Apparently JetBlue CEO Dave Barger was sending love notes today when he said JetBlue looks “forward to deepening and expanding the relationship with American.” This is very consistent with JetBlue’s interest in growing partnerships with airlines all over the place, but is it the right thing for American? After all, what made sense for American before may not make sense post-US Airways merger, right?
Wrong. That could be true in some instances, of course, but I have no doubt that a stronger relationship with JetBlue is a good thing for American.
I kind of look at JetBlue as the nicotine patch for American. American has long had a love affair with New York because of its historical presence and standing on big business routes like LA, London, and Sao Paulo. But American also competes on a lot of mid-size routes like New York to Cleveland, Columbus, Nashville, and St Louis. And I’m not convinced those are worth flying for the airline.
For American, the rationale is probably that some big corporate client needs to fly to those places, so American has to fly there. But with United covering them from Newark and Delta doing the same from LaGuardia, there’s a lot of competition. Just because some big corporate client needs to go somewhere doesn’t mean your airline should be the one to take them there.
American is at a disadvantage in New York simply because it neglected to grow the business when it could have been creative. Instead, Delta took any opportunity it could find and has built a formidable competitor with greater breadth and similar if not better depth in overlapping markets. With JFK and LaGuardia slot-restricted, American doesn’t have any real opportunity to grow, and really, it probably shouldn’t now anyway.
Instead, American can be very strategic about this. It should pick and choose the markets that are profitable from New York and serve them well. For everything else, why bother? Well, some people will undoubtedly make the argument that you have to keep serving all these markets for sales purposes. Those corporate deals will completely fall apart and everyone will run away if you stop serving, say, Columbus. That argument has been used for years on all kinds of routes. When I was at United, the airline “had” to keep flying empty planes from JFK to London because corporate accounts demanded it. Guess what? When we stopped flying the route, the airline didn’t fall apart.
But to simply cut these routes and go cold-turkey has to give a lot of people at American withdrawal symptoms. That’s where JetBlue comes in. Right now, American AAdvantage members can earn miles on flights from New York and Boston to cities where American doesn’t fly. It’s a nice little partnership but it’s not going to do that much for either airline.
What if the airlines up their game here? What if these miles started counting toward elite status? What if there were reciprocal elite benefits? What if it was rolled out to every route across both systems? What if there was codesharing? In other words, what if this started to look more like the partnership American has with Alaska?
And then, what if JetBlue started moving into some of the markets that American currently fills? JetBlue has become more attractive to business travelers, especially in Boston, and it could build up New York more that way as well. Just think what JetBlue might do if American found a way to get those slots over to JetBlue. It could be a beautiful thing.
It would allow American to pull out of markets without completely killing its presence. Just as some people find it easier to quit with a nicotine patch, American might find it easier to reduce New York with a partner picking up the slack, at least in some key markets.
Of course, JetBlue doesn’t have a first class cabin, so those who rely solely on upgrades may not be thrilled. But then again, those who rely solely on upgrades probably hate flying American’s little single class regional jets on many of these routes anyway. If they haven’t already gone over to Delta, they’ll consider JetBlue a big upgrade.
Of course, with new management, American might decide it won’t need a crutch and it could just go cold turkey in New York. But with a strong partner wanting to make that partnership even stronger, why would you?
[Original JetBlue photo via Christopher Parypa / Shutterstock.com, Original American photo via Christopher Parypa / Shutterstock.com]
45 comments on “JetBlue Wants to Expand Its Relationship with American, But Is That the Right Move for American to Make?”
Would you see AA leasing slots to JetBlue just to get rid of the slots or to get Jetblue to fly what is unprofitable to AA in order to feed international traffic? Would it make sense to cut domestic flights by (for example) 30 flights per day, transfer 20-25 slots to JetBlue for specific cities and then add 5-10 international flights? I would think that would be a win-win for AA since it would cut out unprofitable routes, potentially make money on slot leases and feed into more international flights.
