Note: I’m moving my Thursday post up to Wednesday this week, just because I really want to talk about this and don’t feel like waiting.
The press release simply says that American and JetBlue are “advancing” their strategic alliance. There’s the obligatory quote to fluff now-Senate Majority Leader Chuck Schumer’s ego, and a few vagaries about what’s coming. At first glance, you might just ignore this, but the text of the release woefully understates exactly what’s happening here. American and JetBlue have quietly been granted the authority to coordinate schedules in New York and Boston. This is a big deal.
It’s the very last paragraph of the release that holds the real substance here.
… DOT has agreed to terminate its review of the alliance in exchange for a series of commitments to ensure the alliance delivers consumers benefits without harming competition. These include growth commitments to ensure capacity expansion, slot divestitures at JFK and at Washington, D.C.’s Reagan National Airport (DCA), and antitrust compliance measures.
I spoke with American’s Chief Revenue Officer Vasu Raja yesterday to get a better understanding of what exactly this means. It turns out, there is a public document that outlines the agreement with the Department of Transportation. This is a worthwhile read.
American and JetBlue will be able to coordinate their schedules in New York and Boston without fear of anti-trust concerns. That means they can work together to re-time flights to more broadly serve a market. (Vasu gave a hypothetical example of Austin – JFK where they could now spread their flights out instead of sitting on top of each other.) They can also trade slots freely between each other to maximize the value. For example, American has already talked about wanting to have more slots in the late afternoon at JFK so it can operate more long-haul flying at peak times. Conversely, JetBlue will be able to do more at LaGuardia with American’s slots.
I was talking about this with someone, and the last time either of us could remember this kind of coordination being allowed domestically was Hawaiian and Aloha back in 2001. (And to be fair, he remembered that. I didn’t.) That was 20 years ago, so this doesn’t happen often.
This is not a fully immunized joint venture or anything like that. The airlines are not allowed to coordinate on pricing at all. Nor are they going to be able to coordinate on schedules anywhere outside New York and Boston. Further, DOT is requiring that the airlines put together strict protocols that DOT will approve to make sure that they abide by this.
Why is this being allowed at all? Apparently, DOT likes the idea of a combined American/JetBlue providing real competition to Delta and United in the New York area. After all, the big airports are either slot-controlled or pretty full, so there isn’t really a way to organically create a true third competitor. Cooperation is the way to make that happen, but how can DOT make sure the airlines actually follow through instead of just stomping on competition?
It all comes down to slot divestitures. Right off the bat, American will divest 4 slot pairs at New York/JFK and 4 at Washington/National. JetBlue will divest 3 at JFK and 2 at National. Wait, National? This doesn’t even cover that, right? Sure, but that’s a constrained airport where DOT could hold sway over the largest slot-holder. I should point out that the National slots actually just have to be given up on leases to other airlines. So, if the partnership ends, American and JetBlue can get them back either 5 years from now or 6 months after the agreement ends, whichever comes later.
Interestingly, nothing at LaGuardia has to be given up, but there’s a reason for that. Let’s look at the slot-holding data at each of those airports.
Percent of Slots Operated by Airline – Summer 2019
At National, JetBlue and American combined have 60 percent of the slots. At JFK, they have 40 percent — 43 percent if you include American’s joint venture partners. But at LaGuardia, they only control 32 percent. I’m assuming that was the reason that LaGuardia divestment wasn’t forced on them there.
Now, here’s where it gets interesting. DOT has put in an incentive for the airlines to actually improve utilization of the slots they have today. DOT wants more seats flying, so they created a formula. As I understand it, this is how it’ll work.
- Take the number of seats that operated to/from LaGuardia for each airline in 2019. Using Cirium’s T100 data, I get 10,218,647 on American and 1,589,824 on JetBlue.
- Add the number of seats JetBlue flew to/from JFK in 2019 (17,280,281) and add the number of seats American flew from JFK in 2018 (8,496,871). (DOT clearly didn’t like American’s 10 percent drop in seats from 2018 to 2019 so it made them use 2018.)
- Take the number of divested slots at JFK (14), multiply that by 365 days, 72 seats on average, and then by 80 percent slot utilization and you get 294,336.
- Total that up and you get 37,291,287. That should be the baseline that is used for future evaluation.
Now, using that baseline, the combined airlines need to operate 105 percent of that number in 2022. In 2023, that goes up to 110 percent. By 2025 that goes to 115 percent. (Note: The increases in percentages get pushed back one year if the total flights across all airlines at JFK and LaGuardia fail to top 75 percent of 2019 levels in 2019. Call it COVID insurance.) If they don’t meet those numbers, they’ll have to divest up to an additional 10 slots. There’s a formula for how many slots get divested, but I think we’ve had enough math for today. You can read the doc if you want details.
Don’t think that DOT hasn’t thought about these airlines getting sneaky. American’s long-haul capacity growth only counts if it’s growth above and beyond the total operated by American and its joint venture partners. So, let’s say American added 100,000 seats but it offset that by having British Airways pull back 100,000 seats. Too bad. That counts as no increase. Smart move by DOT. Further, JetBlue’s Transatlantic flying, when it begins, will be excluded from capacity calculations, because it’s not part of the agreement.
The upshot of all this is that DOT wants those slots to be used better than they’ve been used. Instead of having all those 50-seaters buzzing around LaGuardia, preventing others from coming in, this will create incentive for American to use more 70/76-seaters. (It promises to have First Class on all flights by the end of this year.) Even beyond that, it can have JetBlue operate flights with even larger gauge. And with American adding more long-haul flights — it is still planning on Tel Aviv and Athens — that further creates more seats buzzing in and out of these constrained airports. Mission accomplished.
With these two airlines working together, they are making a bet that they can successfully compete with Delta and United. Whether that’s true or not remains to be seen, but there is a great deal of flexibility here. Think about it this way. JetBlue has really struggled in some of the business markets it serves, especially those in the middle of the country. It’s suspending Minneapolis/St Paul from JFK until April, for example while American usually flies it twice a day from LaGuardia. Nobody is doing well with that service.
With JetBlue’s general value in New York plus American’s corporate accounts that are presumably keeping this route flying at all, you can imagine a world where American can put more frequency on 76-seaters during the week from LaGuardia, becoming more attractive to a business traveler. Then on the weekends, JetBlue could fly more leisure-focused, larger airplanes less often from LaGuardia using an American slot. Slot usage can swing by day here.
I have no knowledge about specific plans for this market, but that kind of flexibility makes for some really compelling possibilities. It takes solid execution and planning, but with schedule coordination capability, all of this stuff is now on the table.
One thing that still remains up in the air is just exactly what the softer side will look like. How will transfer at JFK work between terminals? What will earning and burning of miles look like? How will elite benefits be given? There are many things that need to be worked out to ensure that schedule coordination actually pays off.
One thing I was told is that the earning of frequent flier miles will be mostly limited to flights to/from New York and Boston. That means that if JetBlue was hoping to get AAdvantage members onboard its new Miami flights to LA… good luck. This is really being designed as New York and Boston-focused. The key to it all working, however, is making elites on each airline feel like there is no penalty if they fly on the other airline to, from, or through those cities.
With the ability to coordinate schedules, JetBlue and American have a chance of making this work. It’s far from guaranteed, especially since the two airlines are supposed to walk this fine line of cooperating in some areas and fiercely competing in others. That’s not easy. But the fact that it was able to get DOT blessing to work more closely together in the Northeast means the chances of success have improved.
116 comments on “DOT Allows American and JetBlue to Coordinate Schedules in a Landmark Deal”
Whoo! No one ever said this industry would be boring.
I’m excited to see UA & DL’s network responses to this.
IIRC, the following 4 items were at least somewhat unexpected for me:
– allowing schedule coordination
– allowing capacity coordination
– allowing sharing of slots
– allowing revenue sharing
Aside from revenue coordination, this is almost a JV.
If they can implement this well, there should be no reason why AA ff won’t fly JetBlue metal and vice versa. Maybe the earning rate will be a little different, but it will essentially be the same as TATL JVs where AA ff could take fly AA or BA metal.
Since JetBlue has the better product and lower cost, what’s the point of still operating AA RJ on most of the non-hub routes? I’d imagine stuff like LGA-MSP/DTW/ATL would be among the worst performing routes for AA out of LGA. All the 44/50 seater routes are not coming back. All the routes that were a combination of E40/E75 probably doesn’t work economically for AA in a low business travel environment. If they are committing to 105% of baseline capacity by 2022 (not including JetBlue’s TATL flights), then there will be quite a bit of upgauging on those AA slots. JetBlue has a bunch of E90s sitting around collecting dust. I’d imagine a lot of them will fly out of LGA.
With more feed coming into JFK, it’s possible AA could try Tokyo again or maybe stuff like India. They can’t certainly try some stuff that’s not viable at PHL.
All of this still makes me wonder what happens at EWR. JetBlue is making a huge push there. I’m more bullish on EWR than LGA long term. If JetBlue is doing a major capacity increase at JFK/LGA, that seems to take away what they can do at EWR.
BOS is a sideshow here. I’d expect JetBlue to fly less to places like DCA/PHL/CLT. I’d expect AA to never start stuff like AUS/RDU/IND and cut stuff like SYR/ROC/MDT. Either way, I think the main expansion effort will be in NYC.
FC – I think there’s still an important place for those 175s in a couple different ways. First, you have the business markets. Sure it’s a low business environment right now, but that will change. Eventually, you’ll want multiple frequencies to serve business travelers on these routes with a First Class cabin. The E75 is good for that. Then you also have the smaller markets that AA finds valuable. I always point to Charlottesville, VA. That’s a market where AA having a nonstop helps give it power in the local CHO market. It’s not about New York. But with JetBlue’s local appeal, AA can now fly 76 seaters instead of 50 seaters and fill those up with NYC origin traffic instead of just CHO origin.
There’s plenty of opportunity to increase gauge here. Let’s do some more math! I pulled this data from Cirium, as usual. Just consider what has already been announced and changes in aircraft configurations.
*AA Embraer 140 flights go from 44 to 76 seats *AA Embraer 145/Bombardier CRJ-200 flights go from 50 to 76 seats *AA Boeing 737-800 flights go from 160 to 172 seats due to aircraft reconfiguration *AA Boeing 757-200 flights go from 176 to 172 seats due to 757 retirement *AA Boeing 767-300 flights go from 209 to 273 seats due to 767 retirement and AA seemingly wanting to use 777-200 for JFK long haul *AA Embraer 190 flights go from 99 to 76 seats due to 190 retirement *B6 A320 flights go from 150 to 162 due to aircraft reconfiguration
If nothing else changes, that’s already up to 106% of the baseline. Easy.
Then when you talk about putting JetBlue aircraft in LaGuardia and flying 777s on long haul instead of JetBlue 150-seaters… the sky’s the limit.
Are you sure there will actually be demand to allow for upgauge to markets like CHO? I think AA/B6 has to make route planning decisions based on market size assumptions for the year of 2022. Demand out of LGA has probably been down 80% since pandemic started. Even if we assume some broad recovery in leisure market, I’d imagine LGA is the last to recover out of the 3 airports. Especially in markets that rely on business traffic. I just don’t see how some of these small market will recover enough to even support a 44 seater let alone upgauge to a 76 seater. i think they are going to have to make a bigger play in markets that do have demand. I expect the LGA route map from AA/B6 to look quite different in 2022 vs 2019.
