American Airlines and JetBlue have a joint venture covering New York and Boston that the federal government approved, and then sued to block, even though none of the facts of the arrangement had changed. Competitor airlines like Delta don’t want to see a viable alternative in New York and have lobbied heavily for government protection, ironically in the form of anti-trust.
On its own American Airlines is too small in New York to compete for corporate business, and can’t serve all of the destinations or with the frequency that Delta and United can. JetBlue is in the same circumstance. Since flights at both New York JFK and New York LaGuardia are capped by the federal government (slots) they cannot grow.
However they can sell their services together, and that’s big enough to compete. Joint ventures aren’t always seamless as I found with American’s tie up with Qantas and continues to be the case with reciprocal American-JetBlue benefits. Nonetheless, by swapping slots and using larger aircraft, American and JetBlue are increasing service in New York which has the effect of lowering – not raising – price.
During its first quarter earnings call, American Airlines was asked about the consumer benefits of the tie-up. Chief Revenue Officer Vasu Raja argued that the consumer benefits of the tie-up are evident,
- They brought back Northeast flying “faster than competitors”
- They “brought JetBlue into LaGuardia” (by having JetBlue fly slots held by American)
And, he says, they know customers like the arrangement because it’s driving engagement in AAdvantage, suggest that “for the first time in as long as we’ve recorded it, AAdvantage enrollments are growing in New York at a faster rate than anything else in the system” and also in terms of absolute enrollments. American’s credit card acquisitions are greater there than elsewhere in system.
That’s the point I made – and made directly to Vasu Raja three years ago – that by abandoning New York American was leaving revenue from New York credit card spend on the table, and that the airline became relevant in the Northeast they’d be able to compete for spend in the most lucrative market in the country. I suggested that ignoring credit card acquisition when evaluating profit and loss on routes was doing the accounting wrong.
However JetBlue’s bid to acquire Spirit throws the whole Northeast Alliance up for grabs.
- The federal government would never have ok’d American+JetBlue+Spirit
- This gives the government more ammunition to argue that circumstances really have changed, and the market will become (marginally) more concentrated in its fight to unwind the deal
American’s Steve Johnson offered that analysts shouldn’t write off the partnership because “JetBlue’s acquisition of Spirit is not a foregone conclusion” and JetBlue hadn’t given up on the partnership in bidding for Spirit (“part of their bid for Spirit contemplated keeping” the NEA).
Ultimately they argue “the JetBlue-Spirit combination doesn’t change..the value we create for consumers in New York and Boston” according to American Airlines. And they’re expecting to go to trial to defend the arrangement in September – not to settle.
The risk to the joint venture between American Airlines and JetBlue, though, is that the government could make JetBlue dropping the joint venture a condition of its approval of the Spirit deal, and that could induce them to drop their American partnership.
And then American is left, once again, with an operation too small to compete in New York yet too large to walk away from.
Feel free to back up this sentence with facts, Gary, by tell us what protection Delta has argued for that American doesn’t also have or has sought.
“Competitor airlines like Delta don’t want to see a viable alternative in New York and have lobbied heavily for government protection, ironically in the form of anti-trust.”
You do realize that American has an antitrust immunized joint venture with American which covers more capacity on a single route (to London) than that of any other airline?
You do realize that AA has long used a lower percentage of its slots at JFK and LGA than its competitors – including DL – and AA also benefits by slot relaxation rules for international flights that has been extended into fall 2022 (a mistake, IMHO).
But your core article is correct. AA and B6 just like AA and USAirways – were the least choice for each other and were cobbled together to try to compete. AA/US proves that they never reached the stated goal of being a global or even NYC competitor to DL and UA. Further, B6 clearly has much lower standards of service even as AA is nipping at DL’s heels as the most reliable US airline, according to DOT stats.
AA has walked away from a lot of routes, turned over slots to B6 that it might not get back, and the potential B6 acquisition of NK (it will not be a merger) requires that the DOJ ensure that the entrenched carriers in NYC – including B6 – get no larger. Even NK’s small size added to B6 makes the combined carriers larger and locks out other competitors.
AA execs are correct. The B6 acquisition is probably just the cover the DOJ needs but the Northeast Alliance is not just toast – but burnt toast. And AA will be weaker in the NE after the NEA is dissolved than it was before.