On an aside, would US feel regretful or vindicated with the slot swap at this point? AA brings a good chunk of slots at both National and LaGuardia. If the swap had not taken place, would the new AA have enough slots to make something close to their DCA hublet and enough slots at LGA to be competitive with Delta? Any buyer’s remorse at this point for the slot swap?
Shane – It all depends on what you’re talking about. At LaGuardia there is no international opportunity. But they can’t collude on this anyway since they are competitors. American would have to find a way to get the slots into JetBlue’s hands, and I’m not even sure that’s possible the way it’s set up now. But then again, JetBlue has a lot of friends in NYC politics.
As for US, I imagine that if they still had those LaGuardia slots, it would be a very different story today. US did what was right at the time, but it might have a little remorse.
Sorry, 2 different topics in the same comment. Part 1 was about slot leasing and/or partnering at JFK. Part 2 was purely a “what if” scenario. Would the new American be in contention to “win NY” if the slots had not been swapped or would they have ended up losing double the money there.
shane – Well they would be in a better position in NYC simply because Delta wouldn’t be able to serve all those new markets it started up when it got the new slots. But it would still be a highly competitive market and I don’t know if it would be profitable or not for the airline. But it would probably do better with all those slots.
A lot will depend on what happens with a AA/US hook up. If mergered they may feel PHL is a better choise over JFK, and just keep AA routes that make money and forget everything and everyone else.
Just because two airlines link up in some way doesn’t mean it’s a good thing to do or will work out well for both parties.
but if they do that, then the partnership and slot leasing makes even more sense as it provides another option to customers, more revenue (they can set any price, even higher than a PHL connection), more flights from greater feed, all with no risk and little commitment of planes and assets. This is the perfect way to retrench to PHL without giving up NY and corporate contracts. JFK doesn’t have to outshine, it just has to be profitable
I believe AA/US will use PHL as their northeast hub and trans-Atlantic gateway. They could keep the most profitable routes out of JFK, cut the rest and lease or sell the unused slots to JetBlue.
AA/US could also do the same at LGA – drop unprofitable flights and give the slots to JetBlue, Southwest, or any airline that wants to use them.
Cranky,
What do you think the future of th AA-Alaska partnership will be post-merger? With a new PHX hub, I wonder how much the merged entity will need Alaska anymore to fill in gaps along the west coast.
I think that Alaska still has an important niche because it connects the PNW (Seattle, Portland, Vancouver and Alaska) to the rest of American’s network.
Todd – I’m a little more foggy on the Alaska partnership. It all depends on what the airline decides to do in LA, I suppose. But it is probably a good partnership to keep anyway, in some form.
Given the choice between AA and B6, I’ll take B6 any day. The inflight product is much, much better and you get to check one bag at no extra cost. AA could do well to adopt B6 policies.
If I could earn elite qualifying AAdvantage miles on B6, I would fly them so much more! My weekly DL trips from LGA are not as nice as B6, and with lower tier status, I dont get upgraded anyway. So the extra legroom, free bag, TV are all equal or better than what DL gives me.
If your low status doesn’t get you upgraded anyway, why do you stick with Delta? It looks like you choose Delta over Jet Blue because of the miles, but what value do you see in collecting these miles?
I couldn’t switch all flying to b6–desitinations/frequency/timing doesnt work for me.
However, there is some flying that could switch over. But I am incentivized to stick to one carrier for mileage and elite qualifiers. While DL Silver/Gold may not be that good, its better than nothing (and still having to fly DL). The miles are nice, but rarely useful, and regularly devalued. I suppose a lot of it may come down to DL marketing and the myth of loyalty/status.
LOL at “the myth of loyalty/status” – i think you hit the nail on the head there
The old airline mentality that an airline had to be everything to everybody led to an era of too many seats chasing too few passengers. It also fueled bankruptcy after bankruptcy.
No matter what your take is on Doug Parker, he’s been the poster boy for consolidation, capacity discipline and working from a position of strength. I seriously doubt he’ll change his stripes. Parker is the nation’s longest serving airline CEO. He’s also never led a carrier into bankruptcy.