FC – I can’t be sure of anything these days, of course. But I do think that there is real value for American to continue serving these small, mid-size markets where passenger demand exists. American has been good at becoming the preferred carrier in some of these markets, and New York service can be an important component of that. That’s especially true, as noted by another commenter, in a market where there is a connection to financial services and tech. So I do think there are markets where this makes sense. Will all the market remain? Maybe, maybe not. But I fully expect that strategy of having New York as an important destination from key markets to remain a part of the overall strategy.
I think AA tried a lot of these smaller markets out of NYC, because they simple couldn’t compete with DL on the larger markets. It was just their way to utilize their slot portfolio without losing too much money. That’s how I also view their attempts to compete with ERD on markets like YYZ and CLE where competitors were running mainline or at leas 76 seaters. AA simply did not have the pricing power to fill more seats at an acceptable fare level. So the question is whether or not they will have the pricing power to do so once they also get JetBlue ff.
The problem is that most New Yorkers that fly JetBlue would hate AA’s product. They are also not the typical business travelers that AA needs on their routes. If those routes get switched to something that would more favor JetBlue’s client mix (more leisure oriented), then JetBlue would actually be more likely to make those routes work with their lower cost and more preferred cabin. I can’t imagine too many AA ff saying no to JetBlue’s onboard product.
Based on the tone of their joint release, I’m expect a really large number of slot transfers from AA to JetBlue at LGA. I’m going to guess at least 30 and probably a lot more than that. Maybe 50+?
Something to keep an eye open. The 105% is quite ambitious. I don’t see AA in a hurry to bring back NYC flights. JetBlue was probably running the following in 2019 on average days.
155 flights a day out of JFK and 16 flights out of LGA + 30 flights out of EWR.
For 2022, they’d probably need to be flying the following based on their current EWR expansion and the 105% goal.
JFK 170, LGA 60, EWR 90
That would be an increase from about 200 flights a day to over 300 flights a day. Now, a lot of the flights added will be E90 on short haul market. But that’s still a huge increase in capacity.
one thing that makes me ponder this thread is the “jetBlue FF” base. I will fully concede that B6 has a business traveler following and base in BOS but I don’t see a ton of evidence for that in NYC. DL and AA plus UA (née CO) for NJ, Rockland Co and downtown peeps seem to dominate the FF world in NY. If you look at the routes that B6 runs on heavy heavy rotation with 320/1 out of the NY airports, they are heading to FL, the Caribbean and the West. While MINT has captured high end travelers for sure and yes there is business to made in FL and in the islands, let’s be honest those routes are very leisure heavy.
JetBlue seems to be the one who gets business traffic here as AA loyal members will now get a lot more options from JFK. The question for AA is 1) do they need the feed and 2) is it really that valuable? What feed does B6 provide at JFK that they can’t replicated at PHL on their own? I suppose you can argue that TLV and other Int’l can generally support itself from JFK but not from PHL and then the extra B6 feed is icing but that’s going to depend on B6 not becoming a TATL competitor. Plus who knows when Int’l will rebound?
I haven’t flown out of CHO since my university days over a decade ago, but it’s interesting that you use that as an example.
It’s not a huge huge metro area, but beyond the presence of the University of Virginia and the associated student/athletic fans/student recruiting travel, there are some financial firms in that area, plus some biotech, and more, and the University has a decent-sized hospital associated with it.
Charlottesville is a solid 2 hours from Dulles, so few business travelers will fly into IAD and make that drive. RIC is on the opposite side of the Richmond metro area and not much that much less of a drive than Dulles, and there aren’t really any other cities ~1 hour away that offer much better airport alternatives or that are that much bigger… Put another way, if you don’t want to schlep the 2 hours from IAD to Charlottesville, CHO is just about the only reasonable option, unless you have other business in the Richmond area or possibly Lynchburg, so CHO probably has a decent geographical draw.
Another example that I’d suggest would benefit from high frequency routes from LGA/NYC with premium seats would be LGA-XNA (NW Arkansas), as that’s a business route that traditionally brings vendors in to Walmart country, and (at least at one time) XNA was one of the most expensive airports in the country in terms of average fare. The XNA metro area may have more population, but like CHO, XNA also has a major state university in the area and not many of airports within a reasonable driving distance.
It’s not just the 50-seaters that are the problem at LGA. The 76-seaters are “slot hogs” too. Delta is a terrible RJ offender at LGA. They use RJs essentially as slot squatting.
Given all the redevelopment money poured into LGA, more passengers must pass through the facility to pay for it. Since LGA is restricted to around 43 operations per hour, the ONLY way to generate more revenue is to upgage aircraft. If Delta refuses to put mainline aircraft on their LGA routes, open those slots up for bid. Let Spirit, Frontier, Breeze or even Allegiant fly the route. With their lower costs than Delta, they can lower prices and stimulate enough O&D traffic to New York City to fill a mainline jet while generating increased landing fees and greater PFC revenues for the airport. A true win-win-win for the airport, the new-entrant carriers, and for the consumers.
The is ample evidence that New Yorkers will embrace LCC and ULCC flights. Consider the success of People Express at EWR, New York Air at LGA, and JetBlue at JFK. Delta got a smoking deal when they bought scores of slots from US, but they are not using them to their highest use (even when they’re not hiding behind their slot waivers). Delta needs to be told: Either use the slots you have with mainline aircraft (717 or larger) or relinquish the slots. New York needs to stop coddling Delta.
You can stomp your feet all you want but DL is not obligated to use mainline aircraft. It already brought more seats to the NYC market by upgrading from the turboprops that US used.
DL is and will be the largest slot holder at LGA and they basically told the DOJ to pound sound in walking away from their JV with Westjet.
Besides, I am not sure why you think that DL should have to use more mainline aircraft since AA is just now realizing the value of two class RJs when DL has been doing it for more than a decade.
And to your point about two class RJs, ULCCs don’t have a premium cabin (the big up front seat is just a semi-humane ULCC product) and B6 certainly doesn’t have it.
So, AA will be forced to pull large RJs from elsewhere on its system in order to fly routes that it has underperformed DL in for years.
Wanna let us know where those extra large RJs are coming from and what markets AA will have to drop in order to lease slots to B6? That list is where DL has the opportunity to increase its lead over AA.
Totally agree Saw. I’ve thought along these lines for years in slot controlled airports: take the bottom 10% of slots moving the fewest people each year, and put them up for bid. The govt/public interest goal should be to move the maximum number of people in each slot. Moving the most people means the largest planes offering the lowest prices, which is the biggest win for consumers.
Tory….This is ESPECIALLY true now that the multi-billion dollar debt incurred from the LGA rebuild is coming due. The airport absolutely needs more landing fee generation, more PFC money, more concession and vendor fees to cover the enormous expense increase. Since Delta is the dominant carrier at LGA, they (as well as all other users) should be required to use solely and exclusively mainline aircraft for all their LGA flying. If Delta (and the other LGA RJ users) can’t be profitable using mainline planes at LGA, they should change lanes and stay out of the way. Let the marketplace dictate the winners and losers. THAT is the driving premise behind Deregulation.
SawTheMasters–
I agree that slot squatting is bad overall, but disagree with the idea of minimum equipment gauge(s). I don’t have a perfect solution, but mandating what A/C are flown on what route brings us right back to the days of C.A.B.
What is C.A.B?
Civil Aeronautics Board – government agency that regulated airlines’ routes, prices, etc. Abolished after the Airline Deregulation Act of 1978.
(It also did a few other things that were transferred to the DOT or the Postal Service, and originally also had power over accident investigation, which was transferred to the NTSB in 1967.)
https://en.wikipedia.org/wiki/Civil_Aeronautics_Board
Thanks CraigTPA. I need to brush up on my aviation shorthand! LOL
I could also just write more clearly. :)
Kevin….Thank you joining this important corollary conversation to Mr. Snyder’s post. Thank you for acknowledging the obvious: Delta slot-squats RJs in LGA to discourage free and open competition. You have tied equipment size to regulation with your Civil Aeronautics Board reference. My view is completely opposite to the regulated marketplace. I say open it up for ALL players. Let the best price combined with the best service, combined with the best product dictate the winners. Let EVERYONE have opportunity at LGA. Truly deregulate the marketplace. The consumers will decide the winners from the also-rans. But as long as Delta (and others) uses RJs to slot-squat at LGA, truly meaningful competition will be as rare there as a lack of ground stops when a cloud passes in front of the sun over LGA.
Yes, but you have undercut your own argument by proposing a minimum-gauge requirement. You can’t say “open it up!” and champion the free market while also imposing guardrails that hamstring doing just that. If a 76 seat plane is the right fit for any given market, then so be it.
This will never happen, but as a hypothetical… If one is purely interested in profit maximization for PANY in a slot-constrained LGA, what about an an annual auction where carriers bid for slots within certain timeframes (e.g., 1 slot every Monday with a takeoff time between 7-730a)?
Another nuance that might be worth accounting for would be to adjust the “slots” to account for the higher amount of separation between separation required when big planes are followed by little planes (“heavy”, etc), such that if a carrier wants to use a slot for a heavy airplane they have to big for enough “minutes” (or whatever) of runway slot time to account for the fact that a smaller aircraft will have to wait a few minutes before taking off behind that plane… Not sure how much of a problem that is at LGA, or even how of planes that LGA’s terminals and runways can support, but that’s how I’d handle it at a high level if the intent is to maximize the revenue to the airport from slot fees. Bonus is that it would nudge carriers to fly the biggest reasonable planes within a given size/separation category, as a slot to fly (say) a A321 would cost them the same as a slot for a A319.
Slot squatting was the up to 18x daily Dash-8s LGA-PHL that UsAirways used to run. THAT is slot squatting. Using RJ-900s/E-175s to serve smaller markets just seems like an appropriate business decision to me.
This is what I had in mind earlier this morning.
The DOT made a pretty good decision to try to inject competition into the NYC market even as it is increasingly becoming dominated by DL and UA. The partially immunized nature of the agreement is unprecedented in a large market. AA has clearly convinced the government of its likelihood of failing – which they can all see – which is why the DOT has allowed such broad cooperation. AA is on the verge of collapsing in NYC and the DOT is trying to prevent it. AA was the financially weakest even before covid and is still burning the most cash now. B6 is burning the most cash on a cost normalized basis.
The DOT is requiring a 2018 lookback to capacity at JFK in order to skip AA’s non-use of more than 20% of its slots at JFK. In order to just reach parity with the number of flights that the two operated in 2018, AA and B6 have to more than double the number of flights they operated at JFK in 2020 and substantially increase capacity over 2019. DL wasn’t sitting on slots and continues to operate the highest percentage of its slots of any carrier at JFK. As of March, DL and UA are both selling full schedules across their domestic systems.
As noted, B6’ international flights don’t count so it either is forced to grow well beyond its growth goals in order to allocate slots for its proposed international flights or be willing to give up more slots in the future.
AA has flown a number of markets from JFK it says it will enter and has done poorly against DL and UA from JFK and EWR, respectively. AA thinks that it will succeed based on feed – but their performance in the local market is and will be the problem and B6 can’t fix that. Further, AA presumably will use 777-200ERs for many markets, the most costly widebody. DL uses A330-300s, the most cost efficient aircraft in most of its transatlantic markets.
At LGA, AA and B6 are most likely to dump a number of small cities in order to move slots to Florida – the largest market that is within range of the perimeter restriction, where B6 has a chance to compete and where AA has had little service beyond Miami. DL will gain more in dozens of small cities because of the loss of competition from AA.
The agreement is only valid for NYC and BOS which means that B6’ new flights from MIA and AUS to LAX are not in the agreement and will result in internal competition between the two as well as between AS. While AS gets thrown a bone with oneworld, the value of cooperation comes from a single immunized carrier – and that can’t happen with even AA and B6, let alone by throwing AS into the mix.
AA and B6 might cooperate in markets like the JFK transcons where they fully compete now but there are far more markets where there will be growth markets. As I noted before, B6 alone is trying to push its way into dozens of new markets. With this agreement, they have to actually succeed for the sake of the alliance in NYC which means they will have much less bandwidth to start new markets including RDU.
B6 talks about redeploying parked aircraft but the E190s which they have to use are the most costly aircraft next to 50 seaters in the US carrier fleet. DL will be competing with the E175 and CRJ900, both of which AA can use but they will have to deploy those from other markets including their hubs or B6 can add capacity with the most costly aircraft. AA still has large RJ caps. Shifting of large RJs to NYC will weaken AA’s other hubs. AA already flies a higher percentage of its network from its core hubs on large RJs than DL or UA.
As Kevin notes, there will be competitive responses and they will be focused not just on the alliance markets – and where AA and B6 are still either smaller or not protected – or on other markets like Chicago, LA and FLL/MIA where AA and B6 have only so much bandwidth to fight off competitors.
And finally, the whole assumption of AA’s merger with US was to create a global competitor to DL and UA. AA has basically admitted that it can’t compete with DL and UA in the world’s most competitive markets and is outsourcing domestic flying in a number of major markets in order to try to compete with DL and UA. Both DL and UA can and will present a higher quality, unified network, have more financial strength – with DL having a significant advantage – and both are not creating internal competition between itself and its partners. There is a value in a global, unified carrier and it is far from a given that AA’s cobbled together alliance of low cost carriers will convince many travelers that AA can successfully compete with DL and UA on a systemwide basis.
This agreement is creative but it is not likely to succeed at meeting financial goals for both AA and B6 on a systemwide level let alone the goals that the government has prescribed for the success of the joint venture.
Just like the CARES Act, this is one more step to try to prop up the weakest, least able to compete which ultimately will fail anyway.
The good news for all carriers is that Cuomo has recognized that his costly lockdown process has destroyed NYC commerce and he has to reopen the economy. After losing multiple lawsuits esp. about religion, NYC is going to be more open – which means that we are much closer to “game on” for this alliance than we were one month ago.
And here I thought you may actually have some mea culpa for months of having no idea what this agreement entailed but still saying it was the death of AA… I’ll roll my eyes again. Find a new hobby, Tim. The agreement was genius and provides a true competitor to Delta, less so to United since Newark is its own beast. At the very least, it’s pretty clear any Delta NYC profits will be hit as B6, with a lower cost base, can take on routes that AA flew with higher cost.
I get that everyone gets excited about a new partnership and the potential for AA to regain something of what it has lost in NYC but let’s be very clear here.
I have said for years, this agreement reflects it and everyone in the industry can see that this deal is about trying to save American Airlines from the total collapse in NYC that was building long before covid.
AA has failed at its goal of creating a global competitor to DL and UA through the US merger and is now cobbling together a couple of partnerships with low cost carriers to try to offset what I have said for years – that AA cannot compete in the US’ largest markets.
The DOT’s requirements have a very high bar for adding capacity which will have enormous impacts on what AA and B6 can do elsewhere on their systems.
Other carriers have been much more stable strategically and financially before covid and in the covid era and are in far better position to respond to this than either AA or B6.
Newark isn’t its own beast because B6 chose to expand their which is why this whole thing is AA and B6 against both DL and UA as well as against every other low cost carrier that has a presence in NYC – and that list will grow because of the divestitures.
And, as much as you want to believe that DL will be hard hit, the chances are higher than DL will gain more from AA in other parts of the country because of a smaller AA in NYC and LAX than what AA gains in NYC.
This is simply one more strategy from AA to salvage the previous strategic failure. It may delay the inevitable and it may position B6 more as the heir apparent to AA’s network in NYC but it won’t change the fact that AA is still the most fragile carrier in the US and it has sought its largest partnership with a carrier that is itself burning more money than any other carrier on a cost normalized basis.
I get the hope that this time will be different but, as much as you want to believe otherwise, the chances are slim to none that it will be.
“ AA has failed at its goal of creating a global competitor to DL and UA through the US merger and is now cobbling together a couple of partnerships with low cost carriers to try to offset what I have said for years – that AA cannot compete in the US’ largest markets.”
How you can even write such nonsense is beyond me when Delta’s international equity and JV strategy is in literal freefall while None of AA’s global partners have filed bankruptcy while AA has announced and confirmed new international routes from SEA and JFK and add EI as a new JV partner.
The inside of your head must be a fascinating place.
“The good news for all carriers is that Cuomo has recognized that his costly lockdown process has destroyed NYC commerce and he has to reopen the economy. After losing multiple lawsuits esp. about religion, NYC is going to be more open – which means that we are much closer to “game on” for this alliance than we were one month ago.”
Tim,
First of all Cuomo did not “shut down the economy” as you claim, it was a prudent response to a dangerous virus that has continued to spread rapidly. Secondly, tell me what does religion have to do with this discussion? It was in response to large gathering restrictions & religious groups saw it as an infringement (laughable) of their freedom even though there was a pandemic blossoming. Great on Cuomo’s part, would have done the same.
Sean
A horrible situation for sure in NYC earlier this year.
Funeral Directors were literally stacking bodies like cord wood ( and some were prosecuted for it) and the hospitals started having to park refrigerated trailers on the streets to store the overwhelming number of bodies from covid. Quite a horrible sight on our streets.
Not sure what I would have done.
What would you have done? Let the dying continue?
The proverbial rock and hard place for sure.
Most here may not be aware, but the first CV clusters were not in NYC proper, rather they were in Teaneck NJ & New Rochelle NY. In both areas there are deeply religious communities with large families & the virus was traced back there as well as another group in western Rockland County near Suffern NY.
Curious CF, Schumer represents NY, and there is little to no mention of EWR which is usually folded into the NY Market on a Macro basis. Any comments on the AA/B6 coordination at EWR?
Also, I agree on the unknowns of practical application, especially as it applies to building connecting traffic at JFK. B6 and AA are quite far from one another at JFK with multiple security screenings required to connect between the two, not to mention US FIS facilities and the extended MCT’s that will be needed. As for LGA, B6 is in the very remote Marine Air Terminal, versus AA in the Central Terminal. Working together on the ground won’t be easy unless B6 can relocate to the Central Terminal Building.
I guess we’ll see.
Sounds like much more upside with the O/D traffic versus the connecting traffic.
> B6 and AA are quite far from one another at JFK with multiple security screenings required to connect between the two, not to mention US FIS facilities and the extended MCT’s that will be needed.
I’ve seen tarmac shuttle buses behind security work fairly well in other airports. Most recently got me from United’s ORD terminal to an Austrian connection.
Oh, I didn’t see your reply Tory until I posted my below response. Your idea with behind security shuttles makes sense.
They can fly shuttle routes out of MAT and all other stuff out of CTB. It’s also possible ULCCs will move into MAT. We will see.
They can do the same type of coordination at EWR, but AA is much smaller there. I expect substantial growth from B6 at EWR still.
It’d be curious to see what AA does at PHL.
> B6 and AA are quite far from one another at JFK with multiple security screenings required to connect between the two, not to mention US FIS facilities and the extended MCT’s that will be needed.
Thanks, as I was tempted to ask about that. That’s what I thought, but I’ve only connected through JFK once, and it still blew my mind that an airport of that size and importance didn’t offer at least airside shuttle buses to allow pax to connect between terminals without having to go (almost literally) all the way out to the curb.
I know there are other airports with similar situations, and I guess I’m spoiled, but I’m not a big fan of the NYC area airports, either for O&D flights or for connections. For a big airport with lots of connecting pax, I’ll take ATL’s layout any day (with the exception of the curbside at ATL, which has traffic jams that rival those in the rest of the ATL metro area), but not every airport has the space to allow for a design like that.
While everyone complains about the expense of ORD’s new Terminal 2 (global terminal), I do think it’ll have a huge impact on connecting traffic through ORD. To your point, very few US airports facilitate efficient International to Domestic transfers. If they get it right, it could be a game changer (big IF).
“B6 and AA are quite far from one another at JFK with multiple security screenings required to connect between the two, not to mention US FIS facilities and the extended MCT’s that will be needed. As for LGA, B6 is in the very remote Marine Air Terminal, versus AA in the Central Terminal. Working together on the ground won’t be easy unless B6 can relocate to the Central Terminal Building.”
At LGA, it maybe a necessity for B6 to move as it would consolidate operations to a central terminal & facilitate easier connections. However JFK is an entirely different setup as you note. With B6 expanding it’s terminal complex to include international flights & AA’s terminal being underused even though it was renovated & expanded about a decade ago, will the AA terminal remain viable as a stand alone facility? Only time will tell.
BA is adding a wing and several gates on AA’s T9 at JFK to move there in 2022 or 2023, while exiting T7. Plus AA has attracted several carriers into T9 including Cathay and Qantas from OneWorld.
I suspect Alaska will move there soon as well from T7. Thus AA’s T9 will be better utilized as flights return and T9 expands. Meantime, T1 at JFK was bursting with traffic prior to covid with some carriers leaving for T7. Plus B6 has an FIS facility in T5 already.
With several terminals scheduled, but delayed in being torn down at JFK, the “Inn may be very full”
once traffic returns, limiting options.
As for LGA, carriers who may move to the Marine Air Terminal from the Central Terminal for Jetblue may be Air Canada and Spirit. There are not many other options.
Should be interesting to see how the map changes.
TVmccabe – Newark is part of it. It’s not a big market for American, but JetBlue has been building it up mightily. That’s a really interesting one since JetBlue + normal United operations will not fit in the airport’s capacity. So I really am curious to see how that will all turn out.
CF,
Please remind me again why there is still the LaGuardia Perimeter Rule since LGA has more airlines and available seats. Thank you
Angry Bob – Tradition? I think there were real, valid concerns about terminal capacity for larger airplanes if you opened up the perimeter.
That is no longer an issue with the new terminal. Then it’s probably just politics. Some airlines love the idea. Some hate it. I personally think perimeters are stupid and should be removed.
If they opened up the perimiter rule for re-examination, that would blow up all of NYC aviation and everything would have to be on the table for re-examination. The reason being? LGA’s restrictions are why United hangs out at Newark. You take away the perimeter rule at LGA and suddenly United is much more vulnerable for having all its eggs at Newark and would be totally unfair to the airline which did what it could (save for Smisek’s bone-headed JFK evacuation) to better itself given the existing paradigm of a perimiter restricted LGA.
It’s similar to what’s going on at D.C. with National and Dulles. They perimiter ruled Dulles (with some notable exceptions) for years so United built up Dulles. If you what the perimeter rule at Nation, United is going to be hurt which is why they’re been vociferously arguing against it for years.
You can call this the unintended consequences of attempted deregulation; there will be fallout that hurts airlines who for years played by the existing rules and then suddenly had the rug yanked out from under them.
Someone mentioned a return of the C.A.B. era. That’s probably the only fair way out of this. Government caused this imbalance by perimiter rule-ing airports causing airlines to concentrate at less desirable airports, government will have to fix that imbalance if it’s going to take all the leashes off. If they want to end the perimiter rule, fine. But they’ll have to reset LGA’s slots from scratch (and probably JFK’s and Newark’s as well). Spread everyone out evenly amongst all three and let the chips fall where they may. Same thing for National/Dulles.
I don’t expect this will ever happen. United would be all for it. But Delta and Jet Blue would scream bloody murder because they have the most to lose in a slot lottery for the big 3 in NYC. American would probably scream the least given its position.
“They perimiter ruled Dulles”…
Groan…National.
CF – agreed. LGA should have no perimeter rule, and operations should be limited to whatever the technical capacity of the aircraft is. (The only other obvious limitation being that passengers must be domestic or entering the U.S. from a pre-cleared facility, as LGA has no commerical FIS facilities.)
The perimeter rule – like the old Wright Amendment at Love and DCA’s exemption-riddled perimeter – is just silly and an anachronism.
The best way to improve utilization of any slots at LGA is to remove the perimeter. Yes, politicians from smaller markets who love the nonstop access to/from LGA (e.g., upstate new York) will scream and howl, but if we are truly to say the market should decide what gets operated, then remove the perimeter rule at LGA. As I frequently point out, LGA is a well-located facility whose O-D passenger counts (i.e., those clearing security there) are much closer to EWR’s than people think. The UA hub at EWR brings up its total enplanements, but as “natural markets” for the locals LGA and EWR are more alike than dissimilar. So please, no more perimeter rule at LGA!
Will these divested slots allow UA to plan a more robust schedule out of JFK or will the slots go to LCCs?
Well, I’m sure there will be an auction. Can you imagine LCCs outbidding UA for JFK slots? This is where UA will get 7 slots. But it still needs a lot more to be somewhat viable at JFK.
FC: 7 JFK slots will give UA a fair schedule from LAX and SFO to attract corporate contracts and VIPs out there, combined with their EWR service. This is not about UA attracting eastside NYC fliers, but attracting west coast fliers, especially at LAX.
I think UA is looking for around 15 to 20 slots. UA is a high cost carrier. It’d be very hard for them to compete on a market like JFK-LAX offerring only 3 flights a day. They’ve also talked about adding some other hub routes. 7 slots is a good starting point, but they will need more.
I’m sure they’d love to have the extra slots if they can get them affordably. But I’m skeptical of service to other UA hubs given they have plenty of service to LGA. Right now their main goal is to be able to tell west coast corporates/VIPs they can get them to JFK nonstop next time they get invited to Brooklyn or the Hamptons (or want to visit their 2nd home there, lol). 3 flights a day has that covered (they need to add a redeye). If they’re going to Manhattan, EWR is just fine.
Mark – What’s not clear to me is whether or not this divestment will somehow be restricted to certain new entrants, or something like that, as has been done before. But no matter what, Jetblue and American get to decide who gets the slots. I don’t see why American and JetBlue would have any interest in selling to United here. The question is… who else would want them? If it’s between United and Delta, Delta might be more attractive. But I can’t imagine DOT wants Delta to get them.
JetBlue would sell slots/gates to UA for gate access in EWR.
Brett,
Any ideas on the interest for DCA slots? Maybe Southwest?
Graham – I have no doubt Southwest is interested. Spirit might think about jumping back in too. But it’s hard to know who else might want in.
It’s wild how much Tim Dunn ruins these comment threads. Love reading Cranky’s posts; absolutely cringe opening up the comments and seeing Tim bend over backwards to justify whatever Delta is or isn’t doing. The ironic thing is that it actually makes me want to fly DL less. Maybe his simping for DL is actually hurting the company’s business!
all you have to do is respond to the facts.
Just because someone can honestly see all sides of a situation and not blindly accept whatever koolaid is served by other carriers (AA and B6 in this case) doesn’t mean I am pimping (I presume that is the word you were looking for) for anyone.
Try this… just cover my name and respond to what is said. facts would make your arguments go alot further. The fact that I have them and use them to dispel many of the notions on aviation social media is why some of you squirm when you read what I write.
Focus on the facts I present and then counter with facts which can be verified and you will do just fine.
Tim,
I did mean to say simping (it’s a young person word). I see people respond to facts all day long on here and you reply with facts that are either irrelevant or not actually facts at all. OBVIOUSLY DL is a stronger competitor in the industry than UA or AA, but your comments would suggest that this is a permanent/forever position and that sooner or later DL will monopolize the entire industry because their management is just that much better than everyone else. Level with us all for a minute and admit that AA’s partnerships with B6 and AS might pose a challenge for DL! I’m not saying AA’s plan will work, but it might!!! Idk if you’re based in Atlanta and only ever fly DL anyways or what, but they’re not THAT great! At least being based in SEA myself, I fly AS often and DL sometimes and every other airline periodically. DL has a nice onboard product, but Alaska consistently has better service and cheaper tickets, maybe why most of the DL flights I’m ever on are super empty… People get frustrated on here because there’s no honesty in your comments, just a steadfast defense of whatever would probably come out of Delta’s PR department.
Hi fellow Seattle flyer. Just thought I’d throw in my own anecdotes on flying Delta out of SEA. Alaska doesn’t fly to where I’m usually travelling to so I almost always end up on DL, and prior to the pandemic those flights were basically completely full. If you were lucky you might spot one open seat on the aircraft, and super lucky if it was next to you. Granted these were 737/757 flights to other Delta hubs but I don’t think Delta was having major load factor problems looking at the crowds at other gates prior to the pandemic too
Good to hear that anecdote. Most of my travel is within the PNW / West Coast… haven’t flown to a DL hub in a while, tho I’m sure they do quite well flying to their other hubs. I fly often to RDM. Smaller market for sure so maybe not the ideal comparison, but I just looked it up and DL only flew 66% LF in 2019 on SEA-RDM compared to AS at 81%. Although I do have to suffer through flying on a Q400 most of the time LOL. Mostly i’m just tired of having to scroll past Tim Dunn’s novels of pro-Delta propaganda before finding a common that adds value to the thread.
Has a kid in the 90s the main route I flew was LGA to SYR to visit my grandparents (including as an unaccompanied minor at times), normally this was on a USAir mainline 737 (or maybe 727) it had 3-3 seating. I still remember the first time in Syracuse when I was maybe 6 (1995ish) being led down the stairs to walk out on the Tarmac because we were flying a turboprop back to New York. I know there were some additional trips on mainline 737s after thaf, with some turboprops thrown in (I know my Mom, who hates to fly would go out of her way to avoid the turboprop flights) but we started taking Amtrak more instead, with JetBlue a much cheaper alternative once it entered the market, when we needed to get up to Syracuse faster.
I would bet that the 737 was a holdover from when SYR was a USAir/Piedmont/Empire hub. The 90s was when that hub was being dismantled if I remember correctly. Hard to believe/imagine that SYR used to be a hub today and it’s taken until 2019 to see traffic levels recover to the early 90’s, then the pandemic put the breaks on that :|
all you have to do is respond to the facts.
Just because someone can honestly see all sides of a situation and not blindly accept whatever koolaid is served by other carriers (AA and B6 in this case) doesn’t mean I am pimping (I presume that is the word you were looking for) for anyone.
Try this… just cover my name and respond to what is said. facts would make your arguments go alot further. The fact that I have them and use them to dispel many of the notions on aviation social media is why some of you squirm when you read what I write.
Focus on the facts I present and then counter with facts which can be verified and you will do just fine.
as for the comment above, NYC’s death rate was so much higher than everywhere else because Cuomo ordered covid positive seniors back into senior residential facilities. He now is blocking attempts to investigate that. NY’s death rate is still the 2nd highest per capita in the US – just behind NJ that did the same thing w/ senior facilities and covid positive patients.
And religion is a part of the discussion because he tried to shut down religious activity and the courts, not me, said he can’t do that. He is now reopening the economy because religious institutions now have more freedoms than some businessesw.
You are so laughably misinformed about anything that happened in NY that it just casts more doubts on any of your other supposed facts, and I say that as a person who prefers Delta when I fly. The NYC religious lawsuit was over the position that religious restrictions were more strict than those on businesses and that they should have the same gathering rights as essential businesses. The courts ended up agreeing, but by that point it was moot as the region had at the time moved into a later phase of reopening that loosened the religious restrictions. The Gov is NOT reopening the economy because of religious groups, to say anything like that is laughable.
As for the senior home thing as a current resident of Washington I saw how easily the virus spread at those facilities but the basic rule of containment is that you don’t start moving people from an outbreak site, you lock it down. The nursing home thing is just overblown garbage, NY/NYC had very little they could do until the outbreak was well underway as the feds hadn’t restricted Europe travel or required any illness screening, and by that point in one of the largest cities in the country stopping it was going to be hard no matter what.
Brett –how much of a hit will PHL’s Europe service take with all the new TATL routes planned for JFK now as a result of this alliance? Thanks, Scott Moyer, Phila, PA
Scott – This is a great question that fascinates me. I don’t know the answer, but you can see a world where Philly loses importance here.
Vasu R. said in the beginning of this whole idea that PHL would not be hurt, but I cannot imagine how it wouldn’t be. Thanks.
While coordinating schedules is a nice operational victory, one must still consider the financial aspect. AA splitting its revenues with B6 on connecting passenger traffic puts them at a disadvantage to competitors. In addition, while B6 will give loyal AA flyers more options out of BOS/NYC, the revenue goes to B6 on B6 routes.
This is a huge victory for B6. However, for AA this is more of addition by subtraction (improves AA’s financial position by exiting money losing routes). I don’t see how this transaction provides AA with incremental financial benefit.
“I don’t see how this transaction provides AA with incremental financial benefit.”
I don’t either. If B6 flies routes on AA’s behalf from NYC & BOS, then doesn’t B6 receive the lions share of the benefit?
SEAN – It’s important not to think about this traditionally. We don’t know what kind of back-end agreements are here. I know that this is not a traditional codeshare/interline prorate agreement. The commercial terms are private, but the goal with these deals was to create benefit for both, even when one loyalist flies on another carrier. I don’t know what that means in detail, but just know that there can be more than meets the eye here.
Thanks for the additional info.
A wise sales trainer once told his class that “part of something is better than all of nothing.” He was referring to being willing to ask for help making a sale and split the resulting commission. The same holds true here. If this partnership has its intended effect, there will be more revenue, In other words, there’ll be something to split where there would otherwise be nothing. Just a thought.
If we just look at AA, the main benefit is their increased relevance in NYC which will help them attract/retain ff in NYC and in other parts of the country. In key business markets like LGA-BOS, they will be able to offer comparable schedule to DL. On JFK-LAX, they will dominate the market in schedule. On JFK-SFO, they will be able to have better schedule than DL. All of this will allow them to keep their major corporate clients happy.
If you consider markets in other parts of the country like BNA or IND. If you add flights to BOS/JFK/EWR on top of what AA already offers, they are suddenly the most attractive option to ff in those markets.
So AA’s goal here is to get the benefits of NYC relevance without having to fly those money losing routes.
I think the international connection is a very small part of this to keep pilots happy. Although, it would be interesting to see how they rationalize capacity at PHL vs JFK.
I agree with what you are saying, but it sounds like a swap to me at best rather than an overall incremental financial improvement. Yes, it may help retain corporate clients (although they now have to deal with 2 airlines instead of one), and it may pick up new customers in outer markets, but in exchange they also lose passengers on routes taken over by B6.
It seems to me that it may help improve margins by eliminating money losing routes, but it comes at a cost of decreased revenues and decreased net profits. This will be interesting to watch over the course of time, but nice win by B6.
@FC : what “clients” does AA still have left on SFO – JFK ? like 5 ? 7 at most ?
out of all the flat bed players on NYC – LAX / SFO pair, AA already had by far the most skewed distribution of flights between the 2. They can share some airport hubs, but the clientele that loved each at the first place are simply too far demographically speaking for their “alliance” is have much synergy.
This alliance will flare out even faster than the Berkshire Amazon JPM one, and only slightly slower than whatever Qantas and EK has left of their thingie these days.
Can you talk a bit about how the coordination will work in Boston?
the big question is whether they are allowed to coordinate on BOS-DCA/PHL. Those are 2 large markets where they have dominant market share. If they are allowed to coordinate there, I think JetBlue will dramatically reduce their schedule on these markets. Even if they can’t coordinate, I still think JetBlue will have reduced schedule.
Boston kind of gets lost in the shuffle here. JetBlue will be busy adding capacity at JFK/LGA to meet their obligations of achieving 105% seat capacity by 2022. Which means, they won’t be able to fly as much out of Boston. And if B6 is pumping capacity at NYC, you can bet DL will be doing the same thing. Boston might not see growth until 2023.
FC – They will be allowed to coordinate on anything touching Boston and New York domestically. The only exclusion I know is JetBlue when it flies over the Pond.
I wonder if this will mean the end of one of AAs last point to point routes SYR-BOS since B6 also flies that route or if we will just see some schedule coordination?
DCA/PHL/LGA from BOS are the first thoughts that come to my mind with this. While all three in theory were 3 way races, DL really is a minor player on the PHL and DCA routes (having dropped the routes in the early 2000s). JetBlue and AA were both running shuttle services on DCA and I’m shocked DOT didn’t make one of them divest anything close to that number of slots B6 runs on that route.
My gut is that DL would want the slots so that it could move to a similar shuttle like frequency on BOS-DCA so it can close the 3 city loop again. There is a ton of business between those two cities (the intellectual capital and the political capital … with NY being the financial and media capital in the shuttle trio) and with the Democrats back in control for the next two to four years, there will be even more traffic for sure.
Adam – I can’t say I know anything more than what you see here. Presumably American would like to use JetBlue to fill its flights to London. Maybe it will have the demand to add more Boston-Europe flying, but I don’t think that’s going to be the focus. It’s really more about helping JetBlue get more penetration into the corporate market in Boston while American can help build its offerings to the loyal Boston customers (there are a lot).
The divestment of slots at DCA makes no sense to me.
Isn’t this just a NYC & BOS partnership?
Yes, it has Southwest’s fingerprints all over it.
But they can sell them to whomever they want, right?
Jack – So far it appears that way. It’s a lease at DCA, and it will be done in one big bundle. But it does appear that the lease can be entered into with any airline if DOT approves. I do wonder if there will be further clarity on who is eligible.
Thank you. I appreciate and enjoy your work.
Masters
You hypocritically expect that DL should be held to a higher standard (mainline aircraft) than AA when it is AA – that 15 years after the DL/US slot deal is finally realizing that large regional jets are decent products and deliver revenue premiums. AA has had access to revenue data for years about how well DL does with large regional jets.
The problem is that AA is at its cap on large RJs so they have to pull those from elsewhere on their system because they heavily use large RJs from their hubs – moreso than any other carrier except AS.
And CF is right that the capacity limits could be met if AA just simply upgraded to large RJs. But AA and B6 have to add a lot of capacity that they weren’t even able to make work in 2019 (or 2018 at JFK), the best times for the industry. They can dump a lot of capacity into NYC, but it will come at the cost of the rest of their network. Do they just pull out of LAX and count on AS to carry those passengers (they can’t coordinate with AS)? If so, the chances are high that when you pull down AA’s presence at LAX and NYC and outsource large parts of it to two different carriers, they will lose their appeal in scores of medium-sized markets where AA and DL are very competitive. Corporate travel managers and negotiated traffic is not going to be wooed by a hodgepodge of service and agreements
And then you still have the fact that AA, B6 and AS are competing w/ each other in a number of markets that are not part of this agreement. Competitors will absolutely have a field day strategically targeting AS B6 and AA markets that are up for grabs knowing that the 3 “partners” are at more risk of harming than helping each other.
And the supposed international growth that AA will engage in comes in markets in which it has failed to survive before. AA will have the highest unit costs post covid; anyone that thinks they can successfully compete with DL and UA all the while defending their own hubs is breathtakingly naïve at what is at stake.
Jake,
Not one of DL’s JVs has been eliminated except for Virgin Australia which isn’t even planning to fly longhaul international flights for several years. Delta lost EQUITY in some of its JV partners but it most certainly did not lose the ability to have immunized joint ventures in all three major global regions around the globe. In fact, Korean and Asiana are merging which could strengthen DL’s joint venture across the Pacific, likely far more than before covid and also more than AA or UA can do with their Japanese partners. And Latam was not a joint venture partner before covid but it most certainly will be. Keeping AA alive on life support helps ensure that DL’s JV with Latam will be approved.
As for UA and getting slots, it isn’t clear that they will be eligible to receive them. The whole purpose of this agreement is to save a third viable competitor in NYC. UA is not disadvantaged in NYC; it just made the wrong decision to leave JFK. Even if UA is allowed to bid on the JFK slots, it doesn’t mean that DL can’t add flights from EWR to the west coast (and they may anyway).
As for the DCA slots, WN is the 2nd largest carrier based on passenger boardings – or was in 2019. DL is the 2nd largest slot holder. It is doubtful that either will be able to receive those slots. It is a fallacy to think that there is any carrier left that would be a “preferred competitor” for AA and B6 with any of these slots.
The chances are high that ULCCs will end up with the slots.
Eric is absolutely right. AA and B6 can share revenues DOMESTICALLY but they cannot share revenues across the domestic and international portions of international travel. AA can offer B6 a high enough prorate to incentivize B6 to take passengers connecting to AA domestic flights but B6 can only carry so much of that traffic because it is not profitable to carry large quantities of it because it is so low yielding. International joint ventures and fully integrated connections on the same carrier (ie DL MCO-JFK-BCN) accept lower revenue on the domestic leg because there is value from the international leg. AA and B6 cannot do that. And the chances are pretty high that B6 is going to add flights on top of AA to much of western Europe anyway.
AA didn’t rationalize its own route system post merger, has underperformed dramatically, is now hoping for partners to help it regain a position in markets it hasn’t been make work for years even as AA’s costs will be higher and AA and B6 will compete in a number of markets outside of the alliance.
Vasu has promised much and delivered far less including his repeated failed attempts in Asia and continental Europe. AA simply cannot regain what it has lost, AS and B6 or not.
In my opinion (and that’s all it is), this partnership makes sense for both sides. Neither American nor jetBlue individually can compete effectively with what Delta has built at JFK. And as Tim Dunn (who makes a number of valid points whether we agree with all of his conclusions or not) repeatedly points out, kudos must be given to Delta for having the guts to stick to its plan for New York in spite of many years of losses.
If jetBlue would have combined with either United (as Helane Becker recently posited) or Delta, the combination would have created a dominant carrier in New York. To me, the only combination in the New York area that makes sense from a competitive and regulatory standpoint is between jetBlue and American. Based on the above graphic, the combination of jetBlue and Delta at JFK would have resulted in a roughly 67% market share as opposed to the approximately 40% share each carrier will theoretically have under this arrangement.
Based on what I’ve read here and elsewhere, this is primarily about building up enough bulk to offer a comprehensive alternative to Delta for New York and Boston based customers. Connections are icing on the cake. The combination of LaGuardia and JFK simply can’t match the connectivity United enjoys at Newark. But it’s Newark. American can offer the same connectivity at Philadelphia as United can at Newark, but it’s Philadelphia.
New York/Newark is the most populous metropolitan area in the country by a large margin, and is home to a large and extremely important business community. I’m guessing (note the word “guessing” Tim) there’s enough local traffic to support both American/jetBlue and Delta. American mentioned that it was finally profitable at JFK in spite of its size (and maybe because it was willing to bite the bullet and shrink to a size it could support given its imitations?). The only figures I saw for LaGuardia showed American was losing money there, not a lot, but still enough to be a drag. jetBlue also has financial challenges and limitations to its growth outside of the eastern part of the country, where it has built a nice niche. As for the question about whether this partnership will help address those competitive challenges, only time will tell. None of us knows that answer. We can only speculate. But speculation is fun, isn’t it?
As I’ve written repeatedly, the airlines have a lot of proprietary information we don’t. They have a far better handle on their margins than we do. They have facts. We have opinions. I try not to conflate the two. I’m simply offering my opinion here.
I will address the “M” word, even though I probably shouldn’t. The “M” word gets tossed around a bit too freely at times. It won’t surprise me to see a merger between American and jetBlue at some point in the future. Whether American acquires jetBlue or jetBlue acquires American is up in the air at this point (sorry about the terrible pun). As I pointed out above, that’s really the only combination for jetBlue that could pass regulatory muster if it were to combine with a legacy carrier. Maybe American’s shrinkage has been deliberate; done to set the stage for a merger with jetBlue. As Terry Maxon observed at a TCU forum in the wake of American’s bankruptcy, government regulators tend to frown on mergers or joint ventures that involve the country’s largest carrier. That’s my “conspiracy theory” and I’m sticking to it.
Mr. Dunn……If you actually read what I wrote about RJ use in LGA, you will see that I included ALL RJ users. I wrote about Delta specifically because they are the LARGEST RJ slot-squatters at LGA. And so your ad hominem attack on me being a hypocrite is, like so many of your postings here, patently baseless and false. Mr. Snyder has repeatedly warned all of us not to make personal attacks. But you did it anyway. As several others have noted, your presence here detracts – not adds – to these discussions. Mr. Snyder controls everyone’s access to this blog, including mine. He demeans himself by allowing you to stay.
