I wrote last week about how JetBlue appears to be heading straight toward a partnership deal with United. On the surface, this is good news for both United and JetBlue, though of course that truly depends upon the financial terms, but let’s just assume neither party signed something that they didn’t find attractive. What does this mean for others in the industry?
Partnerships between large domestic airlines don’t happen often, so it’s notable when it pops up. And in this case, I can think of three airlines at least that would prefer a deal like this to not happen.
We don’t know the real impact, because we don’t know the extent of whatever agreement may come out of this. But let’s assume it’s no more than a frequent flier partnership, possible codeshare, and potential slot-leasing at most.
American
It’s hard to know exactly what to make of American here. It loved the Northeast Alliance that was a JetBlue partnership on steroids with schedule coordination. That was shot down by the courts, so it had to die, but when JetBlue started talking again about a domestic partnership, most people assumed that American was in the driver’s seat.
In New York, American stood to benefit the most from an agreement like this. It is a distant fourth place in the area which means it’s not generally relevant. Sure, it can hold its own in some markets, and it continues to tweak its service pattern, but a partnership with JetBlue makes it much more relevant and creates a strategic rationale for it to follow in the market. The benefit in Boston was there as well. But now that’s off the table.
In a letter to employees that it also posted in its newsroom, American said this:
Although we proposed a very attractive proposition to JetBlue and its customers and team, it became clear over time that JetBlue was focused on different business priorities. Ultimately, we were unable to agree on a construct that preserved the benefits of the partnership we envisioned, made sense operationally or financially, or was consistent with the travel rewards and co-branded card business objectives that are so important to our strategy and our customers.
That’s a lot of words to say “we couldn’t agree to terms.” Though it talks about different priorities, JetBlue has been pretty clear about what it wants. I imagine this comes down to money. My assumption is that JetBlue wanted more, and American just wasn’t willing to give it.
For American, this isn’t just about the loss in New York and, to a much lesser extent, Boston. American had to have known that United was the only other real option, so it must have taken into account the costs of letting that happen as well.
Even taking that into account, American couldn’t make this work. It has to be comfortable going it alone on the east coast, something that’s only a really big problem in New York. American remains far from being a top player, and this effectively cements that for some time. You could argue the same for Boston, though American is already much smaller there than New York. There’s much less at stake.
But what about South Florida? American is by far the number one airline with its massive Miami hub. United is a non-entity. But if this deal goes through, United will have put the proverbial camel’s nose under the tent. On its own, this isn’t really concerning to American, but it could be if things change rapidly. For example, what if United finds a way to purchase Spirit’s Fort Lauderdale operation (or possibly everything)? That combined with a JetBlue partnership means that United becomes a serious player.
There are a lot of “what ifs” here, but ultimately it’s a matter of spreadsheets and assumptions. It seems American decided this wasn’t worth the price of pursuing it further. If that’s the case, so be it. But it is definitely not good for American if United ends up tying up with JetBlue.
Spirit
There just isn’t a lot of good going on in Spirit’s world these days. It has come out of bankruptcy, but it’s still not making money. (We haven’t seen financials in a couple months, but if it was making money, I assume it would be yelling from the rooftops.) And a JetBlue tie-up with United would add to the bad news the airline has dealt with.
Spirit’s largest airport is Fort Lauderdale. Nearly a quarter of the airline’s flights touch FLL, and Spirit is the number one airline at the airport, ahead of JetBlue. In general, Spirit has moved away from higher frequency, but where frequency does exist, it usually involves Fort Lauderdale.
Competing with JetBlue isn’t that bad, especially compared to some of the other airlines it butts heads against elsewhere. See, Spirit has lower costs than JetBlue, so it can win on price and still make money. But more importantly, JetBlue can’t serve the needs of everyone in Fort Lauderdale anyway with its limited network. There is no perfect carrier there, and many people will avoid driving down to Miami if they can so it’s a free-for-all.
