Pressure Had Been Building in Recent Months as Consumer Groups, Antitrust organizations and SEIU filed comments calling for a full review

The US Justice Department along with six states and the District of Columbia filed a lawsuit on Tuesday, September 21, challenging the joint venture agreement between American Airlines and JetBlue known as the Northeast Alliance on antitrust grounds.

The Service Employees International Union, which represents 35,000 contracted aviation service workers, recently filed supplemental comments with the Department of Transportation expressing concerns that the Northeast Alliance increases market competition at the expense of workers and consumers while raising the specter of excess power for buyers (sometimes referred to as monopsony) in the airport services market. This round of comments follows initial comments by SEIU in April, which raised the issue of the previous lack of a public process to review the joint venture, which was approved in the final days of the Trump administration without a process for stakeholder input.

Senator Richard Blumenthal of Connecticut sent a letter last week to Transportation Secretary Pete Buttigieg urging the Department of Transportation to conduct a full review of the joint venture between American Airlines and JetBlue Airlines. Blumenthal expressed concerns that the joint venture, known as the Northeast Alliance, was approved by the previous administration without proper process or consideration of the impact on competitiveness in the airline industry.[1]

In addition to concerns regarding the impact on passengers, SEIU’s comments also raised the alarm regarding potential further negative impacts on the increasingly fragmented workforce that provides critical services from wheelchair services to baggage assistance to security to aircraft cleaning.[2]

The SEIU comments filed this month argue, in part:
Because of the high levels of concentration in the airline industry, particularly at airports
affected by the….[American Airlines and JetBlue Northeast Alliance], airlines can exercise significant power in the market for airport services and the contractors who provide such services.[3]

Although enforcement of competition laws has traditionally focused on the effect of market power among sellers (monopoly power), recent scholarship has emphasized the need to focus on monopsony power (concentration among buyers, particularly in labor markets) and its economically harmful effects.[4] At the levels of concentration facilitated by the NEA at key airports as measured by the Herfindahl–Hirschman Index (HHI)[5], firms are presumed to hold significant market power and may act as both price setting suppliers and price making purchasers, especially in geographically concentrated markets such as exist here.[6] Such levels of concentration should raise serious concern about the exercise of monopsony or oligopsony power by these airlines.

In support of a Complaint filed by Spirit Airlines, Southwest Airlines, the American Antitrust Institute, Airports Council International, and others also submitted comments expressing concern that the Northeast Alliance is the type of joint venture that poses serious competitive concerns requiring a full investigation into the matter. Spirit Airlines and Southwest Airlines are two of the major airline competitors of American Airlines and JetBlue.

It is not every day that unions, major airlines, consumer groups, public interest advocates, and senators find themselves on the same side of a major airline industry issue. But the Northeast Alliance raises eyebrows across the industry. In the complaint filed in US District Court in Massachusetts, the Department of Justice and other plaintiffs argue that the Northeast Alliance means that “the two rivals have quietly agreed to share their revenues and coordinate which routes to fly, when to fly them, who will fly them, and what size plans to use on flights to and from four major airports.” The complaint alleges that the Northeast Alliance “will eliminate significant competition between American and JetBlue that has led to lower fares.”[7]

You can read all comments submitted to the Department of Transportation regarding the American Airlines-JetBlue joint venture here.

[1] https://simpleflying.com/blumenthal-urges-american-jetblue-review/

[2] Miranda Dietz, Peter Hall, and Ken Jacobs, Course Correction: Reversing Wage Erosion to Restore Good Jobs at American Airports, UC Berkeley Labor Center. (October 2013).

[3] See Callaci, Brian, Fissuring in Flight: Consolidation and Outsourcing in the US Domestic Airline Industry, 1997-2018 at p. 46 (Jan. 7, 2020) available at https://cwa-union.org/sites/default/files/20200108-fissuring-in-flight.pdf; see also Horizontal Merger Guidelines at § 5.3 (Aug. 19, 2010).

[4] See Krueger, Alan and Posner, Eric, A Proposal for Protecting Low-Income Workers from Monopsony and Collusion, The Hamilton Project (Feb. 2018) available at https://www.hamiltonproject.org/assets/files/protecting_low_income_workers_from_monopsony_collusion_krueger_posner_pp.pdf; Vaheesan, Sandeep and Buck, Matthew, Antitrust’s Monopsony Problem (Feb. 3, 2020) available at https://promarket.org/2020/02/03/antitrusts-monopsony-problem/

[5] Consolidated Reply of Spirit Airlines to Responses of American Airlines and JetBlue Airways (July 2, 2021), Docket DOT-OST-2021-0001 at p. 22, Exh. B

[6] As the Horizontal Merger Guidelines make clear, market power among buyers (monopsony or oligopsony power) raises the same concerns as does power among sellers and is subject to “an analytical framework analogous to” the framework applied in the monopoly context. Monopsony power is likely to
depress prices paid by buyers below competitive levels and depress output. Horizontal Merger Guidelines at § 5.3 (Aug. 19, 2010).

[7] United States of America, et al vs. American Airlines Group and JetBlue Airways Corporation, US District Court for the District of Massachusetts, Case 1:21-cv-11558, Complaint, Filed 9/21/21, Page 2