American Airlines CEO Robert Isom told a federal judge on Monday that the airline is struggling with Delta Air Lines and other markets such as New York and Boston where major consolidation over the past two decades has decimated the industry.
Essam, who testified in a Justice Department antitrust suit against the partnership between American Airlines and JetBlue Airways, used that argument to defend against federal charges of conspiring to raise prices and reduce competition in the Northeast.
This is the chicken-and-egg argument that airlines have used for more than two decades to justify mergers.
"Delta has done a very good job of managing its network airlines, and I think they completed the merger more than Northwest probably five years ago, six years ago," Isom said. "Delta and Northwest have built the world's largest airlines, and through their networks and partnerships, they can offer customers more flights and destinations from economy to premium."
The Biden administration has opposed airline consolidation and used the American Airlines-JetBlue Northeast alliance for its first legal challenge of what the White House calls anti-consumer behavior. The case could have major implications for future mergers, including the upcoming marriage between Spirit Airlines and JetBlue.
Justice Department lawyers oppose the merger between the nation's first and sixth largest carriers, saying those same carriers need similar partnerships to compete with previous mergers.
Delta merged with Northwest Airlines in 2008. United in 2010 It merged with Continental Airlines in 2010 and Dallas-based Southwest acquired AirTran in 2011. American Airlines merged with US Airways in 2013.
Now the question is, "How much reinforcement is too big?" According to the Department of Transportation, the four largest airlines carry two-thirds of all U.S. passengers.
This case is particularly complex because it involves related routes and schedules at highly competitive airports such as New York's John F. Kennedy International Airport and Boston's LaGuardia and Logan International Airports. On Friday, United Airlines announced it would end service to JFK while it negotiates with the Federal Aviation Administration for additional seats.
American is ranked third at JFK behind Delta and JetBlue.
"American has a portfolio of destinations, mostly roundtrips, totaling 105 at JFK and 163 at LaGuardia," said Isom, who was American's president when the alliance was formed.
American had 50% fewer seats at LaGuardia, New York's airport that handles mainly domestic flights, he said.
"This puts us in a big bind and there's little you can do but use your resources to the best of your ability," Isom said.
US District Judge Leo Sorokin, who held a non-jury hearing in Boston on Monday, heard evidence from Isom and Scott Lawrence, a senior network planning executive at American Airlines who recently worked for JetBlue and Delta.
State attorneys pointed to Isom's Monday, March 29, 2020 email to American Airlines Network CEO Vasu Raja, saying industry capacity could shrink in the next 18 months.
Isom said the letter focused on the impact of the COVID-19 pandemic, which has forced airlines to cancel thousands of flights across the industry. American announced its alliance with JetBlue three months later, while the industry was still in turmoil.
"We're in the midst of the worst crisis I've ever seen in the aviation industry that threatens America's survival, and we're losing tens of millions, if not hundreds of millions, every day," Isom said. "We have $7 to $8 billion in cash on any given day, and the forecast is that we could run out of cash and go bankrupt in no time," he said.
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