The problem is, a JetBlue with United attached is a more complete competitor. TrueBlue becomes more valuable for the locals and gives another differentiating point over Spirit. The network becomes much more impressive since JetBlue loyalists could fly United via its hubs to just about anywhere in the world and still earn their JetBlue points. This makes Spirit less desirable in a head-to-head matchup. That’s exactly what Spirit does not need right now.
Delta
Delta is admittedly the least affected of the so-called losers. But objectively, it would rather not have JetBlue and United partner.
For Delta in New York, this does create something that should be concerning. JetBlue or United loyalists would now have flexibility to travel on either side of the river. And if JetBlue can’t cover the globe on its own like Delta, it could now at least give the airline a run for its money.
In Boston, the situation is even more interesting. For Delta to compete with JetBlue, you’re looking almost at apples and oranges. But if you throw United into the mix with JetBlue, it becomes a more even playing field.
Delta is likely not overly concerned about this, but perhaps it should be. After all, United does keep making moves that slowly position itself to keep improving performance. This would just be another step.
Are there any winners in this? Possibly. Oddly enough, I’d say Frontier might be one. After all, what’s bad for Spirit is good for Frontier. It would like nothing more than to see Spirit go away so it can pick at the carcass. But depending upon how this deal is structured, it could distract United away from growing more in Frontier’s big Denver hometown. Perhaps this is wishful thinking on Frontier’s behalf.
Again, we don’t know that this deal will even actually happen. If it does, we don’t know what will be included. But it sure is fun to think about the potential ramifications.
32 comments on “If JetBlue and United Tie Up, There Will be Losers”
I really don’t foresee any real losers other than Spirit with a JetBlue/ United partnership as American is paying more attention to Philadelphia (if you can call it that) than JFK, Delta has a split hub operation in NYC & Spirit has nothing really going for it right now. If spirit’s Fort Lauderdale turf gets invaded, they will have nothing to defend.
A JetBlue/ United partnership could be a win, win for both as JetBlue’s hub gets stronger as a result & with United gets a hub in Florida they haven’t had since the days when it was at MIA.
Wendover Productions recently released a new YouTube video on US airlines & their networks… https://youtu.be/sY7cQNx4Hg4?si=KJoJIGxD6n3DzX6r. Always a good watch.
How did AA get so far down the list in the NYC area? Between what they historically had at both JFK and LGA along with what they got from US Airways, who was once king at LGA, what happened? Did they just throw it all away?
When we look back at the various merger integrations in the 2010s, AA did the worst job IMO of picking their hub winners and losers
DL and UA did a nice job of consolidating redundant regional capacity (i.e. CVG & MEM into ATL/DTW/MSP for DL and UA CLE into ORD and to some extent, IAD into EWR). This allowed them to take those planes and double-down at their fortress hubs, aka their money makers
AA didn’t follow that strategy – they kept NYC & PHL at roughly the same levels for years before slowly downsizing as they became less relevant in the market. And there’s a similar pattern in LAX/PHX. Yes, they did grow DFW nicely, but the regional redundancy in the NE & SW prevented them from winning either of the markets
There are three related factors for this.
1. The original US Air concentrated it’s hubs in a tight configuration in CLT, BWI, PIT, PHL & to a smeller degree LGA & BOS thanks to the shuttle. Meanwhile it’s counterpart America West focused Mostly on PHX with a second hub at LAS & a smaller hub at CMH, far away from their primary gateway for service to places like the NE & Florida. When they merged it made sense from a geographic standpoint.
2. OTOH, American was in there “four corners strategy” at that time plus ORD, DFW & was a few years away from acquiring TWA.
3. When the new American was formed there was an overlap of hubs & as a result of now focusing on the “sunbelt,” BWI, BNA, CMH, PIT were all shuttered while LAX, LAS, JFK & BOS were not receiving as much attention. In fact the whole LAS operation was seated to Southwest & then Southwest took advantage by taking over both BWI as well as BNA.
Cranky can explain it better than I ever could.
US Airways had minimal LGA presence by the time it merged with American.
US Airways sat on a huge number of slots for years, doing nothing much with them. Then they traded them to Delta for a lot of Delta’s DCA slots. This gave US Airways the leading DCA presence.
