American Airlines, JetBlue defend alliance against government lawsuit
Yahoo Finance's Brad Smith and Akiko Fujita discuss JetBlue and American Airlines defending their partnership in the Northeast U.S. as an antitrust case begins.
Video Transcript
AKIKO FUJITA: Some turbulence in sight for American Airlines and JetBlue, as the companies defend their partnership in a trial against government allegations that claim this-- the alliance will reduce competition in the airline industry and lead to higher fares. For a deeper dive, a rare appearance by Yahoo Finance's Brad Smith in the 11 o'clock. We had day one yesterday.
BRAD SMITH: Yes.
AKIKO FUJITA: How does this set things up?
BRAD SMITH: All right, so basically, what the US Department of Justice is going to try and argue here, as well as the other six states and the District of Columbia, they're going to try and argue that this essentially is a violation of some of the very basic rules of what the FTC Act was setting out almost 100 years ago, a little more than 100 years ago. And it's really going to look at kind of these two checks to make sure that they weren't actually crossed, those boundaries crossed.
And one of them is a consumer protection, very basic to make sure that you're not stripping out the open market competition. And in this case, the Northeastern Alliance actually allows for these two airline operators to take about 80% market share of routes that go between Boston and Washington and some other major hubs as well.
And so with that in mind, you've got a critical implication here because for JetBlue and American, they're both battling for themselves the need to actually look across their capacity, know where they're going to be able to counter some of the either pilot shortages or staffing issues, as well as some of the higher fuel costs that they've both cited in their most recent earnings.
However, even when you have reduced capacity because of the demand, you have higher revenues that they're able to take in at this point in time. So the US Department of Justice is basically looking into that right now, but it could have larger implications, too, for an acquisition that Spirit and JetBlue have entered into and has been approved by shareholders as well.
AKIKO FUJITA: Yeah, so let's talk about that because one of the concerns around that acquisition was that they already have this alliance, and this will only hinder competition.
BRAD SMITH: Right.
AKIKO FUJITA: What are the implications?
BRAD SMITH: And so it's really looking at the low cost part of the broader airline equation here. And so this was a 33 and-- well, $33.50 a share acquisition that was approved by shareholders, plus some other incentives. But now it comes down to what the FTC is actually going to take away from this legal proceeding that's taking place right now, what they can take away from that and extrapolate, and whether or not it becomes a more extensive or scrutiny-based type of approach to that review process between the Spirit and JetBlue deal that is going forward to this point in time, expected to close in 2024 at this point.
AKIKO FUJITA: One of the reasons why there are so many eyes on this particular case. Brad, appreciate you breaking that down for us.
