Home / Travel / Pros and Cons of JetBlue’s Possible European Expansion – Skift

Pros and Cons of JetBlue’s Possible European Expansion – Skift

After teasing customers about flying to Europe for several years, JetBlue Airways will finally make a decision this year, when it will inform Airbus whether it wants a long-range version of the A321 aircraft it already flies.

JetBlue has loyalists in New York and New England who desperately want it to expand to Europe. They suspect JetBlue would disrupt the market as it has the United States with its premium transcontinental flights. In 2014, JetBlue introduced its Mint business class for longer domestic routes, forcing the competition to improve its product and drop fares.

But the decision is not so obvious. JetBlue’s competition learned lessons from the domestic expansion, and established airlines on both sides of the Atlantic likely will be ruthless in trying to neutralize it. Plus, the airline might have trouble gaining slots at key airports, such as London Heathrow.

It’s possible JetBlue has already decided, and just hasn’t announced. But it’s also possible the airline is still analyzing it. On Friday, a JetBlue spokesman reiterated that a public announcement will come at some point this year.

Below are some of the issues, both for and against, as we see them.

Here are some arguments for transatlantic expansion.

Defending its Customers

Before U.S. airline merger-mania began in 2008, even the largest carriers couldn’t carry their customers everywhere they wanted to go. But after American, United, and Delta all (just about) doubled in size, that changed, with the big three, along with their global partners, flying to nearly every important business city, worldwide.

This has hurt smaller airlines like JetBlue. Its loyal customers love it, but JetBlue cannot fly them everywhere. Passengers have a choice: Do they fly JetBlue when they can, and go with another airline otherwise? Or do they stay with a competitor they like less with a bigger network? Usually, customers receive more perks when they fly only one airline, so some may defect even if they prefer JetBlue.

It’s an issue for corporations, too. A Boston-based company may want to sign a contract with JetBlue to appease employees, but it may also need one with Delta, or another global airline, to cover all routes.

It’ll be a long time, if ever, before JetBlue flies worldwide. But by adding the most important European business cities, it could be more useful to customers, who might be less likely to defect. An airline that can flies to Los Angeles and London is more intriguing to many high-value customers than one serving only Los Angeles.

Growing its Credit Card Base

Credit cards have always been important to airlines — issuers pay carriers for points, and award them to customers — but the business has become more lucrative in the past five years.

JetBlue earns significant margins from its deal with Barclays, but in absolute profit, it falls behind its airline competitors. In part, that’s because it is smaller. But JetBlue’s frequent flyer program is less sexy than those of other airlines, because the airline does not fly beyond the Americas.

If JetBlue adds Europe, more customers might apply for its credit cards, because customers could dream of using points for a once-in-a-lifetime European vacation, rather than just a winter trip to Florida or the Caribbean.

This sounds far-fetched, but it’s not. Soon, Southwest Airlines will fly from four California cities to Hawaii. It will fly the routes in part to boost credit card applications, calculating more customers will covet its credit card if they can use points for an exotic vacation.

Disruption

At Skift Global Forum in September, JetBlue president Joanna Geraghty noted the space is ripe for disruption, with legacy carriers often charging $8,000 for last-minute transatlantic business class tickets. She also noted there’s little competition, with most legacy carriers belonging to one of three groups with anti-trust immunity.

There’s no doubt JetBlue would disrupt the premium market. Other airlines would match its fares, and a ticket that costs $8,000 today might cost half that, or less, in a couple of years.

But JetBlue could also disrupt coach. While its onboard product probably would be similar to existing ones — its pricing structure might be unique.

Today, except on a few airlines, transatlantic fare rules remain byzantine. Travelers generally cannot buy cheap one-way tickets, and if they want a deal, they still must stay over a Saturday night. Amazingly, American, Delta and United still charge as much as $2,300 for a coach ticket from New York to London, if a Saturday night stay is not included.

Those were once the rules for domestic tickets, too. But low-cost-carriers changed the model, and on most domestic routes, customers now can buy cheap tickets without staying a weekend. They also can buy one-way fares.

(Relatively) Low Risk

JetBlue could make a splash and order new wide-body aircraft to fly to Europe, like WestJet, the Canadian-low-cost carrier, which soon will fly first Boeing 787s.

But if JetBlue expands to Europe, its strategy will be more low risk, as it will fly a version of an airplane already in its fleet. It will not have to retain pilots, or add a new maintenance program. It won’t even have to develop a new business class seat, since its current Mint product is highly regarded.

And if the plan fails and JetBlue must retrench, it can use the airplane in North America.

And now for arguments against. 

Competitive Response

JetBlue executives say they see a niche in transatlantic routes because of how legacy airlines price premium seats.