At the end of the day, AA basically gave up on NYC, then tried to reverse course with this gimmick alliance. JetBlue will jettison it as a condition of getting the Spirit deal done. And it will be AA’s fault again that they don’t have a NYC operation that can compete. They should just man up and try to grow organically, retake their NYC slots and go after it.
It’s of no benefit to consumers. They cancelled my lax – Bos Nonstop and refused to put me on Jet Blue. Had to connect.
So it was worse for passengers, not better.
“On its own American Airlines is too small in New York to compete for corporate business”…I find it ironic that the largest airline can’t compete in this market. Perhaps it’s poor utilization of assets or the fact they had to divest themselves of so many slots with the USAirways merger.
I find it interesting how many airline commentators’ rhetoric seems to indicate that they want to see American liquidated. Why the hate? This article and Tim Dunn’s response are two such examples. Why do Gary and Tim’s closing remarks apparently cheer the possibility of American being irreparably (my exaggeration) weakened in New York City unless thet want to see the airline liquidated?
Fact: There’s absolutely no guarantee that the NEA won’t continue. Another fact: There’s no guarantee that it will continue either. Anything to the contrary is pure speculation. A third fact: The DOJ can’t simply stop the NEA by decree. It has to win a lawsuit. There’s no way to know how a judge will rule in a lawsuit. American has repeatedly stated that it’s ready to go to trial, and reiterated that stance in its latest earnings call.
I also find it more than ironic that the most consistently profitable airlines in the country, on a percentage basis (Allegiant, Frontier, Spirit, Southwest, etc.), are the ones with the smallest presence in New York City. Apparently, a large presence in New York City doesn’t automatically guarantee an airline’s consistent profitability.
Where is there any proof that “(c)ompetitor airlines **like Delta** don’t want to see a viable alternative in New York and have lobbied heavily for government protection, ironically in the form of anti-trust.” I haven’t seen any real evidence that **Delta** has been lobbying heavily. As the largest airline east of the Hudson by far, it’s probably in Delta’s best interest to keep quiet and go about its business. The NEA really doesn’t do a whole lot to change the overall capacity in New York, it simply consolidates the competition. The proposed JetBlue/Spirit merger simply removes Spirit as a complaintant. Based on everything I’ve seen, it’s Spirit that’s been lobbying for more slots (mainly at LaGuardia), not Delta. But maybe I’m mistaken.
All the whining about American using fewer slots in New York mainly comes from Delta and JetBlue fans. And the arguments are specious at best. American’s management has consistently stated that the airline has two choices in New York, find a way to grow, or shrink its operations to profitable levels. And only American has the real-world data to figure out what those levels are. This isn’t rocket science.
My prediction (and only a prediction) is that there will ultimately be a settlement of the NEA lawsuit regardless of what happens to JetBlue and Spirit’s proposed merger.
American Airlines needs in affiliate program aggressive like Priceline.com that pays affiliates good affiliate commissions. Agree?
I flew AA international and my connection from JFK to PBI was on JetBlue via the alliance. JetBlue was a sh*t show and flight delayed and cancelled. I will never do a AA trip in which JetBlue is a connection.
I’ll take the odds on the B6 deal falling through and American offering codeshares on Spirit in the near future. 🙂
JetBlue pilots ratified the agreement a few weeks ago for a measly 3% raise and 30 million$ lump sum payout. That is incredibly cheap! How that was agreed upon was the union drawing fear to the pilots that the arbitrator may not think they company violated the CBA (which they did 100%) and B6/AA would get their way no matter what so we should just take what they are offering. It is going to have a huge negative impact on jobs for pilots outside of JFK/LGA/BOS and possibly sink us into being more of a regional airline for American. I will be rooting on the B6/NK merger hoping the NEA gets shot down! That would be a huge win for pilots! Take the small raise and no NEA!!!
Seriously, Ghost, it must be tough waking up every day convinced that anyone that says anything negative about American Airlines wants it to liquidate. I’m just glad that you realize it isn’t just me that sees AA for what it is – and what its executives said it was including via the data it released to investors as it is required to truthfully do.
