JetBlue aims to disrupt transatlantic aviation. Here is the why, the how, and the challenges it faces.
Doubts about JetBlue’s ability to successfully insert itself into the strenuously competitive transatlantic aviation marketplace began even before the airline’s news release confirming its expected launch of multiple daily flights to London from New York City and Boston.
Though JetBlue’s London flights won’t takeoff until 2021, industry observers quickly noted what JetBlue will be up against. The current hegemons that have sedulously maintained a lock on flights from U.S. east coast airports to London can be expected to strike at JetBlue’s London plan almost immediately.
How JetBlue will deal with the pressure coming from those legacy carriers is going to be a daily and immediate test. British Airways, naturally, is the big daddy of this competitive picture. BA, along with Oneworld partner American Airlines, Delta Air Lines, United Airlines, Virgin Atlantic, and long-haul, low-cost carrier Norwegian will all be circling JetBlue as it works to get ready for 2021.
“This is not going to be an easy win for JetBlue,” Henry Harteveldt, founder of travel industry analyst firm Atomosphere Research Group told the NY Times. “The big airlines especially are going to bring flamethrowers to a game of rock-paper-scissors.”
Harteveldt’s view is spot on. That said, as the flamethrowers and even more unconventional arsenal are marshalled across the Atlantic, JetBlue’s recent moves suggest how it will likely to go to battle.
JetBlue will attempt to demonstrate a winning hand in transatlantic air travel by emphasizing the breadth and depth of its network, brand, and service. JetBlue is an established carrier with an intensely loyal following in NYC and Boston. Whether it can translate that domestic success to London will remain an open question for years. Still, the appeal of its pricing has consistently demonstrated that it can generate local and connecting passenger demand.
Nevertheless, the recent history of commercial aviation offers good reasons to view JetBlue’s London moves with skepticism.
Over the past two decades, the only players with the temerity — or folly? — to enter the transatlantic fray have been ones focused on the higher-end luxury market, like all-business class airline EOS, which went bankrupt in 2008, or long-haul, low-cost carriers (LCCs).
Among the LCCs, Iceland’s WOW Airlines was a high-profile entrant into the transatlantic marketplace starting in 2012. While WOW approached U.S. to Europe from the long-haul, low-cost angle, it was forced to cease all service and declare bankruptcy at the end of March.
Other carriers, such as Monarch and Primera Air, saw failure on the transatlantic aviation front. One of the more prominent examples is Air Berlin.
Despite years of success in the short-haul flights, the European market, and membership in both Oneworld and Etihad Airways Partners, the German carrier was unable to make the leap to profitable transatlantic and long-haul operations.
While these cautionary tales have may not be comparable to JetBlue’s situation, the recent past does show the difficulties the company has to prepare for.
So why should JetBlue executives think it can break the hold of established airlines where so many others have failed?
The carrier points to its two dedicated, local bases in Boston and NYC. By being focused on two areas of brand strength, and not over-extending and expanding before it has shown itself profitable, JetBlue does stand in contrast to the startups like WOW.
Plus, by aiming at price-conscious travelers, while continuing to build up its five-year-old MINT business-class offering, which has been popular domestically, it has advantages most previous transatlantic entrants never had.
As Airline Geeks’ negative view of the LCC model suggests, previous attempts at a transatlantic strategy have come up against an inability to balance costs. In particular, “insanely low fares” once were supported by insanely low fuel prices. Not anymore. And U.S. travelers tend not to appreciate bare bones service to balance out a lower-cost ticket over time. As such, the lack of a premium option to subsidize lower prices for economy passengers left carriers unable to boost revenue.
It should be noted that MINT was a new offering in a very crowded marketplace of business-class offers. The strategy JetBlue deployed that turned MINT into a triumph serves to buttress confidence in the carrier’s London rollout plan over the next two years.
As Skift noted in March, by introducing MINT, 20-year-old JetBlue believed it could reverse the poor performance of its San Francisco and Los Angeles destinations from NYC by adding a premium product.
“Almost immediately, the economics on the key transcontinental routes changed for every airline, as industry-wide advanced purchased fares dropped considerably,” wrote Skift’s Brian Sumers, in a what could be a foreshadowing of JetBlue’s London endeavor. “Travelers could buy business class for as little as $599, a steal when most carriers charged at least $1,000. Entry-level fares are higher now — often about $759 — but across all carriers, they’re far cheaper than pre-2014.”
“JetBlue has had success on transcontinental with MINT and has been profitable with prices that are 30 percent lower with a better product,” one source tells Kambr. “This success has given them the confidence to push across the Atlantic and start London service, which is the largest market that JetBlue doesn’t serve out of Boston and NYC.”
While JetBlue showed it could develop new quality capacity in one of the most contested markets in the world — U.S. transcontinental, it’s clear that its transatlantic rivals will be able to match that, at least in the interim. But here too, JetBlue has another ace it is ready to pull out.
Most importantly for JetBlue’s London objectives, it will rely on the narrow-body A321-neos, which are designed to make it efficient enough to fly long-haul.
A Yieldr blog post cites IATA analysis indicating that each new generation of aircraft is on average 20 percent more fuel-efficient than the model it replaces. The post also quotes Wizz Air CEO Jozef Varadi attributing much of his airline’s success to the narrow-body Airbus fleet.
“We believe that the asset is critically important. In our view, the A321-neo aircraft is the game-changer aircraft,” Varadi has said. “The A321 is the most efficient narrow-body aircraft today and will probably continue to be in the next few years. When you look at the A320 classic, the A321 classic is a 10 percent lower cost reduction and the A321-neo is a 20 percent lower cost reduction.”
JetBlue estimates that the A220–300s will burn 40 percent less fuel than the Embraer 190s they are replacing. Airbus recently received ETOPS approval for the A220, meaning the aircraft can make longer voyages. