The government’s antitrust case that struck down American Airlines’ alliance with JetBlue won’t impact the carrier’s capacity plans in the northeast this summer, American’s financial chief said Thursday.
“Now, if there are adjustments, they’ll be long term,” American Airlines chief financial officer Devon May said Thursday at the 2023 Wolfe Research Global Transportation & Industrials Conference. “It’s not going to impact customers this summer, so any customers that are booked through the NEA will be taken care of.”
U.S. District Judge Leo Sorkin ordered the two carriers to dismantle the deal within 30 days after the high-profile case was decided on May 19 – an outcome that was a major victory for the Biden administration’s pro-consumer agenda. In his ruling, Sorkin said that the alliance would reduce competition and lead to fare hikes.
American Airlines has not said whether it will appeal the case, although a company spokesperson said last week that the “court’s legal analysis is incorrect” and that “There was no evidence in the record of any consumer harm …”
JetBlue also said it was “disappointed in the decision” and that it is “studying the judgment in full and evaluating our next steps as part of the legal process,” according to a regulatory filing.
“We like the NEA and how it’s structured,” May said. “We believe it is delivering for our customers, we’ve added capacity in the region, we’ve added competition. So, we feel good about what we’ve done. We feel good about the structure as it sits today, and we’ll see where it goes from here.”
American and JetBlue have codeshares on about 175 routes in and out of New York and Boston, regions American has struggled to compete in while JetBlue has a limited network outside of the Northeast.
The ruling gave government antitrust enforcers a major win and struck a blow to the American-JetBlue alliance covering flights across the northeastern U.S. American CEO Robert Isom testified in October that the carrier was hindered in markets like New York and Boston because of the head start that Delta Air Lines and others had as blockbuster mergers shrunk the industry over the last two decades.
It’s a “big deal” to New York and the carrier’s strategy in the region, he said. May said New York, excluding the flying American does to its other hubs and partner hubs, is about 5% of the carrier’s total capacity, a relatively small component of the overall network.
He also touched on the agreement in principle announced last week that gives pilots about a 21% pay raise for this year on top of back-dated raises going back to 2020 and more increases in years to come. American’s more than 15,000 pilots are represented by the Allied Pilots Association.
“This takes a lot of dedication and work and trust,” May said. “I’m thrilled that we have gotten to this point.”
In terms of financial guidance, he said, the deal is “largely consistent with the guidance” American has put out for the second quarter and full year, and he said the carrier isn’t anticipating any guidance updates based on the agreement.
However, some analysts speculate that these pay raises could significantly impact consumers and their summer travel plans. The two biggest costs for a carrier are fuel and wages. Carriers with new pilot deals will need to figure out how to factor in billions in new expenses and still stay financially afloat.
May said American anticipates a new collective bargaining agreement with its over 25,000 flight attendants represented by the Association of Professional Flight Attendants, and more than 14,500 passenger service agents, represented by the CWA-IBT Passenger Service Employee Association.
“The run rate on that will drive some cost pressure for next year,” May said, but we do think we’ll be able to take advantage of our higher aircraft utilization and that’s going to be a nice tailwind for cost next year.”
That comes ahead of a summer travel season where demand is again expected to outstrip supply. In the first full summer to travel transatlantic without restriction, he said American is seeing heightened demand. There’s also demand in different areas of the country. Between May 25 and August 14, American expects more than 52 million customers.
“We’re seeing more demand in areas like Dallas, Charlotte, Miami, Phoenix,” May said. “So a lot of these southern belt hubs that we’ve been talking about for a long time are seeing nice demand.”
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