AAI Says Joint Ventures Reinforce Market Power in the Domestic Airline Oligopoly, Commends DOJ for Challenging the Northeast Alliance and Urges DOT to Overhaul Regulatory Policy
AAI wrote today to the Secretary of Transportation and Acting Assistant Attorney General for Antitrust on Airline Joint Ventures in the Era of Oligopoly: Realigning Regulatory Policy with Tougher Antitrust Enforcement. The letter focuses on the recent Northeast Alliance (NEA) agreement between American Airlines, Inc. (American) and JetBlue Airways Corporation (JetBlue) but AAI’s analysis and recommendations apply equally to past and future airline joint venture agreements as well. The AAI letter highlights two major issues of concern.
First, airline joint venture agreements like the NEA are now the “go-to” strategy for large carriers, like American, to maintain or expand their market positions. Such agreements also further “tighten” the Big 4 oligopoly that dominates domestic air passenger service markets. Joint venture agreements stop short of mergers, but can nonetheless eliminate the incentive for the parties to the agreement to compete independently, to the detriment of consumers. When layered on top of already oligopolized markets, such agreements act to fortify the Big 4’s (American, United, Delta, and Southwest) hold on domestic markets and can facilitate further anticompetitive coordination on capacity, fares, ancillary fees, and other competitive variables.
Second, DOT perfunctorily approved the NEA, subject to minimal conditions and without providing any opportunity for public comment. This process raises public policy concerns in light of DOJ’s recent lawsuit, joined by seven states, challenging the NEA as illegal under Section 1 of the Sherman Act. The saga of the NEA, and tension between the two federal agencies with competition oversight authority in the airline industry, illustrates the unsustainable misalignment between DOT’s existing regulatory policy toward airline joint ventures and the troubled competitive landscape of domestic air passenger service markets. A major overhaul is needed, consistent with the “whole of government” approach to airline competition that is envisioned in the Biden Administration’s Executive Order on Competition.