I disagree. While Dunn obviously brings a strong Delta narrative (often where there is no need for one) I often find his comments to deeper and more nuanced than the average poster.
While I rarely post here, I do read the comments every week. I respect that Dunn continues to punch above the waist and dismisses the frequent slights that a few posters continually throw at him.
Just like other internet forums – it’s one person’s opinion, don’t let it ruin your day.
SawTheMasters – I don’t see how that’s an ad hominem attack. It’s an interpretation of your previous comment. I guess I’ll have to live with being demeaning to myself.
Missed in this discussion is that the DOT’s decision basically affirms that slots will continue to exist at LGA, JFK and DCA. If they wanted to get rid of slots, they could have since no one is flying a full schedule at any slot restricted airport. DL is still the largest slot holder at LGA and JFK and will be protected. Revenue between AA and B6 cannot be counted for both – either AA flies the route and B6 gets a portion of revenue it helps generate or vice versa. But the notion that AA and B6 have the highest revenue potential because of having more combined slots is false. DL is still in the position of being the largest slot holder at both LGA and JFK and isn’t under any requirements to change or use its slots any differently than pre-covid based on current rules.
The perimeter rule at LGA is imposed by the Port Authority of NY and NJ; use of smaller aircraft at LGA is a consequence of being able to fly to less of the country than from EWR or JFK. It is also why B6 has few markets that it can cost-effectively serve from LGA other than Florida and other high volume leisure destinations. Delta has scores of efficient A220s in service now while B6 only has E190s for small aircraft. AA’s E175s (and DL’s) are more efficient than B6’ E190s
The perimeter rule at DCA is a result of federal government action.
Stormcrash,
NYC’s death count was far ahead of everyone else and there are indeed multiple officials – including medical people – that testified that the death counts were much higher than they should have been because Cuomo ordered nursing homes to take infected people back which resulted in catastrophic spread.
Washington state locked down their senior facilities and didn’t allow people to move back in if they were infected. It is amazing that you try to defend NY w/ a policy that actually kept Washington state’s case load much lower.
Of course Cuomo isn’t going to admit that he is reopening because of losing multiple religious lawsuits but he was indeed imposing stricter regulations on religion than some businesses; the courts said he can’t do that. We don’t need to argue the point because the benefit for NY is that Cuomo himself said that he has to reopen the economy even though case and death counts are soaring again (ask me about all the NYers on the beaches in Florida, Mexico and the Caribbean) because there won’t be anything left to reopen if he doesn’t. That is good for airlines.. but don’t kid yourself that there are hundreds of thousands of people that left NYC because of the lockdowns and also because they can work from home. That reality will diminish the value of air travel from NYC and also make it that much harder for AA/B6 to ramp this whole thing up. Remember they are trying to reenter a boatload of markets that either AA couldn’t make work or B6 couldn’t access. The notion that the pie will be as large as it was pre-covid or that other carriers won’t go aggressively after what is left of the market is naïve.
Masters,
The hypocrisy is that you expect Delta to use more mainline aircraft when it already uses a higher percentage of its slots, flies larger aircraft including large RJs, and yet you think that AA is doing something great because they are switching to large RJs – something DL did more than a decade ago. Those are all facts. Your logic and expectation for Delta is flawed and the DOT isn’t changing anything for Delta; I said nothing about you but about your logic and what you stated. This agreement is about AA and B6’ requirements. They are being forced to use slots they haven’t used for years; no one else is being asked to do that.
E90 does not have higher cost than Legacy E75s. They have relatively high variable costs, but JetBlue has much lower fixed costs than legacy carriers. All of this matters in calculating CASM.
This is the stage length adjusted CASM according to Alaska air back in 2019 http://investor.alaskaair.com/static-files/3a1d50cc-db5f-41c4-adc4-82bb7a47f6df:
AA 11.32
DL 11.19
UA 10.86
B6 9.25
AS 8.93
WN 8.12
Make a note that both AA/DL have over 20% higher stage length adjusted CASM than JetBlue.
According to JetBlue, E90s have stage length adjusted CASM that’s 20% higher than A320. So JetBlue’s E90s have approximately the same CASM as probably an A320/B738 sized aircraft with AA/DL. The idea that it somehow has higher CASM than anything larger than 50 seaters is ludicrous.
Do you know how many routes out of BOS where legacy airlines have dropped out with their RJ despite getting revenue premium over JetBlue’s E90s? E90s have the same number of pilots and FAs as E75. It has same generation engine. The idea that it can somehow be efficient than another E-series aircraft with 24 fewer seats is quite far fetched to say the least.
Mr. Dunn…..I never wrote a single word about AA using larger RJs in the future than they are using now. You are pulling things out of thin air. Making things up. Creating alternative truths. Some people refer to it as lying. Perhaps you should put down the keyboard for a while and enroll in a reading comprehension course.
Of course Cuomo isn’t going to admit that he is reopening because of losing multiple religious lawsuits but he was indeed imposing stricter regulations on religion than some businesses; the courts said he can’t do that. We don’t need to argue the point because the benefit for NY is that Cuomo himself said that he has to reopen the economy even though case and death counts are soaring again (ask me about all the NYers on the beaches in Florida, Mexico and the Caribbean) because there won’t be anything left to reopen if he doesn’t. That is good for airlines.. but don’t kid yourself that there are hundreds of thousands of people that left NYC because of the lockdowns and also because they can work from home. That reality will diminish the value of air travel from NYC and also make it that much harder for AA/B6 to ramp this whole thing up.
What the heck are you babbling about Tim? If you read my above post, the first CV clusters weren’t even in NYC at all. Rather they were in suburban Rockland, Westchester & Bergen Counties & all of them were in highly religious communities & then it blossomed in Lakewood NJ as well as Borough Park/ nearby areas of Brooklyn. All these areas have large families that are always gathering for religious services & other events, so a pandemic spread is rather easy. Even now many of these individuals still refuse to ware facemasks as it is an attack on their religious liberty.
As for those who moved as a result of lockdowns/ work from home, it’s a weak reason to move & when you think about it for a moment it will harm them financially both in the present as well as in the future. You may save money by paying less taxes, but your pay rate will be cut in accordance to where they go, but so will their social security once they retire.
As for future air travel, as people leave the tri-state area they will be replaced as new blood will see opportunity in the big apple. NYC isn’t dying contrary to the opinions of some, so new flyers will pass through the airports returning them to the overloaded state they use to be.
Lets please stay polite, civil, and professional and keep the focus on airline revenue management and avoid other topics such as public health policy and personal faith.
I’d like to add in long-standing Anti-Trust policy-&-terminology that 1=Monopoly, 2=Duopoly and it takes 3+ to have a Market Dynamic.
DOJ/FTC has >100 years of regulatory policy and economics to pull from but as NYC market becomes at higher risk to Duopoly it is only natural for DOJ to take more aggressive actions to support competition from the 3rd, 4th, and 5th market participants.
With the Government Assistance during Covid-19 for the Airline Industry, I see yet another demonstration of the US Free Market System’s bias to “Privatize Profits and Socialize Losses”. Put simply Government involvement (facility investment, service investment, regulation, reform, standards, policies, open sky agreements, etc) is part of the Airline industry.
Said another way, if you take their money during bad times you had better accept their rules too. I guess this is a subtle difference between “Free Markets” and “Fair Markets”. This includes the Bankruptcy Protection that enabled the creation of today’s Big3.
In this case, I see the DOJ/FTC AA/B6 policy of “Approval with Conditions” as superior to either “Approval without Conditions” or “Not Approved”.
The NYC markets are extremely interesting as they are the largest in USA due to the surrounding population density but this limits the expansion ability of each of their regional airports too. Large market demand with geographically constrained supply is not a purely competitive market and many other cities have this same constraint due to density, NIMBY’s, and more.
It would be great to see one of the better analysts on this site to compare operator RASM with airport concentration (HHI score?) to see if their is a correlation between the two as I suspect the largely duopoly airports (ATL) generate superior pricing to the market dynamic airports (LAX). Slot hogging improves Consumer Convenience (higher frequency service via smaller equipment) and pushes Supply toward a constrained environment that gives pricing power.
Competition Economics-&-Policy is not my expertise but I have been exposed to enough DOJ/FTC/EC cases to have the experiential points-of-view shared above. Thanks for letting me share my point-of-view and I look forward to reading your responses
A consolidated response.
Merger between AA and B6.
There is no way that a merger between AA and B6 could ever work solely because AA and B6 have such different labor costs. Most routes that B6 flies would not work at AA’s unit costs – primarily because of labor. In order to get costs down to B6 levels, AA would have to cut labor costs enormously. The only way a merger between AA and B6 could work is if they gutted labor costs – which they could do in bankruptcy – and then merged. AA labor would be absolutely decimated. The reason why AA’s labor costs are so high is because they have so many more employees relative to every other carrier and are far less efficient.
E190 costs
Using system level CASM and then backing into what the E190 costs doesn’t work. Further, system level costs don’t matter when you are competing on routes that are much shorter than what the E190 flies.
Airlines provide cost data to the DOT by aircraft type. As much as you want to argue otherwise, the E190 at B6 is the second most expensive fleet type to operate per ASM right after the 50 passenger regional jets and the E190 is so expensive because of maintenance costs. The engine on the E190 is most definitely not the same as what is found on the E175 or other large regional jets. Further, E175s for the legacy carriers (including AS) are flown by regional carriers which are lower cost than B6 pilots.
B6 is getting rid of the E190 not because it will pay pilots less to fly the A220 but because the operational costs of the E190 are prohibitive. Problem is that the E190 will have to stay in service for several years because B6 won’t get more than about a dozen A220s for years. By the time B6 will get a sufficient sized fleet of A220s, DL will have more than 80, assuming they have not significantly deferred deliveries – which they likely won’t do. We will find out tomorrow morning when Delta reports its financial results and likely releases a revised fleet plan.
Covid in NYC
Yes, I know that the first outbreaks in NYC were in religious communities but that doesn’t change the fact that thousands of seniors died in residential facilities and at a much higher rate than happened in other states. Cuomo aggressively locked down NY based on a highly inflated death rate among seniors that was because of his own policies and has cost the state dramatically.
People left NYC because the high cost of living there isn’t justified esp. for professionals that can work in lower cost states, esp. in the South. The significance for air travel is that NYC will be a smaller air travel market for years and it will take one of the biggest hits in terms of business travel. We can argue who that will affect but I would caution anyone about parroting the line that the big 3 will be most hit while LCCs will do well until financial results for the 4th quarter of 2020 are fully released.
And I have yet to hear anyone theorize where AA is going to get all of the large RJs they are going to use from NYC since they are at the limits of their use of large RJs right now.
The operating economics of A220 is really good. The total trip cost of A220-100 is only slightly higher than that of a 76 seater if I remember correctly. JetBlue is replacing E90 with A220-300 because A220-300’s economics is even better than A220-100. That does not mean E90’s economics are worse than 76 seaters. The aircraft are either all paid for or have really low lease cost at this point. It’s just the variable trip cost they have to worry about. You will see them using E90s out of LGA. I don’t see how they can utilize those LGA slots without doing a lot of quick turns with E90s.
