The US is questioning the American Airlines-JetBlue alliance in connection with the start of an antitrust trial

Authors: Nate Raymond, David Shepardson and Diane Bartz

BOSTON (Reuters): The U.S. Department of Justice on Tuesday called on a judge to force American Airlines and JetBlue Airways to end their partnership with the United States in the Northeast region because it would mean higher prices for consumers.

Even as JetBlue Chief Executive Robin Hayes defended the pact as “pro-consumer” from the witness stand, lawyers with the Biden administration, six states and the District of Columbia urged a Boston federal judge to tear it down 18 months after it was introduced.

Justice Department attorney William Jones said Northeast Alliance was a “de facto merger” of their Boston and New York operations, which allowed them to coordinate flights and pool revenues to the detriment of travelers, who incur an additional $700 million in additional costs annually.

But Hayes, the first witness, rejected a Justice Department lawyer’s suggestion that American received “JetBlue in his pocket” from the alliance, repeating a phrase the CEO used in a text message after discussing American’s previous proposal to partner with an unidentified airline that did not go forward .

The first day of the trial turned into JetBlue’s plan to buy low-cost rival Spirit, when Justice Department lawyer John Davis repeatedly pressed Hayes on whether competition with Spirit forced JetBlue to offer lower prices.

Hayes, testifying under oath, repeatedly refused, prompting Davis to assert that he had not answered the question.

“Sometimes we react to what they do. Sometimes they will react to what we do,” Hayes finally said.

JetBlue’s proposed Spirit deal is expected to face tough antitrust scrutiny. Hayes defended the takeover from the witness stand, saying it would create “one of the most powerful and destructive forces this country has ever seen.”

The Justice Department said the Northeast Alliance eliminates incentives for Americans to lower prices to lure customers away from JetBlue, a historically disruptive rival that often offers lower prices. It also gives the airline more than 80% of the market share for flights from Boston to Washington, D.C. and six other airports.

In opening arguments, lawyers for the airlines argued that, contrary to the Justice Department’s hypothetical claims of harm, Northeast Alliance has seen significant real growth in flights and capacity since its disclosure in 2020.

They argued that the alliance allowed them to become a viable competitor to dominant Delta Air Lines and United Airlines serving airports in Boston and John F. Kennedy, LaGuardia and Newark in the New York region.

“The increased production we see here is highly competitive and leads to lower prices,” Richard Schwed, a lawyer for JetBlue, told U.S. District Judge Leo Sorokin.

The three-week trial began after a week in which U.S. judges ruled against the government in two antitrust disputes: sugar and insurance. The Department of Justice and states sued the Northeast Alliance in September 2021.

Airlines mergers in recent years have created a highly consolidated industry in which American, Delta, United and Southwest Airlines control more than 80% of domestic travel, the government argues.

(Reporting by Nate Raymond in Boston and Diane Bartz and David Shepardson in Washington; Editing by Marguerita Choy, Jonathan Oatis, David Gregorio and Richard Chang)