Airline mergers, long given a rubber stamp by federal government regulators, are about to face a major high-profile challenge. The Justice Department is taking JetBlue and American Airlines to court over their proposed cooperation agreement, the latest in the Biden administration’s broad effort to ramp up antitrust enforcement.
The airlines’ agreement is a merger in all but name. Branded as the Northeast Alliance, JetBlue and American Airlines agreed to share flights and loyalty program benefits for flights in the U.S. northeast. Under the arrangement, which the Trump administration approved, the two air carriers will control upwards of 50% of the regional air market—including up to 80% on some routes from New York and Boston.
The government is challenging the agreement on the grounds that it will generate higher fares and less competition. The Justice Department estimates that consumers would spend $700 million in higher ticket costs every year if the merger is allowed to proceed.
America’s airline industry is incredibly consolidated
- Since 2000, the US Government has allowed 20 separate airline mergers, reducing the number of major airlines by half. Casualties included Northwest, US Airways, and TWA.
- The four remaining major airlines (American, Delta, Southwest, and United) control 67% of all domestic air travel.
- Consolidation has allowed the industry to generate record revenues while routinely cutting less profitable routes to smaller cities.
The Biden administration is focused on increasing competition across markets
- Antitrust enforcement is a centerpiece of the Biden administration.
- In July 2021, the administration argued that the airline industry used market power to increase ancillary fees from $1.2 billion to $35.2 billion in just over a decade.
- Recently, the Administration relaxed regulations around hearing aids–which most people believe will reduce prices and increase access.
Airlines “have gotten too big to fail and too big to care,” Bill McGee of the American Economic Liberties Project told the Associated Press. “We feel that there should be a moratorium on all mergers in the airline industry until (federal regulators) go back and look at all the negative effects of all the consolidation.”