By Rajesh Kumar Singh, David Shepardson and Diane Bartz
CHICAGO (Reuters) -JetBlue Airways, seeking to protect a planned $3.8 billion purchase of Spirit Airlines (NYSE:SAVE), said on Wednesday it would follow a U.S. judge's May order that it end an alliance with American Airlines (NASDAQ:AAL).
The New York-based carrier said while it "strongly" disagrees, it would not appeal the court's ruling.
JetBlue said it had informed American last week of its decision to terminate the three-year-old alliance, which allowed the two carriers to coordinate flights and pool revenue.
American said on Wednesday it still planned to appeal the ruling. American is the largest U.S. airline by fleet size and JetBlue is the sixth largest.
JetBlue said terminating its alliance with American renders "entirely moot" the U.S. Justice Department's (DOJ) objections that led it to file suit to block its merger deal with Spirit, which would be the biggest in the U.S. airline industry since American and US Airways merged in 2013.
"This decision will enable us to focus even more on our combination with Spirit," CEO Robin Hayes said in a staff memo.
The DOJ declined to comment.
Andre Barlow, an antitrust attorney at Doyle, Barlow & Mazard PLLC, said he did not think that terminating the alliance would change JetBlue's odds in its legal battle over the Spirit deal.
"I don't think it helps," Barlow said. "It's even better for the DOJ."
ALLIANCE STRATEGY SETBACK
The alliance's dissolution is a setback to American's strategy to grow revenue by relying more heavily on alliance partners to ferry passengers in uncompetitive markets.
The "Northeast Alliance" with JetBlue helped American compete in the New York market, where it had been losing money. It allowed American to move away from unprofitable routes while maintaining a presence in New York and letting it feed traffic to its global partners who fly into the region.
American has yet to spell out plans for the capacity it gave to JetBlue. The carrier could now be forced to rebuild its capacity or cut international flights out of the region.
On May 19, U.S. District Judge Leo Sorokin in Boston ordered JetBlue and American to end the partnership, saying it "substantially" diminished competition in the domestic market.
The DOJ sued in 2021 to undo the Northeast Alliance, which was announced the previous year. It called it a "de facto merger" of American and JetBlue operations in Boston and New York that removed incentives to compete and would end up costing consumers an additional $700 million a year to fly out of the region's busy airports.
JetBlue said its decision to unwind the alliance would not result in any immediate changes for customers. The company said it expects to work out a wind down plan that protects consumers.
But without the alliance, Hayes said JetBlue would likely need fewer employees in New York and Boston. He promised the company would manage staffing levels through natural attrition, options to transfer to other cities and a reduction in new hiring rather than through furloughs.