The Justice Department’s antitrust victory against
American Airlines
and
JetBlue Airways
late Friday came as a bit of a surprise.
The carriers’ alliance in the New York and Boston areas has been running for more than two years. It must now be completely unwound in just 30 days, according to a federal judge, who ruled the partnership “substantially diminishes competition” in the domestic market for air travel.
Undoing the alliance in such a short space of time will be a logistical headache for American (ticker: AAL) and JetBlue (JBLU), which use the partnership to pool their gates and takeoff and landing slots at four airports in the Northeast. They code-share on 175 routes, which is where one airline can market and sell another’s flight as its own, also sharing revenue generated through the alliance.
The timing, just ahead of the busy summer travel season, really couldn’t be worse. Though it may not quite be the end of the matter.
“We believe the decision is wrong and are considering next steps,” American said in a statement. “The Northeast Alliance has been a huge win for customers and anything but anticompetitive,” it added. JetBlue said in a statement that the company was “disappointed” in the decision and was evaluating its next steps as part of the legal process.
If the partnership is really over then
Delta Air Lines
(DAL) and
United Airlines
(UAL) could be set to benefit. After all, the alliance was introduced to better compete with those two, creating a “third, full-scale competitor in New York,” as the then-CEO of American Doug Parker said in response to the DOJ’s lawsuit in September 2021.
“Delta’s methodical long-term pursuit of dominance in New York and Boston suggests to us that it is optimally positioned to further increase its share of consumer and corporate wallets,” J.P. Morgan analyst Jamie Baker said. “As divorced entities, neither American nor JetBlue can offer the same network and loyalty opportunities for passengers as can Delta,” he added.
The court’s ruling is a big win for the Biden administration, which is also attempting to block JetBlue’s proposed merger with
Spirit Airlines
(SAVE). TD Cowen analyst Helane Becker said the decision could have “negative implications” for the deal.
While shares in JetBlue, down 2.5%, and American, down 4.1%, both were falling Monday, airline stocks in general largely were unmoved.
For investors, there are more important factors at play for the sector. Namely, whether carriers can meet their own full-year guidance. Airlines are largely bullish on summer travel demand and confident when it comes to their earnings power this year, but the market isn’t so sure amid concerns over tough macroeconomic conditions and the impact to travel spending.
“With shares of several airlines trading around five times estimated 2024 earnings, it doesn’t strike us that much good news is bring priced in to begin with,” Baker said. “Rather, the market simply doesn’t believe in the achievability of consensus forecasts,” he added.
Write to Callum Keown at [email protected]
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