By Diane Bartz, David Shepardson and Jonathan Stempel
WASHINGTON (Reuters) -The U.S. Justice Department and six states filed an antitrust lawsuit on Tuesday against American Airlines Group Inc and JetBlue Airways Corp seeking to stop a partnership the government said could lead to higher fares in busy Northeastern U.S. airports.
The lawsuit asked a federal court in Boston to stop the "Northeast Alliance" partnership, announced in July 2020 and approved by the U.S. Transportation Department shortly before the end of the Trump administration. It took aim at American Airlines, the largest airline in the world, saying the alliance would cost consumers hundreds of millions of dollars.
"Fewer flights. More expensive tickets. Lower quality service," said California Attorney General Rob Bonta whose state was one of those that joined in the suit. "Plain and simple: American Airlines and JetBlue's Northeast Alliance is anticompetitive."
Shares of both airlines closed lower and both vowed to fight the suit, which struck a serious blow to a deal that could help both companies profit at a time when the pandemic has sunk sales and the outlook for air travel remains murky.
JetBlue CEO Robin Hayes maintained the alliance has actually led to lower fares for the northeastern United States and said the airlines compete vigorously elsewhere.
"DOJ presided over an unprecedented amount of consolidation to create four large airlines," Hayes said, noting that blowing up the alliance would mean JetBlue loses access to slots held by American. If the government wins, "JetBlue is the biggest loser there and they are returning all of those slots and all of that power back to (American)."
The suit also signals the Biden administration's interest in trying to inject more competition where American and three other airlines control 80% of the domestic air market.
The Justice Department said the sweeping alliance would create a de facto merger in the northeast and combine the two carriers operations at four major airports: Boston Logan, John F. Kennedy, LaGuardia and Newark Liberty.
The agreement allows American and JetBlue to sell each other's flights in their New York-area and Boston networks and link frequent flyer programs in a move aimed at giving them more muscle to compete with United Airlines and Delta Air Lines in the Northeast.
Shares of American Airlines closed down 2.8% at $19.76 while JetBlue was down 4.8% at $14.76.
States joining the lawsuit include Arizona, California, the District of Columbia, Florida, Massachusetts, Pennsylvania and Virginia, the court records show.
The Justice Department complaint said the partnership at least partially removed JetBlue as a disruptive maverick that would work to drive down prices.
"JetBlue’s reputation for lowering fares is so well known in the airline industry that it has earned a name: the 'JetBlue Effect'," it said.
Elsewhere, the government said American was "not satisfied with the consolidation that has made it the largest airline in the world" and was trying "to co-opt JetBlue."
The complaint said American chief executive Doug Parker "has cheered ... successive waves of industry consolidation. When he was not cheering them, he led them. He served as CEO of America West when it merged with US Airways. Later, he served as CEO of US Airways when it merged with American. Internally, American has referred to Mr. Parker as the 'Godfather of consolidation.'"
Parker said in a statement the lawsuit "seeks to take away consumer choice and inhibit competition, not encourage it. This is not a merger: American and JetBlue are – and will remain – independent airlines."
(Reporting by Diane Bartz and David Shepardson in Washington, Jon Stempel in New York; editing by Mark Porter, Steve Orlofsky and David Gregorio)