I completely agree with Cranky’s observations. In New York, American “should pick and choose the markets that are profitable … and serve them well.” There are more than enough high value customers and markets to serve from New York to make this strategy work. As he also pointed out, jetBlue’s service is an upgrade from 50-seat regional jets; an important value factor to consider.
It’s time for airlines to quit trying to fly everywhere and be everything to everybody. They need to concentrate on flying where they can do it profitably. In places like New York it may not be necessary to be number one to be competitive and profitable. In New York, American’s bottom line should be profitability, not market share. An alliance between American and jetBlue could benefit both carriers. Isn’t that good business?
What if after the AA/ US merger, As & B6 also hooked up. Forgetting about fleet differences & labor for the moment, this kind of tie up could benefit B6 by expanding their coverage on the west coast. Also B6 could further it’s agreement with AA or work with DL as well.
Alaska’s market cap is over twice JetBlue’s at the moment, so I don’t see B6 acquiring AS. And Alaska has repeatedly indicated that it doesn’t want to merge, so it’s hard to see how this would ever happen. As the recent New York Times article pointed out, Alaska has found a profitable niche for itself, so it’s hard to see why they would want to put that at risk.
Neither carrier wants a merger, aside from issues of fleet/labor/culture differences. They are both independently profitable with bright futures.
However, both are extremely willing to codeshare, interline, and partner with other carriers. It would be interesting to see a relationship develop between the two, as they don’t overlap much right now. However, I don’t see it being very likely.
The problem right now is how does the concept of B6 filling in shorter, less-profitable routes for AA fit? Right now, other than some New England cities (notably Boston, which B6 seems to use as a major hub) and upstate NY, the closest place they fly to direct out of JFK is ORD. RDU, and CLT. Out of EWR and LGA, all the direct flights are pretty much Boston and Florida. That leaves a lot of cities that AA serves direct to NYC that B6 doesn’t.
And before you say “they’ll pick up the old routes from AA,” B6 has had direct routes before from many of these places, and dropped them in favor of connecting to NYC via BOS
Well this is huge opportunity for B6 to expand in the midwest where AA can ground handle them and has the economies of scale to handle a JetBlue flight or two with no problems. Can we finally get JFK-CVG/DTW/MCI etc on JetBlue?
This is opportunity knocking for AA to maintain that historic New York presence and the corporate contracts.
JetBlue has had issues with making the midwest work. Although its interesting if they could make it work with a strong partnership with AA.
Although, AA probably would want to funnel people over CLT/PHL/ORD.
I see your point Nick, but as far as international flights are concerned JFK blows PHL &CLT away. ORD is comparable to JFK in terms of global coverage & AA knows this & isn’t going to mess it up.
JFK and ORD will likely be reduced, moreso at JFK. Expect PHL and CLT to get most of the trans-Atlantic flights in AA/US network. While PHL and CLT are smaller markets than JFK and ORD, AA/US would be the dominant airline in those airports while at JFK and ORD they would face heavy competition. Parker likes to have hubs in markets his airline can dominate.
Jeff G – If the short routes are really unprofitable, then AA should just be walking away regardless of whether JetBlue steps in.
What really needs to happen:
JetBlue and Virgin America need to merge. This will help strengthen the relationship between B6 and AA, as the gaping holes in American’s network are NYC and SFO. Let B6/VX handle all of that, and give UA a REAL competitor at SFO, that has a great product but also has the benefit of the AA network behind it.
I see the logic, but competing against UA in San Francisco is a rather tall order. With that said, it is nessessary to do so as the bay area is a huge market.
Rumor has it that JetBlue has made several offers to purchase VX, but have been turned down. I am not sure that this will ever happen.
VX adds nothing to B6!
An acquisition would be expensive, cause b6 to lose focus, and not give it any strategic upside other than eliminating a weak competitor.
