JetBlue Is Flying to Europe: Breaking Down the Competition

JetBlue Airways on Wednesday revealed what had been the worst-kept secret in aviation: It plans to expand to Europe, with service from Boston and New York.

The airline’s executives teased European routes repeatedly over the past several years to media, employees, and investors. Meanwhile, its lawyers have been active in public regulatory filings, objecting several times when U.S. and European airlines sought antitrust immunity. JetBlue believes regulatory agencies should make it easier for new entrants to fly transatlantic routes, not prop up the established players.

The flights will begin in 2021, the airline said, a much later timeframe than many had anticipated.

Still, JetBlue’s launch of transatlantic flights could disrupt the market, especially in the fight for premium-class passengers. Just as its Mint business-class cabin shook up the U.S. transcontinental market five years ago, analysts say its lower-priced premium cabin could siphon off customers from the U.S. Big Three — Delta Air Lines, American Airlines, and United Airlines — and their joint-venture partners, Air France/KLM, British Airways, and Lufthansa, respectively. Particularly vulnerable are price-sensitive business travelers who now can’t expense a full-fare premium ticket.

But this idea is not an obvious winner. An established airline like JetBlue should have little trouble with the FAA in getting approval for long overwater flights. The main issues are competition from the entrenched airlines and their joint-venture partners, which will fight hard to squash JetBlue’s encroachment on their most lucrative routes, and airport access at congested European airports.

CEO Robin Hayes made the announcement before more than 1,300 crew members at JetBlue’s JFK airport hangar on Wednesday afternoon. He plans to be in London on Thursday to deliver a keynote address to the Aviation Club of the UK, where he plans to offer more details.

Fierce Competition

For several years, U.S. airline executives told investors transatlantic flights have been among their best performers, along with domestic routes. The big airlines discounted some economy class seats to match low-cost carriers, but premium demand has been rising, offsetting weaker fares in the back.

The majors will be ruthless against JetBlue. When JetBlue discounts, they’ll lower their prices. When JetBlue innovates on product, they will copy. When JetBlue announces a new route, they might even fly it — even if it’s a sure money loser. “The big guys could take a short-term hit on some of their New York routes to force JetBlue out of the market,” said Atmosphere Research analyst Henry Harteveldt.

This has already begun. Last week, Delta Air Lines, the most aggressive of U.S. carriers, said it or joint venture partner Virgin Atlantic will launch a new flight from Boston and New York to London Gatwick in 2020. A decade ago, U.S. airlines pulled out of Gatwick, moving operations to Heathrow, which more passengers prefer, so there’s only one reason Delta wants this flight — to thwart JetBlue. “The big airlines will bring a sledgehammer to a game of tiddlywinks,” Harteveldt added.

A statement pitched at JetBlue’s lack of standard business-class amenities like lounges signals how Delta will start its fight. “Delta continues to demonstrate that we are able to connect Boston and New York to the world through an unmatched global network  paired with award-winning service, industry-leading reliability, and an enhanced customer experience both in the air and on the ground,” Delta spokeswoman Elizabeth Wolf said in response to a question about JetBlue’s transatlantic plans.

“Delta, obviously already a gorilla in the market, has a force multiplier in effect with a powerful joint venture with Air France/KLM and Virgin Atlantic, and we expect a fight,” Hunter Keay, an analyst with Wolfe Research, wrote in a note.

United Airlines may similarly fight back. This week, it put out a press release reminding customers it has the most daily flights between New York and London Heathrow. United may not be a passenger favorite like JetBlue, but it has been adding its newest business-class and premium economy seats to planes flying to Europe. That seat should keep United competitive against JetBlue.

American and British Airways, which dominate the U.S. to London market, haven’t said their intentions yet, but they also likely will fight to maintain share.

Airport Access

A major impediment to JetBlue’s transatlantic expansion plans is airport access at Europe’s most desirable airports. London Heathrow and Amsterdam Schiphol — both within range of JetBlue’s Airbus A321LRs — have limited ability to add new service. Heathrow is a particular pain point. American’s partnership with British Airways gives it ample service at Heathrow, as does Delta’s partnership with Virgin Atlantic.

JetBlue is not happy about it, but regulators in the United States and Europe have repeatedly approved anti-trust immunity for the largest U.S. and European airlines, allowing them to coordinate on schedules, pricing, and other commercial activities. In recent years, JetBlue has been vocal in its objections to the governments on both sides of the Atlantic, allowing more consolidation in the industry, arguing that the airline industry risks turning into an oligopoly that will shut smaller airlines and new entrants out of desirable markets.

