American Airlines is moving forward with its Alaska Airlines and JetBlue partnerships, after walking away from both airlines after US Airways management took over. Both of these partnerships are important for the airline and make it stronger in areas of the country where it is weakest.
- On its own American Airlines is the #4 airline in New York. They could have been much larger, but current management sold the US Airways position at New York LaGuardia to Delta when they ran that carrier.
Upon taking over American they walked away from competing for New York business and tried to be an airline that brought people from other cities to New York. They didn’t need to serve every business market New Yorkers wanted to travel to, instead optimizing schedules to bring people from smaller cities to the Big Apple and back.
- American has been weak in Northern California and the Pacific Northwest for some time. American Airlines once operated a San Jose hub, and acquired Reno Air. But since scaling back both efforts their presence has largely limited to flying from the region to their own hubs.
That’s a big deal because these big gaps in American’s route network mean the airline hasn’t been competitive in two of the most important economic markets in the country, New York finance and Bay Area tech. That’s compounded since, earning most of their profits selling miles to banks, their growth prospects have been limited, unable to attract spending from consumers working in these areas.
New York JFK Terminal 8
By partnering with JetBlue, American gains strength in New York and Boston. They become, together, a viable competitor against Delta for New Yorkers. JetBlue will fly many of the short haul domestic routes and American will take these passengers internationally.
And renewing their Alaska partnership, bringing Alaska into oneworld, both gives American a strong presence in an underserved market and makes them strong against United – it also helps keep Alaska Airlines competitive against Delta which encroached on its Seattle hub.
Neither of these deals are mergers, and the Department of Transportation placed restrictions on the JetBlue deal. However Politico runs with a piece suggesting approval of its JetBlue deal is a parting gift from Elaine Chao and the Trump administration as they leave town, and will be bad for consumers. (@rakeshlobster)
Now, regular readers know that:
- I haven’t been a fan of many of the moves made by current American Airlines management, and
- I’m skeptical of mergers and anti-trust exemptions in a world where incumbent airlines are protected from competition through foreign ownership restrictions and government-imposed restrictions on which airlines can fly into congested airports.
However these partnerships give better product options for American Airlines customers. American could even be pushed to improve its own domestic product as a result.
And by giving American strength in areas where they’re weak, we’re going to see a viable competitor:- especially against Delta and United in New York. Delta is the clear market leader in ‘actual New York’ and United is dominant at Newark. American-JetBlue together become a third competitor, in a way that they aren’t really operating separately (with American focused on transatlantic, some South America, and cross country flying, and JetBlue mostly domestic).
The first critic Politico cites is Amy Klobuchar, Senator from
Delta Minnesota, home to Delta’s Minneapolis hub. Her complaint isn’t even about the deal per se and just a complaint about process (too close to the end of the Trump administration!). Delta doesn’t want competition in New York and also wants to keep JetBlue from becoming a viable competitor flying New York – London.
Spirit Airlines opposes the deal because they want the government to give it some of JetBlue’s and American’s slots,
At Reagan National, American and JetBlue will account for 60 percent of the available slots, according to Spirit. At JFK, American-JetBlue and Delta, the second largest carrier at that airport, will operate 80 percent of slots; at New York’s LaGuardia, they will operate 81 percent. While Boston’s Logan International Airport is less constrained, the pair will control the majority of flights and in some markets will be the only available carriers, Spirit said.
The argument here is disingenuous, though. Claiming American and JetBlue scarily have 60% of the market at Washington National airport when the deal focuses on working together in New York and Boston, and when American already had 52% of slots at National. JetBlue is simply a bit player there.
Washington National Airport Historic Terminal
And suggesting that American-Delta-JetBlue constitute most of the slots at New York JFK and LaGuardia is true, but misses the point. Delta is already the largest airline in New York and JetBlue and American number 3 and 4 respectively. Add any slots onto Delta’s and you get a big number, but Delta’s size is precisely the reason this deal can increase competition.
Southwest for its part complained about the deal, hoping for a slice of slots at LaGuardia and Washington National, too.
Spirit says that the JetBlue-American deal will raise prices but the number of flights at New York JFK, LaGuardia, and National airport is fixed… by the government. This deal neither increases nor decreases the number of flights, and American and JetBlue actually have to increase the number of seats flown or else they lose more slots. Without a reduction in supply (seats), what exactly is the mechanism by which prices go up?
There are positive network effects to the deal. And there are potential product benefits as well, from bigger planes to a need to keep up with better partners. There may be losers – American will no longer need to squat on slots flying regional jets from JFK to Baltimore. More efficient use of scarce slots will be bad for people who actually wanted to fly Americans regional jets from JFK to Baltimore.