came at the expense of cutbacks elsewhere, and thus they were “robbing Peter to pay Paul.” It also introduced evidence that the airlines had been planning to add more planes anyway.

But Schwed said that any such plans were nixed due to the pandemic, and the only reason the airlines added planes afterward was the joint venture.

Wall said sarcastically that, “in four weeks of trial, we never heard who Peter is, where Peter is, did Peter pay more, and did Peter have fewer choices.”

As Wall summarized it, the essence of the government’s complaint was that the alliance would dilute the “JetBlue effect,” the ability of the upstart low-cost carrier to introduce competition and reduce prices. But “in four weeks of trial they didn’t present a shred of evidence about the loss of the JetBlue effect,” he said. “Nothing whatsoever.”

Several aspects of the government’s closing suggested that it was worried about how the case had gone and was trying to cut its losses.

The government’s economic analysis of the New York market hinged on its insistence that it didn’t include Newark Liberty International Airport, an assertion that the airlines vigorously attacked, including by performing a Google search on the court’s computer for “flights to New York” that immediately turned up numerous flights to Newark. Jones virtually ignored New York in his closing and, while he didn’t formally concede the issue, he told Sorokin that the case could be decided solely on the effects in Boston.

Jones also suggested that the government would accept a slightly modified joint venture similar to the one that American recently adopted with Alaska Airlines.

In the end, Jones was left to argue that the airlines simply can’t be trusted and that, while the JetBlue alliance hasn’t hurt anyone yet, it “opens a Pandora’s box” and “continues the trend of 20 years of consolidation in this industry.”

Wall replied that the airlines were being accused of a “bait and switch” in which they had behaved well for two years but as soon as the trial was over they would become Machiavellian. He said that was absurd because it would open them up to further litigation including private lawsuits for treble damages.

“The antitrust laws will still be there, and there’s no need to destroy all these consumer benefits based on speculation,” he argued.

Noting that he had received posttrial briefs the previous evening, Sorokin said: “I confess I wasn’t able to read all 500 pages between last night and this morning.” He plans to hold a further hearing, perhaps as early as next week, to ask the lawyers questions based on the briefs.

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