JetBlue Airways plans to dissolve its partnership with American Airlines. While they do not have any issues or ill will toward the airline company, they are essentially being forced to end the relationship. Judge Leo Sorokin of the U.S. District Court in Massachusetts handed down the ruling that ordered the airlines to do so in May. This seemed to be in an effort to ensure JetBlue will be able to purchase Spirit Airlines as they had been planning.
Of course, JetBlue does strongly disagree with the judge’s ruling. However, they are not planning to appeal the decision. This is likely because they will get more out of this than they are losing.
The decision Judge Sorokin handed down wasn’t too controversial for anyone except the leaders of the two companies, although some passengers are not happy about the move. The partnership allowed customers to access each airline’s route network and earn reciprocal reward benefits. Without the partnership in place, this will not be able to happen.
Thus, some frequent flyers will probably lose some reward benefits but the vast majority of people won’t be affected by the change.
The question some might have is, why did the judge decide to break up the alliance? They claimed that this alliance gave each carrier…
“a substantial interest in the success of their joint and individual efforts, instead of vigorous, arm’s-length rivals regularly challenging each other in the marketplace of competition.”
Basically, the judge felt that the lack of competition could be problematic and allow JetBlue and American Airlines to have too much power. Thereby, potentially causing flights to become more expensive for the average flyer. Particularly, if JetBlue were to purchase Spirit Airlines. By breaking up the JetBlue & American Airlines partnership, JetBlue won’t become essentially a monopoly in the skies.
Purchase Of Spirit Airlines
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JetBlue has been planning to buy Spirit Airlines dating back to last year. The two airlines agreed on a deal that would allow JetBlue to purchase Spirit for $3.8 billion, which was quite the price tag. While some might find this to be quite high for the airline, it’s really kind of a bargain. Frontier Airlines were actually planning to buy Spirit but Spirit randomly terminated the deal. Most believe JetBlue swooped in at the last minute before the agreement was finalized to offer more money.
This is possibly why the announcement of JetBlue buying them came only a few hours after the news of Spirit backing out of the Frontier agreement.
JetBlue was smart to try to jump in and offer a better deal, as buying Spirit would give them quite a lot. With this purchase, the company will grow to a 458-aircraft fleet and be capable of flying to 125 destinations in 30 different countries worldwide.
The merger will even give JetBlue a huge foothold in several key markets. Two of the biggest are in Florida, Fort Lauderdale & Orlando. With Orlando being the home to Disney World as well as Universal Studios, it is a huge tourist destination that people fly to all year long. Being pretty much the main company flying into Orlando gives JetBlue a huge piece of a very important market. Overall, with the purchase of Spirit Airlines, JetBlue becomes the fifth largest airline on the planet.
The Federally Mandated Fun
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The things just referenced were just a few reasons why the merger has to go through a regulatory appeal. The federal government put these types of things in place to prevent anti-competitive issues. During this process, a federal judge can suggest things a company can do to potentially help them ensure a merger happens. That could potentially result in what we’re seeing here, the dissolving of a corporate partnership.
Both the United States Department of Justice & the Federal Trade Commission share the responsibility when it comes to evaluating mergers. While many think this only happens to large corporations, this isn’t exactly true. Firms/Companies with more than $50 million in assets are required to go through this process when trying to merge with another firm/company. This is part of the Hart-Scott-Rodino Act, which became law in 1976.
As part of this law, companies have to file premerger notifications with the federal government. The process can take a while sometimes, as the DOJ & FTC are going to investigate the potential for any competitive impact a merger might cause. What’s so problematic about this is that most mergers usually happen, even if they could cause a competitive issue.
It is rare that the government disapproves of mergers for notable corporations, as we are a highly capitalistic society.
Cutting ties with American Airlines really won’t hurt JetBlue at all in the end. JetBlue wrote in a statement about the end of its alliance with American Airlines:
“Despite our deep conviction in the procompetitive benefits of the [alliance], after much consideration, JetBlue has made the difficult decision not to appeal… and has instead initiated the termination of the [alliance], beginning a wind-down process that will take place over the coming months. We will now turn even more focus to our proposed combination with Spirit, which is the best and most effective opportunity to truly transform the competitive landscape in the U.S. and bring the JetBlue Effect to more routes and markets across the country.”
American Airlines Isn’t A Fan
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While JetBlue sees the bigger picture here when it comes to severing ties with American Airlines, like that crazy girlfriend who doesn’t take rejection well, American Airlines isn’t taking the decision well. The company, of course, understands why JetBlue is not fighting the judge’s ruling.
However, American Airlines is planning to appeal the decision. The company wrote in a statement about the move:
“We, of course, respect JetBlue’s decision to focus on its other antitrust and regulatory challenges. At the same time, JetBlue’s decision and reasoning confirm our belief that the [alliance] has been highly pro-competitive and that an erroneous judicial decision disregarding the [alliance’s] consumer benefits has led to an anti-competitive outcome. American will therefore move forward with an appeal. JetBlue has been a great partner, and we will continue to work with them to ensure our mutual customers can travel seamlessly without disruption to their travel plans.”
It should be noted that this isn’t some partnership that goes back decades. The partnership between JetBlue & American Airlines began in 2020 and then expanded in 2021 due to the success they had in 2020.
The partnership then became known as the “Northeast Alliance.” This is due to pretty much covering all of the flights out of New York City-area airports and Boston. It included the John F. Kennedy International Airport, LaGuardia Airport, Newark Liberty International Airport, and Boston Logan International Airport.
Yet it was for this exact reason that many in the federal government were not a fan of the partnership. In fact, the Department of Justice even sued American Airlines in 2021 over it. They claimed the alliance would cost passengers millions of dollars.
While the alliance has not led to as much money being lost as first assumed, this is likely due to the fact that people hadn’t been traveling as much until 2022. In fact, we’re just now seeing people fly close to the rate they did Pre-Pandemic.
That said, it is clear the federal government was not cool with this partnership for a while. Therefore, when JetBlue agreed to buy Spirit, it made a lot of sense to kill two birds with one stone essentially. You give JetBlue what they want but also end the partnership with American Airlines.