Last July, American Airlines (AAL 4.20%) and JetBlue Airways (JBLU 2.94%) announced a wide-ranging partnership designed to improve their competitive positions in New York and Boston.
Over the past few months, the airlines have started to implement the first phase of this alliance. They have launched a codeshare agreement, begun ticket sales for dozens of new routes, and optimized their schedules on additional routes out of New York and Boston.
Last week, American and JetBlue rolled out the next phase of their alliance, again announcing dozens of new routes. With antitrust regulators at the Department of Justice taking a closer look at the airlines' plans to cooperate, the timing couldn't have been better.
Antitrust concerns resurface
The partnership between American Airlines and JetBlue Airways involves coordinating routes and schedules for flights to and from New York and Boston. Normally, this type of cooperation would violate antitrust law.
Image source: JetBlue Airways.
The airlines sought an exemption to the usual antitrust regulations on the grounds that teaming up would make them a better counterweight to United Airlines and especially Delta Air Lines in the Northeast. They promised to significantly increase capacity in New York -- and, to a lesser extent, Boston -- while also divesting some takeoff and landing slots to enable new competition.
Based on these commitments, the U.S. Department of Transportation gave its blessing to the partnership in January. However, antitrust regulators at the Department of Justice remain worried that letting the two airlines cooperate could lead to higher fares and worse service in New York and Boston. The DOJ's investigation has become more active in recent months, and antitrust regulators there may raise objections to the alliance, according to a recent report by The Wall Street Journal.
Time to announce more growth
To the extent that the DOJ's antitrust division remains skeptical of the American Airlines-JetBlue alliance, both airlines have an incentive to demonstrate the partnership's consumer benefits. Last week, they did just that, announcing another -- even more ambitious -- wave of growth.
JetBlue stated that it will add seven new cities to its route network between now and next summer. It will fly from both New York's JFK International Airport and Boston to Kansas City, Milwaukee, and San Antonio. It will also launch year-round flights from JFK to Puerto Vallarta, Mexico and San Pedro Sula, Honduras, along with seasonal service to Asheville, North Carolina and Vancouver.
Image source: JetBlue Airways.
Meanwhile, JetBlue plans to add six new routes out of New York's LaGuardia Airport (mainly targeting the Southeast), while offering more frequent service on several existing routes. Between these moves and various new routes announced in February, JetBlue will operate more than 50 daily departures at LaGuardia by next summer: up from just 18 in 2019.
As for American Airlines, the full-service airline will begin flying from JFK to Delhi later this year. That will complement new routes from JFK to Athens, Tel Aviv, and several destinations in South America that it announced previously. American will also launch flights from Boston to Cincinnati, St. Louis, and Toronto: key business markets that JetBlue does not serve. Finally, the carrier plans to begin flying from LaGuardia to Houston, Oklahoma City, and Omaha.
Demonstrating the alliance's benefits
The latest round of new route additions will give American Airlines and JetBlue firepower to counter the DOJ's antitrust probe. In particular, JetBlue's new routes from JFK and LaGuardia rely on using underutilized slots held by American Airlines. American's new international routes also depend on getting connecting traffic from JetBlue.
Image source: American Airlines.
To be fair, American Airlines will have to operate fewer flights from New York to certain cities in order to free up enough slots for JetBlue. While American and JetBlue aren't allowed to coordinate pricing, fares could potentially rise in those markets due to lower capacity levels.
However, American Airlines used cramped, single-class 44- and 50-seat jets on most of the flights it plans to eliminate. By contrast, most of the new flights will use mainline jets with more than 150 seats. On a net basis, the two partners will grow significantly in New York and Boston -- driving down fares, all else equal -- while operating more customer-friendly aircraft.
American and JetBlue have planned to grow in New York and Boston all along. The threat of tougher antitrust scrutiny probably didn't change their long-term plans. However, it may have encouraged them to announce their growth initiatives quickly: After all, some of the new routes announced last week won't start up for more than a year. From what we know now, the new alliance between American Airlines and JetBlue looks like it will provide important consumer benefits while also helping both airlines.