Jetblue could get more planes on property if it needed, it could add staff quickly and easily, VX routes don’t require authorities or slots b6 doesn’t already have. Virgin would be expensive to acquire and convert, and its already a loss-making operation that would have to be turned profitable. Market share in SFO/LAX would be the only gain, but B6 is growing organically and profitably in both markets already.
Why should b6 risk its profits and focus to overpay for a competitor it doesn’t need?
Noah,
While VX is operationally challenged, it has an incredibly loyal following in SF and in LA.
I believe that B6 could acquire VX and operate the SFO hub much better than VX is managing it.
I also believe that it would lure incremental fliers to VX AND B6 (if B6 can continue/extend/expand the relationship with AA).
VX is going to be available quite cheaply soon, in my opinion.
Hrm, what if B6 did a WN/FL style merger with VX?
You mean buy it and take a half decade or more to assimilate one into the other? I think a lot of WN but their snail’s pace “merger” with FL is starting to drive me crazy, especially when you have stations that still have both “brands” operating.
sadly, while a merger or acquisition might be fun for us to watch and talk about, it just doesn’t make good business sense.
WN needed LGA slots, the large ATL presence, and the international experience. B6 doesn’t need more gates at SFO at a premium price. Profit >> Market Share
I still don’t see a purpose to it, either. JetBlue could modify their product to mimic Virgin America (mood lighting, first class, wifi, a RED-like IFE system), but they seem to be doing just fine without it. The problem with Virgin America is that they offer a premium product that costs them more to offer, but there aren’t enough people out there that will pay extra for it compared to what they’ll get from Southwest or United.
I was thinking more along B6 buying VX for their customers with them making a FL/WN style merger.
Talk around the water cooler is that on the A321 there will be a new cabin. Talk is flying from upgraded EMS section to First Class cabin. We will have to wait and see but I am not betting on a First Class cabin.
Talk around the water cooler is that on the A321 there will be a new cabin. Talk is flying from upgraded EMS section to First Class cabin but who knows. We will have to wait and see but I am not betting on a First Class cabin.
I wonder if DB is sending love letters to ATL as well (AS of the east anyone?). I can see where B6 can do what AA cant…particularly in the Caribbean and to a limited extend, Florida. As far as meaningful feed from the Heartland we can forget it….their cost structure dosent work on short haul outside of upstate NY where they enjoy a mainline metal monopoly and a strong O&D market. So sure….IMHO there is some opportunity, but it is limited. When the merger get going…it is not Parker’s m.o. to partner with anything < 100 seats.
Sidenote: Im with Noah…buying VX is taking a pile of cash and catching it on fire. Eliminating a competitor what will probably die on the vine anyway is wasteful. It's not like they need planes and people on short order.
Cranky was extremely enthusiastic about a merger of AA & US AIR and two of the reasons was the expansion of the service network and added equipment. I, personally, see no reason to limit the AA possibility of increasing the service and equipment into the flight availabilities for travelers. Therefore, I would support a stronger and expanded relationship with B6. Horton should not delay in moving forward on this issue – immediately. A Parker involvement at a later date may muddy the water.
Greatest caption you’ve ever written, Cranky.
If AA dropped some routes from NYC, and B6 immediately picked the same ones up, and the two airlines announced enhanced frequent flyer partnerships, I would expect the regulators to start sniffing around for collusion.
They allowed US-UA to have full codeshare/FF benefits, etc. New American would still serve many of those cities from other hubs anyway. AS gets the same treatment. Im not saying its a guarantee, but there is a lot of precedent
you can codeshare, but you still have to compete against each other. at some point, as things magically fall into place, one would have to ask whether two airlines are coordinating on strategy.
As of now B6 &HA interline & as a result HA has a flight from HNL to JFK. If a merger between B6 & As isn’t possible, then why not creat a similar interline bringing As to JFK from SEA, PDX & ANC. Yes, I know that B6 & DL both serve PDX from JFK & AA serves SEA, however some of the flight times are rediculous as they opperate as red eyes like B6 166 or extremely early DL 2258 that are designed to connect to international flights.