E75 and E90 use the same family/generation of engines. I don’t see how you can ignore the rest of system’s cost when calculating CASM of a particular aircraft.
Just looking at variable operating cost per block hour doesn’t factor in the additional costs that legacies incur from managing multiple fleet types or from cost of farming out to regional carriers.
It misses out the the low capital cost of E90. (An all paid for 757 may have much higher CASM on a per trip basis than A321NEO, but that difference is much less when factor in the capital cost)
It definitely does not cover all the fixed costs and all the other expenses that legacy carriers have, which jetBlue does not.
A 76 seater RJ with legacy carrier has to generate much higher RASM to cover not only the variable cost of flying but also all the fixed costs that are associated with that legacy carrier. I’ve looked at enough fare data the past few years to tell you that’s the case.
Keep in mind that Breeze decided to operate a fleet of E95 to start off even with all the high maintenance and variable operating cost because the capital cost is next to nothing.
E90’s stage length adjusted CASM with JetBlue is 20% higher than A320. Which means, if they operated nothing else, JetBlue’s fleet would have about the same stage length adjusted CASM as AA/DL. JetBlue has profitably operated E90 vs legacy RJs and small narrowbodies for many years out of BOS. It will be no different doing that out of LGA.
I’m sorry but the E175 and E190 do not share the same engine. The E190 engine is much more expensive to maintain because it is unique. I would suggest you do some research.
Comparing B6′ E190 costs to DL or another legacy carrier’s system CASM makes no sense. The appropriate CASM comparison is aircraft to aircraft on the same route.
Airlines report CASM to the DOT by aircraft type. Your calculations simply are not in line with what B6 reports. I’m sorry to have to break your bubble.
Half of DL’s pre-covid routes from BOS were on the E175; half of B6′ pre-covid routes from BOS were on the E190. The E175 has a lower CASM even factoring in that they are newer.
Also, B6 significantly wrote down its costs for the E190 over multiple quarters. The aircraft is being early retired and B6′ pre-covid earnings took repeated hits to get the E190 off the books.
Aviation Week publishes quarterly CASM data by aircraft type by airline from DOT data. You might want to find it – some libraries have access to it.
There are relatively few A321NEOs in service in the US so there is no real comparison to the 757. And it still misses the point that the MD80 had the highest CASM of any aircraft but it also generated the highest margins – based on comments DL execs made – because they managed to put it in routes with the right revenue. The same is already true with the 757 which is now heavily used up and down the east coast and to Hawaii where its performance is needed. The A321CEO and 737-900ER are now DL’s primary aircraft on longhaul domestic (4 hours plus) flights. Also, the 737-900ER is DL’s predominant mainline aircraft at JFK and it has lower CASM than anything except for B6′ A321NEOs – of which there are relatively few.
and since you are on CASM, it is worth noting that B6 will be heavily using its A321NEOs for international expansion (where Delta predominantly uses the A330-300 from JFK to Europe and it has the best CASM of any transatlantic aircraft including B6′ A321NEOs) while DL will be using the A321NEOs to replace 737-900ERs esp. from JFK because it has the range to do transcons – as well as to Hawaii from the western US. CASM improvement for DL will be much greater because of its much larger number of new aircraft and its ability to put them in its most competitive markets.
Your statement about the A220 vs. E175 comparison is correct. That is why DL is replacing E175s with A220-100s esp. in SEA. The A220-300 is indeed the most efficient small narrowbody and it will help B6 significantly. Again, DL will have a couple dozen more A220-300s in service ahead of B6 on top of the A220-100s.
The real losers are every other carrier that does not have the A220- AA, AS and UA.
good discussion and I am glad that CF launched this important topic today.
The fact is JetBlue has said many times that the E90s have stage length adjusted CASM that’s 20% higher than A320, which would make their overall CASM to be about the same AA/DL’s CASM as a whole. You keep using variable operating cost, when there is a lot of fixed costs involved also. You have a habit of looking only at numbers that are in your favor.
The fact is that B6 has repeatedly run off legacy RJ out of BOS while generating lower yield on E90. Because when factoring in the low capital costs and low fixed costs, E90 does not need to generate same level of yield as legacy E75 to be viable. DL’s yield on E75 out of Boston as disastrous if you compare to rest of their system. Anyone that took a look at the numbers will be able to see that. You are also mistaking accounting practice of writing down the value of E90 with capital cost of E90.
You can keep ranting all day about other airlines. The reality is E90s will be used extensively next couple of years as they attempt to utilize LGA slots. None of your rants will stop that. JetBlue has far lower CASM than Delta even when they used E90s extensively pre-COVID. Things will not change going forward. According to you, A321CEO with JetBlue somehow has higher CASM than 739ER with DL even though it is the most efficient aircraft with JetBlue before A220-300 joins service. How does JetBlue still have 20% lower CASM than DL on stage length adjusted basis? If every aircraft it operates has higher CASM than comparable aircraft DL operates, how does it have such lower CASM?
Keep ignoring the additional costs that DL carries from having so many more fleet types and from so many other legacy costs. Your analysis is flawed big time.
Tim,
With all due respect, you have absolutely no proof that an American/JetBlue merger won’t work. That’s because there isn’t any. I was offering a speculative opinion, which I couched in those terms. You’ve countered my opinion with your opinion, to which you’re entitled. But you’re presenting your opinion as fact, which It isn’t. Neither of us has any proof one way or the other about the prospects of such a merger. I simply threw it out there as a possibility. To remind you, this is what I wrote: “It won’t surprise me to see a merger between American and jetBlue at some point in the future.” The words “It won’t surprise me” and “at some point in the future” hardly constitute a firm prediction. One more point to consider: Delta has much higher costs than jetBlue. Delta is the main competitor to the new joint venture or a potentially merged carrier at Boston and JFK. Since American’s costs are relatively high, maybe Delta is secretly hoping for a merger. But most of all, I’m most disappointed that you didn’t comment on my terrible pun.
As for large RJs, I’ve read that American is picking up 29 additional CRJ-700s from Skywest next year. That will bring that carrier’s American Eagle CRJ-700 fleet to 90 aircraft (I believe PSA has about 60). Moreover, I also read that American is adding about 15 E-170s from Republic. Those E-170s are being sourced from Delta, which has 21 of them. It won’t surprise me to see the rest of those 21 aircraft in American’s livery at some point (note that I’ve written “it won’t surprise me”). Apparently, Delta’s 76-seat RJ count has to be reduced because of Compass’ demise. Based on what I read, Compass and Delta had a flow-through agreement that allowed for additional 76 seaters, which now have to be removed from service. Many of Delta’s E-175s will now have 70 seats instead of 76. On the other hand, American’s scope clause defines a small RJ as anything with 65 or fewer seats. That means American can easily have a regional fleet that’s composed entirely of dual-class aircraft. It wouldn’t surprise me (again, note the language) to see American move in that direction and reduce the size of its regional fleet in the future. You and I agree that Delta is on the right path in reducing its dependence on regional aircraft.
By the way, I’m guessing that American’s new E-170s will have 65 seats instead of the 69 they currently have. All one has to do is add a row of “main cabin extra” or “Delta Comfort + and voila!
DL has about a dozen or so E175s with less than 76 seats.
AA can indeed operate dozens of large RJs with 65 seats – just like UA’s CRJ550 experiment – but it only increases the CASM. Crew costs and fuel burn is exactly the same – just spread out over fewer passengers. You should be able to do the math and figure out how much of a penalty a 65 seat AA RJ will have against a 76 seat DL RJ whether it be a CRJ900 or an E175.
the reason why DL’s consolidated system CASM is so much lower than AA and UA’s is because DL got off of the endless rodeo of trying to pressure its pilots to fly more large RJs and added new generation A220s – which as noted, carry 43% more passengers (33 to be exact) than an E175 or CRJ900 but at the same cost.
Passenger preference for the A220 is much higher than any regional jet.
The irony is that master’s moaning about DL adding more mainline aircraft will likely happen via the A220 and it will be the next tool that will give DL a profit advantage over AA and B6.
While AA and UA try to bend union rules by taking seats off of aircraft and deploying used regional jets, DL is buying all-new, latest technology mainline aircraft.
Get back with me in a couple years and argue how well AA and B6 are doing with regional jets (which includes the E190) against DL’s mainline A220s.
Delta has 57 aircraft nominally designed for 76 seats that are fitted with 70 seats. But we’re quibbling over nothing. We agree that the legacy airlines should reduce their regional fleets in favor of aircraft like the A220-100/300 or E190/195-E2 (which of those is better is up to the individual airline to determine). I also agree that the use of aircraft like the B717 and A220 is a big factor in Delta’s higher profitability. I was simply answering your question about where American is going to get more large RJs.
JetBlue A220-300 will have 30 more seats than DL A220-100. It will have same number of pilots and FAs and paying them at lower wage scale than DL. Which means, the trip costs will be about the same. 30 more seats, about the same trip cost. And that doesn’t even factor in all of DL’s legacy costs and complexity costs. Regardless of how much you try to finess this, DL’s stage length adjusted CASM is over 20% higher than that of JetBlue. All those routes that AA couldn’t operate profitably out of NYC will be workable with JetBlue’s superior product and much lower unit cost.
Oh just stop it with the Cuomo/NY is dying nonsense. The literal freezer truck morgues would beg to differ that the death count was inflated. As for assisted living facilities people are there for a reason, they need assistance to live. Moving people out of those facilities during an outbreak would have just jeopardaized their care, stretched the medical community thinner, and risked spreading the outbreak as you don’t have any perimeter to try and defend. Besides if the residents need care where the heck would they have been sent to?
And for the last time the governor is not being forced to reopen by the religous cases or some perceived grave threat to the economy. NYC is not the entire state and people are not fleeing the region on masse, some fair weather wannabe hipsters make a bunch of flashy I’m leaving/the NY I loved is dead cause no social scene right now and suddenly everything must be doom and gloom. The governor has been very deliberate in stepping up and down restrictions in each region as necessary including over the past several months, there has been no “reopening despite rising cases”
Delta has 57 aircraft nominally designed for 76 seats that are fitted with 70 seats. But we’re quibbling over nothing. We agree that the legacy airlines should reduce their regional fleets in favor of aircraft like the A220-100/300 or E190/195-E2 (which of those is better is up to the individual airline to determine). I also agree that the use of aircraft like the B717 and A220 is a big factor in Delta’s higher profitability. I was simply answering your question about where American is going to get more large RJs.
I actually don’t mean this to rile up Tim. And tim, this is just an article request to Cranky.
Cranky, I was curious if you’d think about an article focused on Delta’s future international strategy? It was focused on JVs and equity partnerships that are significantly different post – Covid whether VA gone across the Pacific or whether potentially diminished/wiped-out equity stakes could cause partners to reconsider how their JVs are structured. How will delta look at hubs now? Their international hubs have new competition that wasn’t really there before whether SEA, BOS, JFK, and even LAX with AS/AA teaming up. Will delta keep all the Haneda slots (PDX?) in a post Covid world or refocus on ICN as an Asian AMS?
Is it too early for an article like that since AM, LA, and even VS are still TBD and we just don’t know international demand?
