Justice Department takes JetBlue and American to court over their partnership in New York and Boston

The Justice Department is heading to court in Boston on Tuesday in hopes of overturning a year-and-a-half contract between American Airlines and JetBlue Airways in the northeastern U.S.

The carriers say the deal allows them to better compete with larger airlines. But the Biden administration has argued that the deal is effectively a merger that will raise prices. Last September, the Justice Department, along with the attorneys general of six states and the District of Columbia, filed a lawsuit to block the partnership, which was approved in the final days of the Trump administration.

The antitrust trial will be a test for President Joe Biden’s Justice Department, which is tasked with taking a hard line against competitive threats.

The antitrust push, however, ran into obstacles. Earlier this month, a federal judge rejected a Justice Department bid to block UnitedHealth’s acquisition of Change Healthcare. Last week, another federal judge rejected a Justice Department bid to block a merger between two major U.S. sugar refiners.

The lawsuit against the airline alliance comes as JetBlue is in the process of trying to acquire discount carrier Spirit Airlines for $3.8 billion to create the nation’s fifth-largest airline, a deal that faces a major regulatory hurdle, although this partnership is not part of the case.

JetBlue, a quirky New York-based airline, identifies itself as a low-cost carrier but also offers high-end products like the Mint premium class, and last year launched flights to London from New York and Boston. The carrier has turned to partnerships and is now a potential acquisition for growth.

“I think what we’ve seen through this and through the Spirit merger is that management believes they have a challenge to scale growth and they think the pace of organic growth is too slow,” said Samuel Engel, an aviation analyst at the consultancy ICF.

The airlines’ Northeast Alliance allows them to share revenue, coordinate routes and sell seats on each other’s planes, which the airlines say helps them better compete with rivals United Airlines and Delta Air Lines in congested airspace in and around New York and Boston.

American and JetBlue have about a 31 percent combined share of departure seats from major airports serving New York, while United has 24 percent and Delta has 22 percent, according to ICF data. In Boston, NEA carriers have a 45% combined share of departure seats compared to Delta’s 24% and United’s 8%.

The alliance “will eliminate significant competition between American and JetBlue that has resulted in lower fares and higher quality of service for consumers traveling to and from these airports,” the Justice Department’s lawsuit alleges. “It would also tie JetBlue’s fortunes closely to American’s, reducing JetBlue’s incentive to compete with American in markets across the country.”

American and JetBlue, in a preliminary filing on Saturday, said there was no evidence that consumers were harmed by the alliance and that it allowed them to expand into capacity-constrained airports where they could not have done so alone.

Witnesses are expected to include top airline executives, including JetBlue CEO Robin Hayes, the first witness scheduled for Tuesday. Executives from other airlines could also testify.

The process begins as Biden and other administration officials take a hard line against airline performance after cancellations and delays spiked over the summer.

On Monday, Biden announced a proposal for a new rule that would require airlines and online travel agencies to provide travelers with information about fees for add-ons such as seat selection at the time they search for fares. Over the summer, the Department of Transport proposed stricter rules for refunding passengers when flights are canceled or delayed.

“No one has ever lost votes for being critical of the airlines,” said Matt Colbert, who previously ran operations and strategy at several U.S. carriers and is the founder of consulting firm Empire Aviation Services.