So American now has a fantastic DCA presence (which is valuable, no doubt), but it meant that the US+AA had minimal LGA.
That’s my point. AA had ~20% of capacity/slots at LGA, which isn’t enough to “own” the hub vs DL and earn a revenue premium in the market (that was DL’s prize with ~40-45% share). Yet they still hung on
Hindsight is 20/20, but what if AA took those planes and reallocate to another hub? You could lock that other market down vs a niche presence in multiple markets. Look at AA’s NE footprint post-merger: BOS/LGA/JFK/PHL/DCA were all “hubs” to some extent. Yes they locked DCA down, but when I look at BOS/LGA/JFK/PHL, AA didn’t need all 4. They should have mostly exited (for example) BOS more quickly and tried to strengthen another market to structurally win it
The history is a bit more complex at DCA – US and DL did the slot swap in 2011, with US gaining 42 slot pairs at DCA.
AA before the merger had just 32 slot pairs.
Then when US and AA merged, the combined entity had to give up 52 slot pairs (basically undoing the adds from the swap, or the merger, take your pick). And AA today at DCA is basically the same as US was after the slot swap (~55%).
The other way to say it – if the merger happened first, I doubt the slot swap happens.
No doubt. But the point is that before American bought US Airways, US Airways had handed its LGA slots to DL. It’s one of the biggest reasons that, at LGA, DL rules and AA is an also-ran.
The reason AA is weak at JFK has more to do, if I recall correctly, with AA being relatively passive after 9/11 while DL was building its JFK presence. AA was pretty passive overall from 2003 onward. It reduced the size of the terminal it was building at JFK, for instance. Meanwhile, DL went around collecting as many slots as possible. But, I admit, I cannot recall the details. I assume they start with DL having slots starting all the way back from buying the Pan Am non-LHR European operations.
DL did a brilliant job of strengthening what was, after its NW merger, very much a route network with many weaknesses.
As has discovered that they make the most money running hub operations, the bigger the better. Economies of scale and all that.
NYC doesn’t really fit that model. UA certainly runs a hub operation at EWR, but it’s highly constrained by runway and airspace issues.
LGA isn’t set up to be a hub, and JFK is slot controlled at peak hours.
Given that, they have kept a presence for business travelers but moved their hub operations elsewhere. For better or worse (mostly better) American is committed to their strategy of getting people from El Paso to Des Moines or Albany to Greensboro.
Correction AA
Interesting this post drops on a day where EWR is a disaster.
Three dimensional chess in this situation:
– I read somewhere that Luft Group was consulted concerning the UA & B6 tie up, so my prediction is that B6 will be shepherded into the Star Alliance by UA and provide domestic service to the Star carriers at JFK, BOS, FLL, & SJU
– UA gets it two gates at JFK. However, it will never let go of them, even on lease basis. An example is the multi year cat fight between DL & WN at DAL for one gate with 5 daily flights to ATL.
– Spirit may have dodged the bullet (Chapter 11), but it needs a dance partner within 4 year Administration window. Frontier is the most logical, don’t be surprised if one of the Big Four jumps in as a flanking move.
– An alliance/purchase between AS (West Coast & Pacific) & B6 (East Coast & Caribbean) looks good on paper. However, the nation does not need a 5th nation wide carrier. Too much capacity as is, and near disaster in an economic downturn. Let each defend its niche territory.
– Poor WN. Elliott is stripping it of its identity in the name of Private Equity. The only reason to fly WN will be convenience, not the level of service. Even AA has an advantage in this scenario.
– Avelo, Breeze, Allegiant, & Sun Country are niche players with nothing much to offer. Better to pick over the carcass (airframes, gates, etc) should they file Chapter 11 or 7.
Spirit just started being publicly traded again (FLYY) so we’ll be seeing SEC financials soon.
(this is one of those “going public without an IPO” publicly trading. US Airways did that after their first bankruptcy. No IPO, just registered their stock and started trading.)
