Ignore The Snipes From Competitors, American’s Deals With JetBlue And Alaska Are Good For Consumers

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.

    Two years ago they appeared to be in a New York death spiral and viewed their limited New York operation as ’boutique’.

  • 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:

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.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

More articles by Gary Leff »

Pingbacks

Comments

  1. American’s biggest weakness is it’s customer service. By giving their customers options to fly other carriers with better customer service they might be able to retain more of their customer base. For me I’m going to burn my miles and cancel Admiral’s club and corporate credit cards.

  2. Regarding Alaska partnership I am wondering whether:
    1) AA Elites will be getting their mile bonuses when flying Alaska the same way as on AA and OneWorld flights; and
    2) I can access Admirals Club when flying Alaska if I am an Admirals Club paid member?

  3. As an Alaska MVP Gold members, I will become a OneWorld Sapphire on 3/31.

    Through that new status, I will get preferred seating (am 6’4″ so quite valuable) as well as widespread lounge access all over the world. Additionally, miles on any One World carrier will be fully counted toward my elite qualification.

    These are substantial benefits and Alaska has, once again, made a smart move for themselves and their loyal customers.

  4. Gary, you seem to be focusing on one side of the story — American benefits and becomes a more powerful competitor for United and Delta — while ignoring the other side — Alaska and JetBlue are no longer competitors with American. Instead of three national carriers and JetBlue competing in the Northeast — we have three carriers. Instead of three national carriers and Alaska (which eliminated Virgin America as a competitor) in the Northwest, we now have three carriers. While greater convenience for Alaska, JetBlue and American customers (with better loyalty program access), the reduction in number of competitors surely makes it easier for the now big three to effectively raise prices once demand returns.

  5. As usual you make many good points. But the criticism that someone with. 52% of National’s capacity shouldn’t be allowed to go to 60% seems quite fair. That won’t increase competition but rather marginally weaken all other players there.

    And history tell us monolithic control does also lead to higher fares. No it doesn’t repeal supply and demand but if you look at airports with a single dominant airline, lots of long-term data shows they have higher fares
    On average.

  6. Clearly Gary has no idea of what monopolistic pricing is. Capacity might be high or stay the same but that doesn’t mean all of the capacity/supply will be offered if it’s not in the interest of the monopolist

  7. I’m not opposed to American forging marketing agreements & code-shares with Alaska Airlines & JetBlue.

    But, Politico’s article also cites the omission of a public commenting period (when airlines & others such as consumer groups, airports, labor unions, etc., typically offer their support or objections, which is why Southwest, Spirit & others expressed concerns about the rushed approval by the outgoing admin) by the DOT in the waning days of Elaine Chao’s tenure as Secretary.

    And while Politico’s report notes that a comment period is not required by law, the lack of a public commenting period, along with very favorable terms for American & JetBlue (as in divestiture of exceptionally few slot pairs being required to gain approval, which the Politico article also notes, does NOT even include a provision that slots divested must be allocated to new entrants/low cost carriers instead of the Big 3 oligopolists) certainly gives off “more than a whiff” (as the expression goes) that this approval was indeed rushed so that the airlines who benefit most could take advantage of an administration that regardless of one’s political leanings, I’m confident most will agree is much likelier to have approved the tie-up on much friendlier terms to American & JetBlue than the incoming administration will.

    And it’s for that reason that I believe this deal most definitely warrants revisiting & reexamination, including:

    – a proper, public commenting period;

    – imposition of more rigorous consumer protections, especially more favorable to competitors (incl. new entrants/low cost carriers) than the one announced last week at the 11th hour of the outgoing administration where allegations of corruption & crony capitalism are widespread already.

  8. @Mark – they aren’t cooperating at DCA and JetBlue is a bit player, my point was that the piece made it sound like dominance at National was a new phenomenon caused by this agreement when it is not.

    As for fares they are uniquely low and there’s really no reason to believe they’d go up, if anything the opposite is true with the introduction of a viable competitor to United and Delta.

  9. @Chris – your claim about monopolists begs the question, since you haven’t explained why or where American-JetBlue becomes a monopoly.

    And the story about monopolies is restricting supply, not increasing supply and refusing to lower price.

  10. @Birny – Alaska and American aren’t really competitors today in the Pacific Northwest or Northern California, and American isn’t a meaningful competitor in New York in any real sense.

  11. “Fixed… by the government” is slightly misleading. Yes, the FAA decides whether or not to declare an airport as slot-restricted, but it’s actually IATA which sets the rules. And IATA is an airline trade organization – so they look out for their members first.

  12. @Alex_77W – I expect the answer to your questions is yes, 1) mileage bonuses apply for all oneworld airlines except S7 and SriLankan if I recall correctly so I would be surprised if Alaska isn’t included, but that hasn’t been announced yet, and 2) yes absolutely Admirals Club members can access clubs when flying oenworld airlines which starting March 31 will include Alaska

  13. @Chris – the number of slots is fixed by the government, not just whether they’re slot controlled, and deference to IATA procedures is a choice by the US government. I agree that IATA looks out for its members over other interests. But there’s no reason the government has to capitulate to them.

  14. Gary, Claiming that American was not a competitor in either the Northeast or Northwest seems a bit of a stretch, since they did have scheduled flights. But the bigger issue is that, whether or not American was a competitor or a strong competitor, American — as the largest airline in the world has the potential to be a competitor — just as Delta became a major competitor in Seattle and Boston. The American JetBlue Alaska agreements reduce the number of actual and potential competitors in major markets. You’ve argued in the past about the anti-competitive nature of government slot allocations, yet the American JetBlue Alaska agreements exacerbate, not lessen, that anti-competitive feature.

  15. AA sucking in New York is a by-product of their:

    1) Inferior hard-product compared to jetBlue or Delta
    2) Terrible customer service
    3) Giving up their “AAdvantage” by going revenue based

    This deal does nothing to address the real problems.

  16. @Gary Leff
    Sure, I am well aware how OneWorld benefits work. I am wondering about the mentioned benefits right now, i.e., before March 31.

  17. After American merges with every airline, the folks they’ve banned for life will no longer have an airline left. But the government bailouts will get more economical since the EFT fee will be down to just one.

  18. I always knew there were some sort of undercover partnership between American AIRLINES and JetBlue for example American AIRLINES dominated the markets in the Caribbean for years and JetBlue came in with 1 flight overnight daily now the reverse happened JetBlue is dominating the Caribbean and American no longer offers non stop flights to the Caribbean, they went from flying every hour on the hour non stop flights to 1 flight a day with 2 connections MIA and DCA from 3hrs 15 minutes to 8 hrs getting back to JFK for more money ,so they stopped competing and forced us in JetBlue

  19. Just to clarify to the other commenters: AA and JB can coordinate schedules but *not* prices, and AA and Alaska don’t have permission to coordinate anything other than codeshares and loyalty benefits. All 3 are still price competitors.

  20. Prices are already skyrocketing, the idea it’s good for customers must be to curry favor from the airlines. Opinion news is always done to manipulate you…

Leave a Reply

Your email address will not be published. Required fields are marked *