Surprising ruling threatens valuable Northeast blueprint for American Airlines
American Airlines Group Inc.'s network planners have a lot of work to do after a federal court ruled that the Northeast Alliance between JetBlue Airways Corp. and the carrier must end.
American Airlines (NASDAQ AAL) of Fort Worth and JetBlue (NASDAQ JBLU) in New York operate together thousands of flights out of the three major airports surrounding New York Logan International Airport and Boston Logan International Airport.
The Northeast Alliance will now be abruptly terminated after U.S. district judge Leo Sorokin decided Friday that the partnership had violated federal antitrust law. He ordered that the Northeast Alliance be terminated in 30 days.
Both JetBlue and American spokespeople said that both companies are evaluating the next legal steps. Most likely, this will include an appeal. If the Sorokin injunction is upheld while the appeal process takes place, American Airlines will need to drastically alter its flight schedule as summer travel season approaches.
American and JetBlue created the Northeast Alliance two years ago to better compete with United Airlines and Delta Air Lines. These were the dominant carriers of the region. American and JetBlue claim that the Northeast Alliance allows the carriers to offer more routes and flights together than they can individually. Overall, they claimed that being able compete with United and Delta better in the market is beneficial to the flying public.
The Northeast Alliance launched in February 2020, allowing the carriers to codeshare on specific routes and connect their frequent flyer programmes.
JetBlue considers Boston Logan as its second largest focus city while Delta views it as a hub. JetBlue serves New York with its operations at John F. Kennedy International Airport as well as LaGuardia Airport, and Newark Liberty International Airport. Delta is the largest carrier at JFK and LaGuardia. Newark is the main hub for United Airlines' domestic and international flights.
Cirium, a flight analytics company, has released schedule data that shows American and JetBlue are both at a big disadvantage against United and Delta if the Northeast Alliance is not formed. Cirium data shows that American and JetBlue will fly a total of 62,878 flight this summer between Boston, LaGuardia JFK, and Newark. Delta alone will fly 56,282 flight while United has 43,607 scheduled.
How many flights have been scheduled?
This is a list of the number of flights that each airline has scheduled each month.
JUNE
United -14.199
JULY
United States - 14,625
AUGUST
United States - 14,783
What are the plans of American Airlines and JetBlue for summer travel?
JetBlue and American had announced in December that they would be expanding their alliance to include more routes for this summer. Robert Isom, American's CEO, said earlier this year at an investor conference that he was "not looking at a Plan B."
American's spokesperson did not answer questions regarding the impact of the decision on the summer schedule.
Helane Becker is an analyst with TD Cowen. She wrote in a client note that she didn't expect a decision against the Northeast Alliance.
Becker wrote: "This was somewhat of a shock, as we thought that the judge's ruling would be in favor of the airlines, given the more than two-year data.
Delta and United will benefit from the dissolution of American and JetBlue's alliance, she said. Becker said that she also believes the ruling will have negative consequences for JetBlue's merger with Spirit which the Department of Justice is also suing to stop.
Raymond James analyst Savanthi Syth stated that the ruling had a "very adverse impact" on American, because the Northeast Alliance allowed it to reallocate its capacity away from marginal and unprofitable routes whilst still maintaining a solid presence in the area.
Syth, in a client note, wrote that "while American will likely recover its slots leased by JetBlue," it would now be forced to rebuild JFK at LaGuardia with a likely lower profit margin given its reliance upon regional jets as well as the lack of JetBlue feed.
What is the impact on pilots?
Dennis Tajer, a spokesman of the Allied Pilots Association said that the union also had doubts about Northeast Alliance and its benefits to pilots.
Tajer replied, "We don't need to debate this anymore." You can either sit at the table and weep or get back to your work and compete.
Tajer said that American's network planners face a difficult task, but he is not concerned about the impact of the ruling on flight schedules and American's reliability during the summer.
Tajer stated that "[the alliance] is not an operational agreement, but a business one."
Tajer, however, said that he hopes that the court's ruling will force American Airlines to "focus more on planes and less on plastic" referring to the credit card sales. American Airlines executives have cited the revenue generated by the NEA partnership as a major benefit.
Tajer stated that the decision against Northeast Alliance "makes [it] even more important for American to have all cylinders fired on what aircraft it can actually fly."
The APA announced on Friday that its negotiating committee had reached "an agreement in principle" with American Airlines regarding a labor contract. Tajer said that if the agreement is finalized, it will allow American to clear a backlog of training so they can get planes and pilots into the air.