While I have great aspirations that Isom can fix what Parker was unable or incapable of seeing needed to be fixed, the simple reality is that AA has had the worst financial results in the US airline industry for years. And, as hard as it is for you to admit, Delta and Southwest are BOTH at the top of the list of the best financially performing US airlines – and that was true before covid and will be going forward. The best performing airlines financially DO NOT INCLUDE Spirit or Frontier. Allegiant is only partially an airline with a lot of non-airline operations.
And based on the airlines that have reported so far, Delta is guiding investors to the best margins in the airline industry– twice or more higher than American and perhaps 50% better than United. Alaska has reported along w the big 3 and is likely returning to a strong position financially now that it is walking away from many of the problems it acquired with the Virgin America merger. Southwest, Spirit, Frontier and JetBlue haven’t reported but analysts do not expect them to outperform ALK and DAL which have provided the strongest guidance. If LUV does, it will be because of its fuel hedges.
… getting the basic facts of the industry straight are necessary to refute your argument about the size of airlines in NYC and their profitability. AS and WN aren’t strong in NYC and will be strongly profitable in the 2nd quarter and beyond but DL is the largest at both JFK and LGA and will also be at or near the top of the industry in profitability. IOW, your attempts at correlating profits to NYC are wrong – blinded by your inability to see the industry as it really is including that AA has been and, at least for the near term future, likely will be the least profitable airline while DL is at the opposite end. There is no correlation between NYC size and profitability. Period.
And if you are so convinced that airlines that are smaller in NYC are (or have the potential) to be more profitable, then why are you so invested in the notion that AA has to be larger in NYC on its own or via the NEA? Your position is illogical.
The reason why AA execs are very likely starting to sour on the B6 relationship is because they now see what most of us knew all along – a partnership with a low cost carrier HURTS AA’s brand in competing with DL and UA. B6 is content to run a much worse operation while AA is focused on improving its operation even while B6 has no lounges and first class cabins on most of its planes which are key amenities for business travelers.
B6 undoubtedly recognized that the AA partnership won’t fix B6’ long term strategic problem which is that its operations are almost entirely in large, highly competitive markets where B6 does not have an advantage. As much as you want to believe that there will be a settlement that will keep the NEA and allow B6 to acquire NK, the chances are very low that will happen. B6 will choose what will most help fix its long term issues which is to acquire NK. AA execs see that and are planning for a post NEA world. If CNN+ can fail after less a month on the air, it is very possible that the NEA will be dissolved without achieving its goals either.
@Gary the AA/B6 alliance not a joint venture. You’ll want to fix that mistake.
It’s very simple. What good does it do you to have a partnership when you often have difficulty assigning a seat or checking in? Not to mention when things go awry.
The alliance is much better for JetBlue customers that live in NYC & BOS. When their planes don’t take off, they can at least fly AA with a connection or two instead of taking a flight credit (maybe) & going home until they try to fly the following day.
You all sound like people *passionately* trying to predict the weather.
I’ll just wake up, look out the window, and decide if I need a jacket that day.
I love all this rhetoric victimizing American for yet another consequence of poor management and lack of strategic direction that resulted in loss of market share in New York. Equally amusing is how Delta is portrayed as the villain for running a far superior business and investing the time and money to enhance their customers’ experience. They organically grew their presence in New York to become the carrier of choice.
The author makes it sound like Delta should just roll over and forfeit market share that they spent years and countless dollars to grow to two carriers who weren’t astute enough to accomplish on their own. Biased perspective, as seems to be the norm with this author.
My organization as with those of my colleagues (and even our competitors) in New York’s Fortune 500 corporate sector, would never abandon Delta to go over to American. Their poor and inconsistent service along with unreliable operations are why we abandoned them in the first place.
JetBlue is a train wreck and their pursuit of Spirit demonstrates how the company has no concept of strategic vision. How could they possibly think they can integrate with another carrier when their own operation is in such a state of disarray.
The two carriers are in the position they’re in because of bad decisions, poor leadership, and no concept of what their customers want.
AA still owns the TWA slots JFK- CAI and JFK – RYD . It would be great if they used them.
