Lufthansa Takes JetBlue Under Its Wings

JetBlue, Lufthansa, Star Alliance

I had a completely different post lined up for today, but really, when news like this breaks, it’s hard to stay away. For those who haven’t yet heard, JetBlue will issue a bunch of new shares to 07_12_14 lhb6kissLufthansa giving them 19% of the company for about $300m. So far, there is no relationship between the two airlines in a commercial sense, but Lufthansa will hold a seat on JetBlue’s board, and after listening to their conference call this morning, it’s clear that they want more.

First thought? Enjoy your bitch-slap, United. Oh sure, that young little hussy JetBlue can’t replace you . . . yet, but Lufthansa is clearly not as faithful to you as you might have hoped. Maybe you shouldn’t have let yourself get so out of shape over the years.

Second thought? This is great for JetBlue. They get a bunch of cash, which is nice, and they get some solid external guidance from a very large, profitable European airline on their board. And yes, there are so many opportunities for cooperation here. Sweet.

Third thought? What exactly is Lufthansa thinking? This is why my brain hurts right now. They’ve already got a very strong presence in the US with both United and US Airways in the Star Alliance. Why not buy into them? Maybe they don’t like where things are going with those guys. But point-to-point JetBlue?

Even at the bare minimum, I think this makes sense. JetBlue’s shares, like those of most other airlines right now, are in the toilet. It’s a nice cheap investment that’s made even cheaper by the exchange rate. So, they have a good investment that also can give them a little presence in NYC with even the most basic of interline agreements, something that Star Alliance doesn’t have.

At most, it could be much bigger. I’m not really worried about US Airways in this equation, because they’ve never been a major Star Alliance player. But Lufthansa and United were founding Star members, lovers, and they share revenue on flights over the North Atlantic.

But let’s say that Lufthansa is sick and tired of United not paying attention to their business. Maybe they aren’t happy with management and they want something different. Hello, JetBlue.

United isn’t going to walk away from Lufthansa, because they have nowhere else to go (unless someone buys them). They need Lufthansa and Star more than the other way around. So, Lufthansa can keep United around while JetBlue has the chance to build up its domestic operation into a strong network. Does that take years? Most definitely. Can Lufthansa wait? Yeah, sure.

But what about international flying? Who cares? Right now, Lufthansa has to split Transatlantic revenues with United. So, they can kick them out and do the flying themselves with JetBlue waiting on the other end to fill up their planes. Remember, now with open skies, Lufthansa can fly from anywhere in Europe to anywhere in the US.

What about Pacific routes? Eh, ANA, Thai, Air China, Air India, Singapore . . . the list goes on and on. There are plenty of carriers on the other side that can take care of that market. So, JetBlue can become a major domestic powerhouse and then auf wiedersehen, United. They would lose US government traffic across the pond (since they have to fly US carriers), but I’m not sure how much business that is for them now.

Am I crazy? Probably. But remember, United has been talking about mergers for a long time. They may go run off with someone else and leave Star Alliance anyway. If Tilton can make enough money for him and his investors, don’t think he won’t do it.

Do I think this is going to happen? Nah, but it’s fun to think about it. We’ll probably see something happen that’s more in between these two extremes where Lufthansa gets to play with everyone. Pretty cool.

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13 comments on “Lufthansa Takes JetBlue Under Its Wings

  1. Hey CF,

    As always this is a great post, but I like your graphics even more. Do you just do them straight up in Photoshop?

    As for this announcement and the options for cooperation between the two airlines its fantastic. JetBlue I’m sure will love to give their customers access to all those European destinations, and I bet Lufthansa will send quite a bit of good solid busines travel traffic JetBlue’s way. Don’t forget they will also be able to connect passengers in more cities than JFK, including BOS, CLT, MCO, IAD, DEN, SFO, PDX and ORD.

  2. Thanks, AirlineFanatic. I’m much more low budget than fancy-pants Photoshop would allow. I use the unfortunately-named, but right-priced GIMP for all my pics.

  3. I think you’re dead on – with Tilton keeping UA on the street corner looking for a party LH is smart to have a fall back. They can help build JetBlue up into what they need. And US Airways has to be causing them grief so falling back to them if UA merges and bails the Star Alliance is a yucky thought. Only thing I think would be a mis-match is that JetBlue doesn’t offer C/F class (thou their Econ rocks) and JFK is getting so delay prone that really expanding there might be difficult.

  4. Good for JetBlue. It is time for them to start making alliances internationally.

    On the issue of United, I don’t fly them anywhere near often, but I’m disgusted at the lumbering directionless mass that it is. Admittedly they’ve made progress in the past several years, but the airline is moving in so many different directions: P.S., Ted, and everything else that I still have no idea what is going on over there..

  5. LOVE your blog and read it every day.

    Being married to a JetBlue employee, I have a major interest in this development, and I think you are so dead-on. I’ve forwarded to friends who were panicked for us thinking this meant the end of JetBlue (I wonder if this is how people who don’t know the ins and outs of airline ownership and partnerships are reading this).

