American Airlines’ Alaska Air Deal Differs From Its JetBlue Deal. Does That Matter?

An alliance with American Airlines has helped Alaska AirlinesALK
compete on the West Coast, providing a valuable choice for the region’s airline passengers. In many ways, the alliance resembles the alliance between American and JetBlue, but in some key areas it is more restrictive.

The American/Alaska alliance, known as the West Coast International Alliance or WCIA, was announced in February 2020. It enables the carriers to codeshare, particularly on flights connecting with American international flights but also on flights serving domestic destinations.

Within the alliance, “We are not permitted to do certain things on the West Coast with American Airlines because of DOJ restrictions,” Andrew Harrison, Alaska’s chief commercial officer, said Thursday during a trial in U.S. District Court in Massachusetts.

“We cannot code on overlap markets,” Harrison said. “We can’t be as competitive. American and JetBlue can partner. We can’t.” He cited Seattle-Dallas/Fort Worth as an example of an “overlap” route, originating in each direction in a partner hub, as a route where American and Alaska cannot code share.

At the trial, Department of Justice antitrust attorneys are seeking to block the Northeast Alliance or NEA between American and JetBlue. Or might they would seek to modify it along the lines of the WCIA? U.S. District Judge Leo Sorokin will decide whether and how the NEA goes forward.

DOJ antitrust attorney Bonny Sweeney said the NEA is “unprecedented” in the ability of American and JetBlue to coordinate capacity on domestic flights.

Questioning Harrison, Sweeney said, “You agree that what American and JetBlue have done is different than what you have done in capacity coordination.

“The ability to coordinate on domestic is unprecedented, sharing revenue on overlap routes is unprecedented, allocating markets is unprecedented in domestic markets,” Sweeney said.

Harrison responded, “In my tenure of knowledge, yes.”

Comparing the WCIA and the NEA, Harrison said, “They coordinate capacity planning and allocation in JFK And Boston, and we cannot.”

Commenting on the NEA, Harrison said that of the 1,600 daily departures from the three principal New York airports, “United and Delta are the largest and strongest; American and JetBlue are much more distant. JetBlue (with) American can present a much more compelling proposition for folks.”

Harrison also said that DOJ restrictions, imposed after Alaska’s 2016 acquisition of Virgin America, badly impaired Alaska.

Harrison said Alaska once had a partnership with Delta in Seattle, but the partnership started to break up in 2014 when Delta wanted a bigger presence in Seattle in order to build a trans-Pacific hub. The partnership “became more and more strained,” he said, as Delta grew its own departures to 160 daily from 37 daily. “Delta made clear they really only wanted us to partner with them and the airlines they wanted us to partner with,” as opposed to letting Alaska pick its own international partners such as British Airways and Emirates, he said.

Delta “started pulsing in flight after flight after flight, blanketing our network,” he said. “In many cases the markets had too many seats in them and fares collapsed. It put a huge strain on our ability to generate revenues.” As the Delta partnership broke up, Alaska moved to add codeshare agreements with American.

In 2016, Alaska acquired Virgin America. DOJ approved the $4 billion acquisition, but demanded codeshare restrictions. In a December 2016 investor presentation, Alaska detailed the restrictions. It said, “There are 45 markets where Alaska loses existing codeshare revenue, and the net financial impact is between $15-$20 million.” It now seems the impact was understated.

Harrison said Thursday, “We lost a lot of connections over their hubs.” Partially as a result, he said, “We had a very serious problem. The Delta relationship was gone and ended. The American relationship was basically wound down to nothing.

“The order so stifled our ability,” he said. “We had normal code shares; we acquired Virgin America. Then DOJ put rules on top of us that no one else has to follow. Our relationship (with American) fell apart.”

The WCIA has revived the American alliance. “American Airlines really needed to build up their international network on the West Coast,” Harrison said. “They were really struggling in Los Angeles. What we could help them with is to build and to (connect) our guests to help fill their international flights.” Today, Harrison said, 8% of Alaska revenues come from partnerships, primarily with American.