JetBlue Pushes Back on Antitrust Critics Over American Airlines Alliance

JetBlue Airways came out swinging in defense of its Northeast alliance with American Airlines, which the U.S. Justice Department has sued to stop. The New York-based carrier says, contrary to Justice’s complaint, that the alliance only enhances competition and breaks up what was essentially a Delta Air Lines and United Airlines duopoly in the New York metropolitan region.

“New York has historically been dominated by two carriers,” Robin Hayes, JetBlue’s chief executive, told analysts during the company’s third-quarter earnings call Tuesday. “Our commitment to competition and low fares is steadfast, and we are fully committed to this alliance.”

JetBlue’s Northeast Alliance with American allows the two airlines to sell tickets on each other’s flights, reciprocate loyalty program benefits, and coordinate schedules, among other benefits. JetBlue noted that since it entered the alliance, the airline has added 58 new routes to its schedules from New York and Boston, and it plans to add up to 18 international destinations next year. For better connections on American’s network, JetBlue also plans to expand at New York LaGuardia and is adding routes to New Orleans, Nashville, and Portland, Maine next year.

Crucially, for alliance gives JetBlue, which has focused on leisure travelers for most of its 20-year history, access to American’s rich vein of high-value corporate customers. Before the pandemic, business travel accounted for about 20 percent of JetBlue’s revenues, compared with the industry average of 30 percent. The carrier believes the alliance will boost that percentage in line with its peers in the industry.

Moreover, JetBlue’s network is primarily domestic, and its international routes — with the exception of recently added and hard-fought routes to London — centers on leisure destinations in Latin America and the Caribbean. With the alliance, JetBlue can connect onto American’s much larger and global international network, positioning JetBlue better to attract corporate accounts.

But the Justice Department has other ideas. In a September suit in federal court, the agency alleged the alliance was tantamount to a merger and would significantly harm competition, particularly in the New York region. “The United States and plaintiff states bring this action to prevent the hundreds of millions of dollars in harm to consumers that will occur if these two rivals are permitted to maintain this modern-day version of a nineteenth century business trust,” Justice said in its complaint. Both American and JetBlue fought back, with American CEO Doug Parker saying of Justice, “They are wrong.” Hayes at the time stressed that the two airlines would not coordinate on pricing.

In fact, Hayes on Tuesday said the alliance allows both carriers to operate up to 500 daily flights next month, with 300 of those flown by JetBlue. The pact will result in $800 million in annual consumer benefits, he said. JetBlue plans to maintain its low-fares and leisure focus, but will gain from American’s more business-focused network.”The Northeast Alliance brings a viable third competitor to the [New York] region,” added JetBlue President Joanna Geraghty. “It allows JetBlue to compete in a way it never could.”

JetBlue got a lot of attention over the last two years with its plans to enter the crowded transatlantic market. The flights launched over the summer, and Hayes said he is pleased with their progress and anticipates bookings to spike after the U.S. lifts its restrictions on inbound passengers from the UK next month. The carrier is seeing interest from the UK rise, despite not having done much marketing of the flights in that country. Hayes admitted that press reports have fueled much of the interest and brand awareness in the UK. The carrier plans to expand its transatlantic offerings, although executives declined to elaborate where it might next fly. Access to London Heathrow is strictly limited by the airport’s capacity, and landing slots there are highly coveted.

But although the London flights got a lot of media attention — arguably more than the Northeast Alliance or the federal lawsuit — transatlantic flights comprise less than half a percent of JetBlue’s flights, Geraghty said.

Holidays Ahoy!

Like its peers, JetBlue saw demand spike in July and August, with travel approaching 2019 levels. But, also like its peers, it saw demand fall off in September as the Delta variant of the coronavirus spread. But the airline has hopes for the holidays. Bookings for December travel are starting to pick up and are “about even” with where the airline was in October 2019, Geraghty said.

But one advantage JetBlue has over its competitors, the airline’s executives believe, is that its network always has been structured for leisure and visiting friends and relatives (VFR) traffic. While other, more business-travel focused airlines have had to pivot to capitalize on leisure and VFR demand, JetBlue already had the infrastructure in place. This leaves it in good stead to capture a healthy share of holiday traffic, particularly out of New York and Boston.

But in the near term, the outlook isn’t as rosy. In usual years, leisure and VFR traffic fall off in September as schools reopen and families return from their summer holidays. Business travel usually offsets that decline, and in normal year rises to 25 percent of JetBlue’s revenues. This year is different, as companies delay recalling employees to their offices and business cancel planned trips to meetings and conferences. Corporate travel now accounts for only 5-10 percent of JetBlue’s revenues this fall, Geraghty said. This uncertainty led to JetBlue forecasting that its revenues will be down between 8-13 percent compared with 2019.

But the carrier is hopeful that next year will mark when the recovery begins in earnest. JetBlue is hoping to realize more benefits from the Northeast Alliance. By the second half of next year, it expects fuel prices to stabilize and to reap the benefits of its new hires, after they complete the training process. JetBlue will enjoy a “juniority” benefit, with many of its new hires entering the company at a lower wage than the employees who left the company during the pandemic. So far, the carrier has not reported the same difficulties in hiring as many of its competitors.

And Now, The Numbers

JetBlue reported a $130 million net income for the third quarter, up from a $393 million loss last year. Revenues quadrupled to $1.9 billion, compared with $492 million in 2020. During the quarter, JetBlue carried 9 million passengers, or 322 percent more than it did in 2020.

JetBlue forecasts that it will break even in the fourth quarter, as higher fuel prices and lower business demand take their toll. The carrier expects to fly between 4-7 percent less capacity than it did in 2019.

* This article was originally published here