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.