It seems like we see so much of what AA is doing differently, United is always going to fall back on their power hubs and none of their JVs seem hurt…
The question seems to be what will delta do now that their old international strategy is, at a minimum, different now?
Jake–
I’ll co-sign that request. I’d love to read more about the plan for Int’l (and on a personal level, specifically about the Caribbean).
As a DL employee, we haven’t heard much of anything substantive.
Jake – Good questions, but I do think it’s probably a little early. There is so much that’s still up in the air. Virgin Atlantic is hanging on by a thread. LATAM is still waiting for Delta to live up to its end of the bargain to build out Miami. Virgin Australia is a non-factor. Korean is working on an Asiana merger. WestJet is dead as a JV. We haven’t seen Delta make any moves of note internationally, so it’s really a waiting game here.
Also would like to co-sign a request on that post whenever you think the timing is right, Cranky. Beyond the JVs, DL is now under assault at BOS, JFK, SEA, and LAX (and RDU and LGA domestically, while MIA has suddenly gotten crowded making growth there harder). That’s a lot of battles to fight, battles that were funded in the past by profits at their core hubs, but those profits aren’t there in a covid world or even a near-future post-covid world. How does that realistically play out? I think your audience would be ok with pure speculation now on some potential scenarios with something more solid in the farther future?…
Ghost,
Delta has 100% of its fleet that are carrying about 1/3 less than any other carrier due to seat blocking which they are committed to doing for at least 2 1/2 more months (I’m guessing they will wind it down by April) and yet they still just reported what I would bet is the best cash burn per pre-covid cost basis in the industry and will actually grow its cash by the end of the next quarter – which means they should be able to pay down a large portion of the debt they have taken on when demand returns. They have more than $10 billion in unencumbered assets. Those kinds of numbers are what airlines that are engaged in substantial strategic ventures need to have. AA and B6 don’t have them and they are the ones – either jointly or individually – that have been all over the map trying to grow in other carrier strength markets and trying to convince others how well their partnerships will work. I’m not sure how long you have been following the airline industry – you don’t seem like a youngster – but financial strength matters a lot when you get into these competitive market battles and that is exactly what the AA-B6 partnership and the AA-AS sideshow is all about.
And you seem smart enough to be able to do the math re: the CASM difference between a 70 seat and a 65 seat configuration of the same aircraft by the same operator but for those that don’t want to do the math – that is still a 7% CASM hit. Of course, UA’s CASM hit is even higher when putting 50 seats on what is supposed to be a 70 seat aircraft. The argument that “we can get premium revenue that way” makes no sense if the alternative is to use mainline aircraft with a first class and economy plus cabin – which all three of the global carriers use. The alternative is to use mainline aircraft or a neutered regional jet; AA and UA are pushing the neutered regional jet model while DL is pushing the mainline model including with the largest fleet of mainline small jets.
Jake,
Just to be clear, DL has had the least amount of competitive capacity changes in its major markets compared to AA and UA. The powerhouse UA hubs you mention include EWR which has seen a dramatic buildup by B6 which makes them the #2 carrier, ORD and IAH- which sees WN start service in multiple markets where UA is the top carrier from ORD and IAH, and DEN where WN Is increasing its lead as the largest carrier in the DEN LOCAL market.
The real change competitively is in the Pacific which overlaps with your question about JVs. I’d be happy to see CF tackle the question but a few correct facts might help frame the discussion.
– DL hasn’t lost any JVs as a result of the covid era except for Virgin Australia. Since no Australian carrier is flying longhaul international at the moment, no one’s joint ventures to/from Down Under matter much.
– DL lost EQUITY in some of its JV partners or in the case of Latam, an intended JV partner. DL’s JV w/ Aeromexico and Virgin Atlantic continues and there is no indication at this point that either are any more likely to fail than any other country in their regions.
– DL invested in the stock of foreign carriers while other carriers including AA, WN and UA bought back higher percentages of their own stock. DL’s losses in foreign carrier stock become part of DL’s losses which means those losses offset DL’s taxes for future earnings. Other airlines that bought back large portions of their own stock simply lose that money; you can’t offset losses in the reduction of your own stock.
– DL’s equity in some carriers including Korean is larger than it was pre-covid and the merger of Asiana and Korean will strengthen DL and KE’s position across the Pacific. In contrast, DL and UA are the SAME SIZE flying to China because of Chinese imposed capacity restrictions. DL has the largest US carrier slot portfolio at HND while AA and UA agreed to prop up NRT, an even more risky strategy of hoping that two Tokyo hubs will work. UA WAS the largest carrier across the Pacific but it is a given that they wil be much smaller there proportionally than other carriers including DL. You only get out of a joint venture what you put into it which is why AA hasn’t really benefitted from the JL JV – AA doesn’t fly enough to Asia on its own metal to drive the market.
– and the real changer in the industry will be the DL-Latam joint venture which is on the road to approval. It will challenge AA’s dominance in MIA to Latin America, the only gateway to a global region that is dominated by a single US airline, AA. Coupled with DL and WN”s expansion in MIA, the future for AA in Latin America esp. from MIA is much less cloudy, esp. since that is the only region where they can consistently reported profits.
So, AA and UA are BOTH fighting multiple new competitive battles in their strongest markets while DL will continue with its same pre-covid strategies that are working and will increase DL’s global presence. Add in the growth of its joint ventures on top of DL’s own growth on its own network and it becomes clear why AA and UA are heading down one path and DL is heading down another post covid.
Let’s see if CF takes on the topic of JVs but, at the minimum, accurate facts need to be put on the table.
Again, that wasn’t directed at you, Tim. Please save your delta propaganda for someone else.
The question was directed at Cranky to see if he had interest in looking at it from an unbiased outside view.
Tim,
With all due respect (and I mean that sincerely), you asked a simple question. I gave you a simple answer. Your response to my answer was a non sequitur. I wrote nothing about blocking middle seats. I simply told you where American is getting some larger RJs from in response to your question. Why do you get so defensive? I haven’t seen anyone on this site argue that Delta isn’t an excellent airline. That’s because it is. I’m going to try not to get too personal, but you’re the only person on this site who responds to me when I write that it makes me sad to see people root for an airline to file for bankruptcy or be liquidated. Why is that? I’ve never accused you of having that sentiment. But I have seen it from others. Your defensive tone sometimes reminds me of a poster I used to see on other sites who went by the name “World Traveler”, but I digress… You often raise excellent points. And you’re obviously quite well informed. But reasonable people can and do reach different conclusions based on the same set of facts. To me, that’s much of what makes life interesting. It would be a very boring world if we all agreed about everything.
Delta’s earnings report was encouraging. I hope the other airlines follow suit. I want to see all of the U.S. carriers get through this without filing for bankruptcy protection. And I hope we can all get back to relative normality soon.
I’m not sure how you see what I said as defensive. I provided facts – some of which you may not have wanted – but I addressed the issue you raised. Whether Delta or anyone else is a good, bad, or indifferent airline is not the point. The discussion was about the size and number of large RJs.
You answered the question re: where AAL is going to get a bunch more large RJs – and I noted that in order to increase their large RJ fleet, they are having to take seats off of aircraft.
DL’s seat blocking is the same thing as taking seats off aircraft – but DL is doing it temporarily. and they are getting rid of costs to match the reduced revenues.
DL’s seat cap on large RJs is higher than AA’s or UA’s. elta is buying more small mainline aircraft. Their CASM has been lower precisely because it is more efficient to provide mainline service as long as you can fill the seats at decent fares. DL has been able to do that in part because of its network including because it eliminated the internal competition between hubs that AAL, and to a lesser extent, UAL still has.
Cost matters. They will matter even more as it is harder for revenue to return to pre-covid levels.
AA might be chasing more revenue by adding premium cabins in NYC but if they reduce their cost performance more than their peers, they may not have gained much in terms of profitability.
Speaking of Delta’s performance, they released their latest quarterly results this morning. For the third consecutive quarter, they failed to meet industry analyst expectations on THE most important Investor criterion: Earnings Per Share (EPS). If the CEO of the company I work for missed EPS three quarters in a row, he would very likely be terminated/retired/golden parachuted.
To be fair, the latest miss was much closer to expectations than the 11% debacle of the previous quarter. But when the CEO asserts you will be cash burn neutral by the end of the quarter and you’re actually burning $12 million a day, that gives one pause. The CEO is now predicting cash burn neutral by 03/31/21. So, clearly, there is a massive disconnect between what the CEO is thinking and the way the Company is actually performing. That also gives one pause.
This is the same CEO who had other plans the day of the Airline CEO Summit with the President in 2020. Misters Parker, Kirby, and Kelly (among others) managed to attend, regardless of political views, as the entire industry, including their respective companies, was (and still is) in dire straits. The CEO of Delta had other, presumably more important, plans that day.
Feel free to get back with us after the rest of the industry reports and then compare DAL’s performance to theirs.
You can go ahead and let us know what cash burn projections for other carriers are right now.
As Desert Ghost stated above, you do get very defensive. Hopefully, you won’t have another meltdown like a couple weeks ago. Very tawdry.
Let me rephrase myself in reference to the Delta CEO blowing-off a very important meeting in DC with the POTUS and the other airlines’ CEOs. What could have POSSIBLY been more germane to Delta Airlines, its on-going enterprise, its shareholders and its employees that the CEO had other, unbreakable, plans that day? Doesn’t he have a fiduciary duty to his Shareholders and a moral duty to his employees to attend that meeting??? At least as an expression of gratitude for the BILLIONS in free cash Delta has collected, if not to represent his Company with The President of The United States, regardless of his own personal political views???
As much as you want to believe that meeting had anything to do with anything, Delta got the same percentage of money from the CARES Act and the latest bailout as every other carrier.
What impact happened in the real world?
You do realize that Mr. Trump is leaving office unlike any other President in not more than a week?
In related news, Norwegian announced today that they are suspending transatlantic operations so there will be 1. much less low cost capacity over the Atlantic after a number of other carriers bailed out, making the prospects for transatlantic carriers much stronger, including perhaps B6’s foray into international flying and 2. there will be a number of slots that will be made available at JFK – there are other international carriers that will not use all of their pre-covid slot portfolios – so UA should have no problem getting long-term slots at JFK, making it likely that competition will heat up in the NYC market and 3. the value of the slots that AA and B6 will be selling will be falling.
Are you keeping up with the cash burn estimates and reported results for 4th quarter 2020? I can tell you right now that Delta will report the lowest cash burn on a cost adjusted basis of the big 4 and certainly lower than B6. Maybe AS and NK will be in the same ballpark as DL – maybe beat it – on a cost adjusted basis.
As competition heats up, carriers that are better financially positioned going in to the battle will come out better.
There is a good reason why Delta didn’t engage in a bunch of money-losing market share battles and isn’t committing to anything until the entire competitive situation becomes apparent. I expect that Delta will announce new routes for the summer by late winter or early spring if virus counts fall as they are expected to do as the vaccine circulation increases.
Also, to followup on CF’s article early on, Mexico and the Caribbean will be hard hit as a result of testing requirements to come back to the US which will certainly hit airlines that dumped alot of capacity into those regions.