First, in order to know the competitive impact of a potential B6/UA hookup, you have to know what it might entail. The Thursday article is correct in noting that a reciprocal earn and burn arrangement requires little competitive risk but it also is likely to return little benefit to either side. You can add a Star alliance membership for B6 which also has little competitive risk but, again, has marginal benefit for UA.
Second, UA has stated over and over that they want back in to JFK but Kirby also said he wants to take what he can get now and push for a closer relationship with B6 at some point in the future as conditions might allow. As much as some people want to believe that the current administration is willing to allow heavily concentrated, high profile public facing industries to concentrate further, there really is not much evidence that will happen now of in 3 ½ years.
Third, it is not a surprise that UA is pushing for access at JFK while bemoaning the mess that EWR is right now. They highlight the FAA challenges but haven’t said how much they cut EWR schedules during the rebuilding of the runway that was planned to be completely offline for several months. While weather and the FAA contribute, when you take up to 50% of the capacity of an airport’s runways out of service, there is bound to be a negative impact if schedules don’t match. UA overscheduled EWR two summers ago and had to bring schedules back and now pushes again for EWR to return to full slot controls even though UA controls a higher percentage of traffic at EWR than at any other federally slot controlled airport.
And fourth, there will be competitive responses from other carriers if there is any hint of B6/UA being allowed to proceed beyond much more than an earn and burn relationship. AA and DL both made changes and additions to their NYC operations in weekend schedule changes. If a B6/UA merger is at all possible, you can bet that AA, DL and a whole lot of other airlines will be adding service to EWR esp. if there is a hint of new slot controls. On a macro basis, if B6/UA are allowed to merge, producing market concentration, other mergers or partnerships will be announced.
And fifth, even if UA succeeds at convincing B6 to lease JFK slots, B6 and UA can’t agree as to where UA would use them. No one has fully answered the question as to why B6 would lease slots to an airline that would most certainly add flights in B6’ highest revenue and likely most profitable markets even before the government considers that the same is likely true for AA and DL.
The chances are fairly high that this will be nothing more than an AA-AS type relationship which has produced little competitive impact and has been more helpful for AS than AA.
Here’s something I just found that might be interesting regarding the reasoning behind why US based carriers didn’t buy the Airbus 380.
https://youtu.be/kzoABW9U-v8?si=NPNe1xH5YNgsaVcl
squirrel………..
According to the critics and pundits, airline consolidation was supposed to get rid of competition. It sure seems to me that today’s airlines have no problem competing with each other.
In non hub cities only.
How analogous would this be with AA and AS on the West Coast? Are there any ways to measure the impact of that arrangement or would that not be broken out in the financials?
According to official court case documents, we know the NEA came about.
When AA/B6 were still in the early stages of negotiating a partnership, it looked something along the lines of what AA/AS had (codesharing, reciprocal FFP benefits, etc) **BUT** with one major caveat- JFK slots.
American had planned to lease 33 or 34 JFK slot pairs to Jetblue (which they later did during the NEA).
To me, it seems quite obvious that B6 wanted to keep using those leased AA JFK slots, but for some reason American didn’t want to do that again. With that off the table, there was no good reason for Jetblue to team up with the smaller NYC player.
I think what’s happening is a preemptive move by United to:
1. Have an alternate to EWR. UA can continue to hype the convenience of EWR, but if people hate it so much for obvious reasons, a JFK hub is still more desirable.
2. Give UA a first right of refusal for any plans for B6 to hook up with someone else? This could be worth something.
3. B6 may be willing to screw themselves short term by giving UA access to JFK if they see a longer term potential in being acquired by United.
Additionally, wouldn’t Lufthansa have to be consulted, considering they have a JMA with United, sharing revenue? Anything that impacts that revenue would make it understandable that they’d be consulted.
DL – I don’t see why Lufthansa would have to be contacted about this. This is primarily a domestic push for United that would have limited impact, presumably. But of course, we don’t know where this will end up anyway.