Timj,
“slots” or more appropriately frequencies are not owned by US airlines; they are negotiated by the US government and airlines are awarded them. The right to use them is no longer exclusive if a carrier has not exercised them in an extended period of time – and in many cases, it is as short as 90 days unless an airline has requested and been granted permission by the DOT to not operate a route.
I believe DL served CAI since AA did; I believe that was one of the routes that operated Sept 10, 2001 for the last time.
I’m not sure that any US airline has served RYD since TWA.
Regardless of the country or route, the DOT has long maintained a “use it or lose it” approach to aviation assets – and that is consistent across other agencies in the US government.
and even though AA is going after DOH and other US carrier exclusive longhaul markets, that is not what will fix AA’s problems in the US. Every US airline including AA gets the majority of its revenue from the domestic market which means that AA has to succeed on its own in the NYC market with its own metal. DL and UA operate extensive networks from NYC; AA simply cannot successfully compete either in the Northeast or the west coast by subcontracting out large portions of its network to other US airlines which are legally AA’s competitors. If you have to pick between AS and B6 to figure out which is the best fit for replacing AA flights, it would have to be AS which has a first class cabin, lounges, and is a true alliance partner.
I tried to give them a the alliance a try on my recent trip to SLC on April 3rd. It didn’t work. I checked in at AA in Cleveland, and wasn’t given my status (Platinum) on anything. I was going to have to pay for my one checked bag at first, thankfully the agent worked her magic and checked it for free. Next thing that happens was my connection was cancelled without reason. According to JetBlue website it was dropped with everyone else’s cancelled baggage. (It wasn’t). I had to cancel the new flight that JetBlue decided was ok (a red eye to LAX then a connection to SLC) I had to be in SLC by 8am. Not working. The luggage agents were nice and tried to be helpful, but my luggage was missing. After purchasing another flight with American from Newark, I was able to arrive on Sunday, but after 20hrs pm of travel.
My baggage didn’t arrive until the next day. That was another ordeal contacting JetBlue’s luggage department.
So basically I’m saying, stay away from them unless they are only choice, which a series
There are so many ironies and problematic elements in the state of competitive play in the NY Area aviation market that could actually benefit American Airlines further should JetBlue end up in bed with Spirit.
First of all, let’s look at Newark. United dominates the slots and schedules there, and has something like 70% of the market share. Fares are usually high out of Newark and UA’s CEO has the guts to whine about JetBlue and Spirit causing delays there because they opted to add more routes out of an airport that is an operational nightmare. Antitrust issue #1 is United’s stranglehold on Newark.
Second, let’s look at JFK. Yes, Delta is the dominant carrier there and it has spent 30+ years developing it since it acquired Pan Am’s TATL routes and much of its JFK assets in 1991. Delta has spent billions on JFK since the mid-2000s and only turned profitable there by its own admission in 2014. Having American and JetBlue tie up at JFK is surely an inconvenience to Delta but overall, Delta has fewer challenges at JFK and LaGuardia and dominates both airports at the threshold of what would merit an antitrust review. Let’s not forget the egregious slot-swap US and DL engaged in between LGA and DCA.
American could have built up JFK and beefed up LGA to even greater levels than what it had at LGA pre-pandemic had it not been for its myopic management’s wishes to skirt bankruptcy in the wake of 9/11 and resist it for a full decade. The exploitation of Chapter 11 is as American as apple pie and allowed DL and others to bulk up later. American’s cost structure was not in line with its peers post 9/11 and int the second decade of the 2000s leaving it with a shiny, expensive terminal at JFK but not the ability to fly profitably out of it.
JetBlue is an operational mess that probably will be resolved in the future by being acquired and swallowed whole into another carrier. That carrier may very well be American Airlines and that is what spooks the DoJ. AA does not have the financial resources to acquire JetBlue but Wall Street has plenty of tools and activist Hedge Fund titans to help that process along.
JetBlue paying a $3.9 billion premium for Spirit is one of the stupidest moves in the industry in a long time.
Should the Merger of JetBlue and SPIRIT actually come to fruition (doubtful) you can damn well bet AA will be reclaiming all slots ‘loaned’ to JetBlue. JetBlue +SPIRIT will be one operational mess with two totally different business models and the onboard product is vastly different and will be very expensive to rectify. The chaos and disruption alone will chase customers away from this merged entity.