It’s the Busiest Flight Route Between Europe and the U.S. Is There Room for JetBlue?
As one door closes, another one opens.
Hot on the heels of the March 28 collapse of low-cost, trans-Atlantic carrier WOW Airlines, New York-based airline JetBlue announced Wednesday that it intends to launch multiple daily flights on one of the world’s busiest routes between the U.S. East Coast and London in 2021.
The routes—JetBlue’s first to Europe—will be served by long-range versions of the Airbus A321 from New York and Boston with a reimagined version of the airline’s premium economy service called Mint that offers lie-flat seats on domestic U.S. flights, plus extras such as free high-speed wi-fi, Amazon TV and tapas-style dining. JetBlue believes its history of providing a premium service at a lower cost than rivals will be enough to entice trans-Atlantic business travelers away from major carriers such as American and Delta, whose fares JetBlue CEO Robin Hayes called “obscene” last year.
“To fly next week on a business class ticket to go to Boston or New York from here would cost you at least £6,000 ($7,800) [roundtrip] buying a published fare,” Hayes said in a speech about the new flights in London on Thursday. “The opportunity we have to drastically—and I mean drastically—lower the fares in the premium cabin is very significant.”
JetBlue is still in the process of evaluating the number of flights it will offer and the exact London airports it will serve, but Hayes says he is confident the airline will have a path into “more than one” of the British capital’s runways.
The expansion forms part of a wider move into Europe that’s viewed as the airline’s “next natural step,” JetBlue said in a statement following a party—complete with Queen tribute act and Union Jack bunting—to celebrate the new routes. Hayes confirmed on Thursday that the airline also has Schiphol Airport in Amsterdam on its radar.
In the past 20 years, JetBlue has grown from a start-up to controlling 5% of the U.S. air market. (Southwest and American each control 17.8%, for comparison.) It’s also the largest airline in Boston, flying to 70 cities with 150 daily flights. It has 253 airplanes, 23,000 crew members and operates 1,050 flights a day flying to 22 countries. Its evolution has coincided with tremendous growth in U.S. air travel. In 1998, the year before it was founded, 30 million passengers flew through New York’s John F. Kennedy International Airport. Today, that number is 62 million.
But there’s a wrinkle in JetBlue’s upward trajectory. The U.S. air market is now hugely consolidated, with four airlines controlling 80% of the air travel, an effect of a series of mergers involving the likes of Northwest, Continental and U.S Airways that began in 2005. Today, four out every five U.S. passengers flies on Delta, United, American or Southwest. So to expand, JetBlue needs to look further afield and, with Iceland’s WOW Airlines having collapsed and rival low-cost, long-haul rival Norwegian facing financial difficulties, the airline senses an opportunity to stake a claim as the go-to low-cost, trans-Atlantic airline. So, after long considering an expansion into Europe, JetBlue has decided that the time is now.
“We can accomplish things others haven’t been able to accomplish,” said Hayes. “We can combine our low fares with our superior offering.”
It should be said: JetBlue isn’t the only airline to see opportunity hovering over the Atlantic: After posting a pre-tax loss of £26.1 million ($34.12 million) this week, Virgin Airways is now targeting a return to profitability, partly through an expansion to 18 trans-Atlantic flights a day from Boston and New York with long-haul partner Delta next year.
“This is not something that JetBlue has come up with off the cuff. It’s a thought-out, genuine strategy and I think they’ve just been waiting for the right time,” says Nick Wyatt, head of travel and tourism at data analyst GlobalData. “It’s a combination of the fact that JetBlue sees that there’s an opportunity to offer a lower price point, plus the fact that a couple of the cheaper airlines are struggling.”
In many ways, JetBlue is looking to recreate the success of its entry into the transcontinental U.S. market, where it’s played market disruptor by offering its ‘Mint’ flatbed service between New York and California for $599 one-way. Yet question marks hang over whether it will excel where WOW and Norwegian have floundered—particularly as JetBlue saw its profits fall to just under $190 million in 2018.
JetBlue’s low-cost predecessors provide some lesson in what not to do. WOW, for one, operated on a business model that consisted of transporting “very, very low-fare travelers across the Atlantic via Iceland,” said aviation expert Chris Tarry. (JetBlue, meanwhile, has the facilities and the aircraft to fly direct to the East Coast.) And Norwegian is paying the price for expanding too quickly. Its Dublin-based aircraft leasing company Arctic Aviation Assets on Wednesday postponed the delivery of new Airbus aircraft for 2019 and 2020, due to cuts in capital spending. It was the airline’s second delivery postponement this year.
Another factor to consider is the fierce competition. As it does in the U.S., JetBlue is going up against a series of large, established joint ventures or JVs in its new market. Together, the likes of Delta-Virgin and American-British Airways control 70% of air traffic between the U.S. and Europe.
More crucially, the JVs have a stranglehold on European landing slots, with International Airlines Group (made up British Airways, Iberia, Vueling, Aer Lingus) now controlling around 60% of landing slots at London Heathrow.
Put simply: to survive, a new entrant needs landing slots. And at the moment they’re in very short supply at Heathrow, meaning that JetBlue is far more likely to operate from Gatwick, located to London’s south.
“We see London as really ground zero of the current battle around JVs,” Hayes said on Thursday, adding that there are signs that the airline alliance landscape is shifting. In the U.S., for instance, the Department of Transportation recently approved a joint venture between Delta and Aeromexico but only on the condition that they had to re-apply for a continuation of their landing slots. That directive led to the divestment of 24 landing slots in Mexico City. JetBlue picked up six of them, allowing the airline to launch direct, daylight services from Boston, JFK, Fort Lauderdale, and Orlando.
Hayes hopes something similar will come from the ongoing review of the Delta-Virgin and American-British Airways joint ventures to prevent the JVs from simply scooping up the landing slots of smaller airlines following a merger or takeover, as looks set to happen when Virgin acquires British low-cost carrier Flybe and inherits its Heathrow space.
“We’ll bring the airplanes, we’ll bring the low fares, we’ll bring the service, we’ll bring everything else. The thing we can’t bring are the slots,” Hayes said.
Despite this, industry analysts believe JetBlue may be able to succeed where WOW and Norwegian haven’t. Mint may be the ace in its hand for the simple reason that it allows the airline to offer low-cost premium economy service, which is the greatest producer of revenue per square meter of aircraft.
“JetBlue has a premium economy cabin and that’s where I would start if I was going to compete against an incumbent,” says Tarry. “That’s the real battleground because that’s the people at the margin. They are either going to trade up from Economy or trade down from Business.”
And pricing is key. “The one thing that WOW and Norwegian teaches us is that a certain price point is required to make this profitable,” Wyatt said. “But if they price it right, fly direct to attractive destinations and don’t go full no-thrills, then they can pull this off.”
An extra element in JetBlue’s favor is that the London to U.S. route is just about the most established international route of all, with 2.4 million passengers completing round-trip journeys from London to New York in 2018. The flight path between Heathrow airport and JFK specifically is the busiest international to the U.S. Another half million travel between the British capital and Boston each year.
“The market is big and lucrative,” said John Strickland, an aviation expert. “[B]ut the incumbents are equally not going to make their lives easy and say, ‘come and take a piece of the action’.”