    I’m hoping there’s some easy passriding to Europe in my future!

  6. CF,

    I read you every day. Enjoy your blog a great deal. My initial thoughts are somewhat in line with yours. I think it’s great for B6 and LH. I don’t think this is a big slap at UA. I think this is a way for LH and possibly in the future STAR to get into JFK.

    US is at LGA but limited to smaller markets and Shuttle cities. EWR is a spoke for UA and US. B6 could give LH many more beyond possibilities from JFK, especially as B6 adds spokes.

    What do you think? Am I off base? Are AA and DL too big at JFK for this to be possible?

  7. Thanks, L1011. It could be an attempt to get into NYC, and Lufthansa did talk about that a little on the call this morning. That being said, this seems like an awfully big investment just for that purpose. Could they try to bring B6 into Star with UA and US? I guess. But that one is going to be a tough sell to the regulators, not to mention UA and US.

  8. CF, I doubt B6 would want to be in Star, at least if they had to share with UA and US… I can see them wanting to be a part of the alliance if they were the only/lead US Carrier, but I see that happening over UA and US’s dead bodies..

  9. CF, curious as to why you see this more as a threat to UA than US? I know little about how the airline business works, but it seems that if anyone’s been a laggard in *A recently, it’s US. Don’t get me wrong, UA has a lot of work to do on their soft product, and given its merger interest UA may head off in non-*A directly entirely. But aren’t US’s (limited) international routes (relatively) more redundant with LH? And if you’re looking to B6 to replace sub-par domestic service with a relatively strong presence in the north east, wouldn’t US be the first to go? Genuinely interested to hear your thoughts here…

  10. Nick – Ever since HP took over US, they haven’t really seemed that committed to the alliance. I mean, they like the traffic benefit they receive, but most of their initiatives seem to be focused on increasing their own traffic rather than improving integration with Star. If they left Star, they’d probably be fine as a “low fare carrier” that could align with other like-minded carriers.

    United, on the other hand, has all their eggs in one basket. They are tied very closely to Star as one of the founding members, and would be in real trouble without the alliance (unless someone else bought them and brought them into another alliance). Who is left for them to align with if they are out of Star? Nobody. That’s why I think they’re more in danger here.

  11. CF – That makes sense, and I can see that if UA were to leave *A (voluntarily or otherwise) they would be in real trouble. I guess what I was thinking was more if I’m LH and I have the opportunity to bring Jet Blue into *A–but only if I kick another carrier with major US operations out–would I rather show UA or US the door? (Maybe I’d prefer that both leave in terms of service/quality, but *A would be pretty thin domestically at that point). At any rate, I enjoy reading the analysis.

    Sort of related, do you see US leaving *A (regardless of any moves by LH, UA, B6, etc) in the near future? It sounds as though you see that as a possibility.

  12. I don’t really know if they’d leave Star, but I guess I would have expected them to do it by now if that was the plan. A lot of people suggested they might have left after HP took them over, but that didn’t happen. So, I’d be surprised to see it happen now.

  13. Hi CF,

    Although I suspect that all of UA’s merger talk had an effect on the LH-UA business relationship, it seems like LH would probably have proceeded with this deal even if UA was a great partner (from a business point of view, I’m not entirely sure how they are not a great partner, in fact).

    I can’t help that a lot of this investment that LH is making has a lot to do with the open skies agreement going into place in March. I mean, within a few months time, LH will have the ability to start planning routes from Europe to the US willy-nilly, and the have a small empire of partial or complete ownership within Europe (including BD, with a hub at LHR). Trouble is, they lack feed to/from the most logical trans-Atlantic gateway (JFK) and they can’t necessarily count on their US-based partners to feed new routes beyond their own hubs. What more, those US-based partners have the ability themselves to start planning trans-Atlantic routes willy-nilly, and it’s unclear what effect this will have on the existing relationships.

    But if they had a partner in whom they owned a stake, and that partner had a logical trans-Atlantic hub, that would be a much more solid relationship. Now from LH’s point of view, B6’s market value is distressed, so $300 million could buy for LH a partner with a hub in JFK, and a partner in which they have ownership and which cannot simply change allegiance in a few years’ time. That’s simply too good a deal for them to pass up, no matter what the relationship with UA or US is like.

    Remember that although traffic between the US and Europe is *a* significant part of UA’s and US’s business, it is probably *the* single most significant part of LH’s business. The partnership with UA and US help LH’s TATL business, but this investment is just another way to help the business. I don’t see it as any more of a shot at UA than a new round of new non-stops from Europe to the US.

    Regarding shifts in Star Alliance itself, I don’t see Star taking into the alliance an airline that has no premium cabins (however nice coach may be), and Star needs a major US airline as a partner just as much as UA needs Star.

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