@Cranky
UA has veto power over any airline joining Star which will be the bulk of the carriers at the soon to be finished Terminal 6 at JFK which has a direct connection to JetBLue’s T5. B6 is looking for warm bodies to fill its airframes. Also, TrueBlue could cross pollinate with Star adding incentive to join TrueBlue.
If the Democrats had won, I feel that a foreign carrier (Luft Group) would have bought a chunk of B6 to hedge its bet on Terminal 6.
Would love to skip the foreplay and see UA outright acquire B6, integrate the FF program, and start adding domestic F seats to the B6 birds. As a disaffected former DL loyalist, I would jump ship immediately. The current UA has a route structure that doesn’t work for me; UA + B6 would still have less convenient hubs than AA and DL, but it would be good enough to be able to kick Fast Eddie and Tom Brady to the curb (in a perfect world UA also adds comp alcohol to Econ Plus to match DL and AA).
Yup, I’m based in the midwest and am originally from SFO where my family still lives. 70-80% of my traveling is on United thanks to the ORD/SFO hubs. I also frequently travel to NYC, and that 20-30% is where I often find myself on American or Delta because they have more options to get me to JFK or LGA.
If I’m going to be in Manhattan I can justify taking NJ Transit to EWR but if I need to go to Brooklyn it becomes just ridiculous. EWR is a great hub but I think United has realized that enough people fall into this boat that they are losing out considerably by not having a competitive presence on the other side of the Hudson.
Scott Kirby has been very clear in that giving away their gates at JFK was a mistake. If you could fly SFO-LGA, that would be different, but you can’t due to the silly perimeter rule in order to allow LGA-ALB to be flown.
EWR is not New York City. This is about UA accessing incremental passengers – Long Island, CT, east side manhattan.
Rarely, will use JFK for a transcon trip or travel to Europe (better than connecting in CDG or AMS) however the travel from northern NJ to JFK is brutal and most people in NJ won’t do it regularly. And even tho EWR is a total mess lately, still not enough of an incentive to use JFK regularly (or LGA.)
If United continues to improve and adds enough scale, DL will feel the impact, but UA still has a long way to go to catch DL. But DL is doing their best to give United a chance.
Mike,
EWR is certainly part of NYC. Don’t forget the fact that Staten Island is closer to EWR than either JFK or LGA. Parts of SI are closer to Woodbridge NJ than Manhattan.
EWR is relevant to Manhattan-dwellers.
If a full merger happens, the new United would have roughly 22,000 pilots. The smallest of the big 4, Southwest, would have 12000 – nearly as many as every other mainline passenger carrier in the US combined. If they pick apart Spirit it gets more lopsided. One starts to wonder how many 800 lb gorillas the niche players can manage, even if two are wounded.
So what does the future hold for everyone else? Is it feasible to be a niche player, still? Will the ULCCs push to merge again? Will Alaska try to Voltron it’s way into becoming a 5th national network carrier (can they even, everyone smaller is ULCC and we saw where that ended for B6). Will DL, AA, or WN feel compelled to grow by merger to not get too far behind UA? Can Breeze and Avelo continue to exist entirely by tiptoeing around bigger airlines?
I feel like this could be the first domino that sets off the chain reaction.
Just playing with numbers some more, but if United also snagged about 40% of Spirit they’d have as many pilots as everyone smaller than American combined.
the pilots of both B6 and UA have justifiably expressed concern about domestic codesharing.
and long before any seniority lists are integrated, the US is going to have a long conversation about whether the US airline industry needs to consolidate further.
Given that UA touts that it is the world’s largest airline and is the largest airline in NYC by revenue, cries of “but we don’t serve JFK” are not going to be near as well received as some people wish.
UA and every other airline can grow organically. That is why UA ordered the massive number of 737s and 787s that they did. and no one can stop any airline from growing organically.
but swallowing up competitors and swapping assets does and will initiate a public discussion about where the US airline industry is and is going.
Having just 2 financially viable airlines with one of them wanting to combine with another carrier is not a conversation that the vast majority of people outside the airline industry want – which is the majority of America – want to have.