JetBlue is not opposed to antitrust immunity, per se, but it insists that regulatory agencies should periodically review joint ventures to account for changes in the competitive landscape, while ensuring other carriers access to certain markets.

JetBlue will be just one of a handful of truly independent full-service airlines flying across the Atlantic, joining SAS, Lot Polish, and Tap Air Portugal. It could hook up with one of them, but that’s not the same as a joint venture with a massive European carrier.

In a recent regulatory filing, JetBlue said comments by Virgin Atlantic executives on the acquisition of Flybe revealed their true intentions: The acquisition will strengthen Virgin Atlantic’s links to Air France and KLM’s hubs in Paris and Amsterdam. Virgin Atlantic had hewed to a claim that the acquisition would not change the competitive dynamic.  This is further evidence that the big carriers are stitching up slots at the most desirable airports, JetBlue argues.

Access to Heathrow has never been easy. In the first decade of the 2000s, Continental famously paid more than $200 million for four pairs of takeoff and landing slots at Heathrow. Although prices have fluctuated and are lower now, JetBlue has signaled that it’s unwilling to buy slots, even if they were available. Instead, the carrier is arguing that regulatory agencies should make more slots available at Heathrow and Schiphol for new entrants to foster greater competition. Some slots at Heathrow could become available to new entrants as a result of Virgin Atlantic’s acquisition of Flybe, but which airlines these could be allocated to remains unknown.

Of course, JetBlue could operate to any of London’s other airports, but Gatwick, Stansted, and Luton are not as convenient for business travelers, nor do they offer as many connections as Heathrow.

One airport in London could offer JetBlue an unmatched competitive advantage, and that’s London City. The airport is popular with financial-services executives, as it’s closer to London’s banking center than any other airport. However, most aircraft that can fly across the Atlantic are not certified to operate at the airport, due to its short runway. JetBlue, though, has ordered a fleet of Airbus A220-300s, which are among the few aircraft capable of flying to the U.S. East Coast able to operate to the close-in London airport. JetBlue is expected to begin taking delivery of the first of its 60 A220s on order next year.

British Airways currently operates a London City-JFK flight on an Airbus A318 configured with an all business-class cabin, but this aircraft needs to stop for fuel in Shannon, Ireland, on its way to New York. The Airbus 220-300s JetBlue has ordered do not. “The big carriers will just have to cry ‘Uncle’ and walk away if JetBlue goes to [London] City,” said Harteveldt. “The game is over, although Delta could compete when it get its A220s.”

Delta, which already flies the smaller A220-100, is taking delivery of the first of 50 A220-300s next year.

So Why Now, and What Does It Mean for JetBlue?

JetBlue this year began taking delivery of the first of 85 Airbus A321 NEOS. With the addition of this aircraft type, JetBlue finally has an aircraft that can easily connect the U.S. East Coast and Europe and still offer JetBlue’s Mint business-class cabin. That’s the first reason.

By flying to Europe, JetBlue will be in better position to retain customers in New York and Boston. In recent years, JetBlue has been winning a bigger slice of the lucrative corporate market in both cities. But larger companies want to have contracts with airlines that can fly them everywhere — not just on domestic routes.

Second, JetBlue, with the A220 order, has the flexibility to offer flights to London City, if it should choose to do so. This could be a game-changer for JetBlue and would make for a compelling differentiator from other airlines in the market.

The big airlines will fight back — and hard. This could make life difficult for JetBlue and could cost it significantly if the airline gets embroiled in a protracted battle for market share. And regulatory relief is far from certain. JetBlue could end up fighting for scraps at the more desirable airports or could be relegated to secondary airports that business-class passengers won’t want to fly to.

However, if JetBlue is smart about it, even a retreat from Europe would not be disastrous for the company. If it finds it can’t compete or that its Europe flights are not working, JetBlue can simply reallocate the A321s and A220s to domestic and near-international routes in its current network. It’s not making a huge bet — like Canada’s WestJet, which is expanding internationally with Boeing 787s that won’t work on its domestic and U.S. network. And JetBlue has been hinting at its Europe flights for a long time and has publicly said it will expand slowly into the market — so it’s not being irrational and expanding too quickly, like Norwegian or the Iceland’s now-gone Wow Air.

If it works, though, JetBlue could crack open the lucrative transatlantic market in a way that the low-cost long-haul carriers could not, and that would be game-changing. It could start to turn the tide on the airline consolidation of the last decade by encouraging other airlines to challenge the incumbent major carriers.

— Skift Airline Weekly Senior Analyst Jay Shabat contributed to this report.

UPDATED: This story was updated to include details from JetBlue’s official announcement.