They’re right. Premium fares are frighteningly expensive, and JetBlue has shown on transcontinental routes it can undercut competition and still make money.

But will it work again? Or have established carriers learned lessons?

If JetBlue flies to Europe, expect legacy airlines to be ruthless as they try to ensure the low-cost carrier never gets traction. Airlines may lower prices to match JetBlue, and might add extra capacity to trash its yields. Delta, perhaps the most aggressive of U.S. airlines, might be OK losing money on Boston-London if it can inflict major wounds on a competitor.

International Airlines Group, or IAG, owner of British Airways, Iberia and Aer Lingus, is also a harsh competitor. In recent months, it has been building Aer Lingus into a JetBlue clone, adding free WiFi, alcoholic drinks, and other goodies.

IAG has some experience with this type of thing, having created a new airline, called Level, for one reason — to thwart Norwegian Air. And Level, while perhaps not a standout on its own, has had some success in hurting Norwegian’s profits.

Filling the Back of the Airplane

Business travelers fly year-round, with some brief breaks for holidays, so airlines can make money most of the year selling premium seats. That will probably be true for JetBlue, too, as business travelers like the airline’s business class.

But what about the back?

During warmer months, American and Europeans love to vacation. But winter — and first quarter in particular — can be rough for economy class demand, as few tourists want to visit Paris or Barcelona in January.

Legacy airlines struggle with filling coach too, but they have two ways to solve the problem. First, most have more premium seats than JetBlue, with many having large business class cabins and premium economy sections. Today, JetBlue’s transcontinental aircraft have just 16 business class seats and no premium economy cabin, though that could change with a new aircraft.

Second, larger carriers rely on flow traffic during weak periods, or connecting passengers they move through hubs. In Atlanta, Delta has more than 1,000 daily arrivals, so it’s not difficult for it to fill flights to London, even on slow days.

JetBlue is a point-to-point carrier, and it doesn’t carry many connecting passengers. To fill its planes in winter, it’ll probably dabble in connections, but its scale is smaller. At New York, its biggest hub, JetBlue has only about 225 departures, so its pool of potential connecting customers will be smaller.

Airport Access

Since CEO Robin Hayes took over JetBlue in 2015, he has complained how other airlines have bullied it, keeping it from obtaining gate space at key airports.

He has complained repeatedly about Atlanta, where JetBlue has been given gate space in two different concourses, making operations challenging. JetBlue is also limited elsewhere, including Los Angeles.

Europe will be no easier. Most of Europe’s larger airports are slot-controlled, so new entrants can fly there only with proper permission. Many airports make it possible for an airline like JetBlue to gain access, but there’s one glaring exception.

London-Heathrow — the one airport in Europe almost every airline wants to serve — allows its slots to be traded on the open market. A single Heathrow slot can go for tens of millions of dollars, assuming one airline wants to sell.

Not Enough Airplane

The Airbus A321LR is the longest-range narrow-body aircraft ever built, according to the manufacturer, capable of flying 4,000 miles. That’s enough to make it from New York to Paris — one of the longest JetBlue could fly — with more than 300 miles of cushion.

But as every driver who has ever relied on a car’s miles per gallon estimate knows, these are merely guesses. How far an airliner can fly depends on many factors, including its weight — is it carrying cargo? is every seat filed? — and winds. Against strong headwinds, not uncommon in winter, planes can have less than listed range.

Its not ideal for an airline to use an airplane with range issues, but it’s not unprecedented.

Early in its history, JetBlue used limited-range Airbus A320s to fly cross-country, knowing the aircraft could not fly nonstop from Boston to Los Angeles 365 days per year. Later, it added newer-build A320s with winglets, and those aircraft could fly farther, making fuel stops less common. Now, JetBlue is flying Airbus A321s on many routes, and they have enough range. 

Too Much Airplane

Let’s say the economy tanks, or the European excursion is a failure. An argument for the A321LR is that it’s a low-risk investment, because JetBlue already flies the standard A321. If Europe doesn’t work, the argument goes, JetBlue can move those planes back.

It is a viable alternative. But it has one drawback. Because the Airbus A321LR is built to fly longer, it may be less economical for shorter flights, because it has extra fuel tanks.

This is one reason the Boeing 757 fell out of favor. U.S. airlines still like using the jet for transatlantic and transcontinental routes, but some decided the airplane had too much power — and guzzled too much fuel — to continue flying short routes like Chicago to New York.

Photo Credit: JetBlue will announce its decision later this year on whether to add an airplane capable of flying to Europe. If it does fly to Europe, the airline is betting it can disrupt pricing with its Mint business class. JetBlue Airways

ViaSkift

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