Should JetBlue Airways enter the Transatlantic market?

Hello all,

Today we will be looking at whether JetBlue Airways should enter the Transatlantic market. The New York based carrier currently operates flights to the USA, Latin America and Caribbean. JetBlue was historically coy on the idea of entering such market given the presence of numerous established carriers. However the launch of the A321neo LR in January 2015 made this option potentially far more attractive.

JetBlue operates a fleet of Embraer E190 (60), Airbus A320 (130) and A321 (53+13 on order) (https://en.wikipedia.org/wiki/JetBlue#Fleet) and has an order for 25 A320neo and 60 A321neo. The carrier negotiated with Airbus last year the option to convert some of their A321neo order to the LR version so they are now seriously considering entering that market. Operating such plane keeps fleet commonality, which is an important consideration for a low cost carrier. JetBlue CEO Robin Hayes said the following at the IATA conference in June 2017:

With the success of the Mint premium cabin on Transcontinental service, we see a niche in the Transatlantic market for the “premium customer”. The A321 would allow us to do something a little different than budget carriers like Norwegian Air and WOW.

While the New York based carrier is analyzing the opportunity, it stated clearly it will only enter if operating such routes is more profitable than expanding the route network in the current regions. JetBlue operates out of the following focus cities: Boston, Fort Lauderdale, Long Beach, New York–JFK, Orlando and San Juan. Transatlantic flights would only be feasible from New York and Boston with an A321neo LR. If they decide to enter the Transatlantic market where should they start?

The long haul market is extremely challenging in New York. The Big 3 US Legacy carriers have hubs (American Airlines and Delta Air lines at New York JFK, United Airlines at Newark) that operate transatlantic flights. Numerous international carriers, including Norwegian Air Shuttle, have numerous routes into the New York airports. While there is subtantial demand for travel, the market is extremely competitive and carriers have to cope with high operating costs and congestion. JetBlue, being based at JFK airport, would have to free up slots for domestic and Caribbean destinations to start flights accross the Atlantic.

On the other hand, Boston Logan International Airport is only a focus city for Delta Airlines. They operate a couple of Transatlantic flights into London and Skyteam hubs (Amsterdam Schiphol and Paris Charles De Gaulle). International carriers operate into Boston but there are far fewer Transatlantic flights than into the New York area.

What impact does this have on competition and fares? In order to get a sense of the potential answer, I looked up on Sunday March 11th the cheapest Economy return fares for 2018 Memorial Day (fly on Friday 25th, return on Monday 28th) for destinations in Europe within the range of the A321neo LR that are both served from Boston and New York. While the A321neo LR has a nominal range of 4000nm, fuel reserves and the usually strong headwinds for west-bound flight mean it is effectively reduced to 3200nm if one wants to avoid substantial payload restrictions. Below is the fare comparison:

Departure Destination Distance BOS Fare NYC Fare Diff
BOS LGW 2853 510 434 76
BOS DUB 2600 622 576 46
BOS SNN 2516 1,563 616 947
BOS KEF 2097 530 718 -188
BOS MAN 2741 488 720 -232
BOS AMS 3004 1,339 566 773
BOS CPH 3190 841 916 -75
BOS FRA 3188 2,163 817 1,346
BOS CDG 2997 870 670 200
BOS MAD 2963 1,335 962 373
BOS LIS 2774 1,483 1,058 425
BOS PDL 2081 956 736 220
Average        1,058         732 326

Fares in USD, Distance in nautical miles

One can see that Economy fares out of Boston are, on average, meaningfully higher than out of New York (USD 326). Even if we the 2 most expensive flights from each Boston and New York relative to the other city, the average difference is still USD 255. This airfare comparison between the 2 cities shows that Boston seems to be a less competitive market than New York, which would potentially mean higher operating margins for a new entrant like JetBlue Airways. However, one must remember that there is less natural demand in Boston so the higher fares partially compensate for lower load factors at other times during the year.

If the New York based carrier decides to enter the Transatlantic market out of Boston, should they partner with other airlines? At the moment JetBlue has a codeshare agreement with both TAP Portugal Airlines and Aer Lingus and both the Portuguese and Irish flag carriers fly out of terminal 5 at New York JFK, which is operated by JetBlue. There happen to be both large Irish and Portguese communities in the Boston area so whether to compete or extend the codeshare agreements is a key strategic decision for JetBlue. I would think extending the codeshares agreement would provide more feed traffic towards other destinations in the USA and demand for flights during the low season winter months. Below is a list of potential new European destinations JetBlue could fly to within the effective 3200nm range of the A321neo LR:

New Route Distance from Boston (nm)
Edinburgh 2667
Birmingham 2774
Brussels 3024
Dusseldorf 3096
Porto 2745
Barcelona 3171
Geneva 3196
Hamburg 3150
Oslo 3145
Malaga 3028

A large number of destinations, whether new or existing, will likely only be viable as seasonal services. The Transatlantic market is notoriously seasonal, with lots of demand during the summer month and far less during the winter months (apart from peaks for Christmas and Easter). Where could JetBlue deploy those A321neo LRs? The most promising destinations during the winter months would be the ski destinations in the USA or Canada, or warmer destinations in the Caribbean or Northern Latin America. Below is a list of potential new routes:

New Route Distance (nm)
Belem 2887
Quito 2572
Los Cabos 2244
Liberia (Costa Rica) 2049

To summarize, if JetBlue Airways were to decide to enter the Transatlantic market, it should start out of Boston due to less competition compared to New York. The New York carrier will have to decide whether to compete or extend the codeshare agreement with Aer Lingus and TAP Portugal Airlines and how to best allocate the A321neo LRs year round to profitably deal with the high seasonality of passenger demand.

Photo Credit: JetBlue Airways

jetBlue_Logo.jpg

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