Undersized JetBlue Wants to Leverage This Crisis to Grow at Big Airports

JetBlue Airways wants to cozy up to American Airlines, with the carriers on Thursday announcing a new codeshare partnership in which JetBlue will send passengers to American for its long-haul flights, mainly in Boston and New York, including new nonstops from JFK to Tel Aviv and Athens.

What sounds like a one-way partnership may help JetBlue significantly. JetBlue has a strong brand on the East Coast, but as the nation’s sixth-largest airline, it is tiny compared to its competitors. It does not fly many popular routes from Boston and New York, and on many where it does fly, it offers fewer flights than larger carriers, a competitive disadvantage.

In announcing the agreement, JetBlue suggested it plans to leverage the partnership into more growth by adding new flights “to strategic markets” on the East Coast, West Coast and in the Southeastern United States. Eventually, American said it wants to add new markets in India, Africa, Europe and South American from New York, and to fill those airplanes, American will need JetBlue to provide a significant number of connecting passengers. JetBlue said it also will use the partnership, which includes some reciprocal loyalty benefits, to boost flights at New York LaGuardia and Newark airports, and and said it still plans to start flights from New York and Boston to Europe.

The arrangement,  similar to one the airlines had between 2010 and 2014, is another indication JetBlue plans to use current airline industry crisis to improve its competitive positioning. After several years of playing the docile competitor against bigger airlines, JetBlue is on the offensive.

Even before the American announcement, JetBlue made it clear it had thrown out its old playbook. Last month, JetBlue said it would challenge market leader United Airlines with new nonstops from Newark, including flights with a premium business class cabin to Los Angeles and San Francisco. And last week, in a separate announcement, JetBlue said it would bulk up in Los Angeles, planning as many as 70 daily departures by 2025.

“I see long-term opportunity,” Scott Laurence, JetBlue’s head of revenue and planning, said in an interview after the Los Angeles announcement. “Out of these really difficult times, I think if we make the right decisions, we can make a huge difference in terms of the future sustainability and profitability of our company.”

Not the Initial Plan

JetBlue made money during the recent industry boom times, but the airline sometimes lost its mojo over the past six years, increasingly becoming irrelevant on a national stage as competitors staked out stronger positions.

The final problem was the American and US Airways merger in 2013. Following four U.S. airline mergers in five years, JetBlue was vastly undersized compared to American, United, Delta and Southwest, which held the vast majority of gates and landing rights at key U.S. airports.

The U.S. Department of Justice required airlines to divest some gates and slots as a condition of consolidation, but the access was not enough to help Alaska, Virgin American and JetBlue achieve parity. Even when smaller airlines could win gates at airports like Newark, entrenched hub carriers used economies of scale to crush them.

To improve its position, JetBlue tried to acquire Virgin America, but Alaska won the bidding at $2.6 billion, leapfrogging JetBlue to become the nation’s fifth-largest airline.

As JetBlue battled irrelevancy beyond core focus cities in New York, Florida and Boston, executives started complaining on the lobbying and speaking circuit, railing about how the Big Four controlled 80 percent of the U.S. market. For awhile, CEO Robin Hayes repeatedly blasted Delta, blaming it for why JetBlue couldn’t win more gates in Atlanta.

“It’s hard to believe that at an airport with 193 gates, we were told we could only have one gate – and we have to share it,” Hayes said in a 2017 speech. (Delta CEO Ed Bastian has called it an airport matter and said the airline didn’t block anything.)

More recently, Hayes began speaking in Europe to lobby regulators to open access for new entrants at busy airports, including London Heathrow. Airlines typically enter Heathrow by paying tens of millions of dollars for a single slot.

During the boom times, JetBlue never solved the problem. Even when competitors struggled — American has said it never has made as much money in L.A as other hubs — they would stick around and keep their gates, perhaps only to thwart other airlines.

“That was tremendously frustrating, because we’ve got a great brand, we’ve got a great product and we are bringing low fares,” Laurence said. “As we see things open up a little bit, I love the opportunity to announce 30 new routes, or to grow in Newark, or to grow at LAX.”

Will It Work?

In expanding during a crisis, JetBlue returns to an old strategy. After 9/11, JetBlue bulked up in New York, winning share at the expense of legacy airlines, while after the 2008-09 financial crisis, it built focus cities in Boston and San Juan, adding flights as American pulled back.

“We’ve grown out of crises in the past, and we have grown out of this crisis,” Laurence said.

Still, today’s climate is different. No U.S. carrier went into the crisis as a weak player, and all face the same core issues of weak demand, plus an uncertain future.

JetBlue might be in a bit better shape than American, United and Delta because it does not fly long-haul routes and carries few business travelers, who may be slower to return then leisure flyers.

But it is not so far ahead that it is immune to the crisis. Remember, this is an airline based in New York, which requires travelers to quarantine for 14 days if they enter from one of more than 20 Covid-19 hot spot states. 

In a report this week, released before the JetBlue and American announcement, Hunter Keay, an analyst with Wolfe Research, questioned whether JetBlue’s opportunistic expansion could work. In Los Angeles, he asked why JetBlue felt the need to compete “against well-entrenched and financially strong (all things considered) competitors,” on routes like Los Angeles to Las Vegas.

“JetBlue … is making questionable decisions about growth,” Keay added. “It would seem to be an odd time to add capacity to non-core markets but that’s what JetBlue is doing in droves.”

JetBlue’s competitors already may be reacting. On Thursday, Alaska, the smallest among the five airlines that already call Los Angeles a hub or focus city, announced seven new routes from L.A.. Just one overlaps with JetBlue — a flight to Bozeman, Montana — but the growth suggests Alaska will fight to keep share. Among the airlines in L.A., Alaska may have been considered mostly likely to walk away.

“As a planning organization we always have strategies on the shelf for a certain time, or a certain industry dynamic,” Brett Catlin, Alaska’s managing director of capacity planning and alliances, said in an interview. “The timing is somewhat coincidental, but we are fully committed to L.A. We intend to compete and leverage our position.”

Is There Another Plan?

If you follow the industry rumor mill, JetBlue is among the more likely targets for a merger if Covid-19 forces U.S. airlines to consider more consolidation.

Insiders often float rumors that another carrier, like Alaska or United, might want to acquire it. They may now add American to the mix, since tight codeshare agreements can serve a precursor to a merger.

In a post after JetBlue’s Los Angeles move, analyst Brett Snyder asked whether the airline’s recent offensive should be analyzed in the context of consolidation. Perhaps, he said, JetBlue is increasing its presence to attract a suitor, just like Virgin America added routes and aircraft before Alaska stepped in.

“There are plenty of reasons JetBlue could have used to rationalize this internally,” Snyder said. “Is it to be more attractive in a merger?”

In his report, Keay mentioned something similar. “Maybe this is them trying to get acquired,” he said. “It worked for Virgin America, after all.”