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American and Jet Blue's partnership

Writing for Forbes, Ted Reed reports that while international travel is slumping, American Airlines and new partner JetBlue both see the potential for growth, especially at New York Kennedy International Airport. Despite the partnership, they will even compete on JFK-London service. Last month, the two carriers announced a codeshare and frequent flier partnership. American says the deal will enable it to build JFK international service to about two dozen daily departures by 2025 (image - Kevan James).

“We envision a world in which there are as many as 20 to 25 [international] flights that are flying in New York by the middle of this decade,” Vasu Raja, American’s chief revenue officer, said on July 24.

JetBlue still plans to begin JFK-London service in 2021, even though American’s crown jewels include near-hourly JFK-London Heathrow service with joint venture partner British Airways. “The deal does not change our plans to disrupt the transatlantic market with JetBlue’s low fares and great service,” JetBlue said in announcing the deal to employees (The route between Heathrow and JFK has long been the busiest for the London airport - KJMT).

Aviation consultant Bob Mann calls JetBlue’s plan “a fool’s errand,” given expected low international demand. A better course, he said, would be “to artfully dawdle out of doing anything for two years,” even if regulators want competition between American and JetBlue to continue.

(Tyler McDowell)

JetBlue also plans to offer international flights from LAX by 2025, President Joanna Geraghty said on the carrier’s July earnings call, although the American partnership does not include LAX. JetBlue would likely add Caribbean and Latin American markets it already serves from the East Coast. The planning indicates that American and JetBlue are both looking far beyond the coronavirus crisis. The International Air Travel Association said last week that global air traffic will not return to pre-coronavirus levels until 2024, a year later than it had previously forecast. For now, “international traffic, which in normal times accounts for close to two-thirds of global air travel, remains virtually non-existent,” IATA said.

For American’s 15,000 pilots, represented by Allied Pilots Association, international flying is appealing, but the timing of the JetBlue partnership announcement is less so. On July 1, JetBlue and its 4,100 pilots, members of the Air Line Pilots Association, reached a deal that avoids involuntary furloughs until May 2021. On July 15, American said it will notify about 20,000 employees, including 2,500 pilots, that they could be laid off this fall. On July 16, American and JetBlue announced their partnership.

“The timing leads our pilots to feel betrayed,” said APA spokesman Dennis Tajer said. “Our unhappiness is not with the partnership,” Tajer added. “It’s because American is cutting pilot jobs while JetBlue is keeping pilot jobs.” Raja however, sought to assuage pilot concerns. “Though there are WARN letters out there, the company remains committed to do everything possible to face the most brutal winter we have ever seen,” he said. American is “committed to creative solutions,” he said. As for JetBlue’s agreement with its pilots, Raja said that is “between them,” and American had nothing to do with it. New York and Boston account for 70% of JetBlue flying, but just 10% of American flying, he said.

(American Airlines)

On the JetBlue earnings call, JP Morgan analyst Jamie Baker questioned the pilot deal, saying, “It appears that the primary impetus from management's perspective was being able to announce the American relationship.” Baker asked whether the deal provides JetBlue with cost savings. Geraghty responded, “There are minimum hour schedule requirements that have been reduced and we also achieved a level of scope relief.”

Raja detailed partnership benefit for American - the code share is a “relatively small” revenue driver, he said, while the frequent flyer agreement is key. In the New York corporate market, “So many [American] customers go to London or L.A. [but] have no place to burn their miles,” he said. “They want to go to Florida and the Caribbean,” markets served by JetBlue.

The deal also enables American to use JetBlue slots at JFK for international flights including Athens, Tel Aviv and added London service in 2021. American will use five new Boeing 777s for the routes. Meanwhile, JetBlue can use American slots at JFK and LGA Guardia to fly bigger airplanes to domestic markets where American currently flies 50-seat regional jets.

Mann is sceptical about the partnership. He notes that connecting between terminals at JFK remains a challenge that requires bus transportation and a second pass through security.

American and JetBlue had a frequent flyer partnership from 2010 to 2014. American dropped out soon after emerging from bankruptcy. Since then, Delta has grown in Boston and New York. United retains a major hub at Newark. JetBlue has held its own at JFK and grown at Boston. American has shrunk in New York and Boston. The new deal, Mann said, gives American “synthetic schedule presence” at JFK and represents “a solution to a self-created problem.”

© Ted Reed/Forbes

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