Legal experts say a federal court's resounding rebuke of American and JetBlue's alliance in Boston and the New York area is likely to complicate matters for JetBlue and Spirit as they fight the Justice Department's effort to block their proposed merger.
"The crux of the judge's concerns was that the alliance didn't help consumer pocketbooks," said Christine Bartholomew, a professor of law and antitrust expert at the University at Buffalo. "I'm concerned that the same argument could easily apply to JetBlue's effort to acquire Spirit. We don't look at how it affects the airlines. We look at what it will mean for consumers' pocketbooks."
In the May 19 ruling, district judge Leo Sorokin sided with antitrust regulators at the Justice Department and ordered that American and JetBlue dissolve their Northeast Alliance, or NEA, within 30 days.
The alliance, under which American and JetBlue coordinate schedules and split revenue on the large majority of their operations out of Boston Logan, Newark, LaGuardia and JFK airports, is inherently anticompetitive, Sorokin ruled, because it effectively ended competition between the two carriers in those markets and reduced the likelihood that they would compete vigorously even outside of the Northeast.
"Through the NEA, American and JetBlue cease to compete and, instead, operate as a single carrier in the Northeast. That is the core of the relationship, and it is a naked assault on competition," Sorokin wrote.
The judge cast aside the arguments of American and JetBlue that consumers benefit from the alliance because it enables them to better compete with Delta in Boston, JFK and LaGuardia, and with United in Newark.
The alliance, Sorokin ruled, amounts to the type of "unreasonable restraint of trade" that federal antitrust laws were designed to prevent.
American and JetBlue have the option to appeal.
Similarities and differences in the cases
In the meantime, preparations continue in the Justice Department's case to block the proposed merger of Spirit with JetBlue, which is scheduled for trial in October. Like the Northeast Alliance case, the trial will take place in the federal district court of Massachusetts, though the case has been assigned to a different judge, veteran jurist William Young, a Ronald Reagan appointee.
Antitrust specialist Eleanor Fox, who is a professor emeritus at the New York University School of Law, said the Sorokin ruling won't bind Young the way it would if it had been handed down by a higher-level court, such as an appellate court. Still, the ruling has what is known as persuasive authority, which might help inform the formulations of law that Young will apply in the JetBlue-Spirit case.
To be sure, the two cases differ on their face. The Northeast Alliance case tested the legality of a deep alliance in one section of the country. The Justice Department's case against JetBlue and Spirit seeks to block a merger.
Still, similarities abound. Just as in the alliance case, the DOJ argues that a JetBlue-Spirit merger would reduce competition in an already consolidated airline market and diminish consumer choice.
And similar to the case American and JetBlue attempted to make for their partnership in the Northeast, JetBlue and Spirit have consistently argued that the combination would benefit consumers by facilitating growth and offering a stronger competitor to American, Delta, Southwest and United, which together control approximately 80% of the domestic U.S. market.
"The court in the NEA case rightly said it's not a defense to say you are going to compete better with your rivals," Fox said. "That can be looked at as the same issue in the merger case, and it won't be a defense."
Bartholomew highlighted another way in which the Northeast Alliance ruling could make victory a steeper climb for JetBlue and Spirit.
Sorokin reviewed evidence of the actual competitive impact of the American-JetBlue alliance and found no evidence that it is benefitting consumers. In the merger case, JetBlue and Spirit will only be able to offer speculated effects.
"It's hard to say that the analysis of the actual effects wouldn't color the speculation that will be done for the merger," Bartholomew said.
Fox sees another similarity between the two antitrust cases. In the Northeast Alliance, American is the established carrier partnering with a more aggressive, lower-cost airline in JetBlue.
In a JetBlue-Spirit merger, JetBlue would play the role of the higher-cost, more established player removing a maverick -- the ultralow-cost carrier Spirit -- from the market.
In its lawsuit, the DOJ focused on the importance to consumers of retaining Spirit, which it said often bucks fare trends, forcing larger airlines to respond.
An argument in favor of JetBlue-Spirit
Still, neither expert is declaring a JetBlue-Spirit merger dead on arrival.
For one thing, they said, if the Northeast Alliance is in fact dissolved, it effectively will make JetBlue appear smaller than a JetBlue in which approximately 75% of its network is tied in with American -- as is the case today.
That could influence the market-share analysis that is an important factor in antitrust cases, Bartholomew said.
The facts, too, will differ between the two cases. And, said Bartholomew, antitrust cases, which attempt to determine something as complicated and multifaceted as competitive effect, are especially open to judicial discretion.
"If there's an area of law where who you draw as a judge can make a difference, it's in antitrust," she said.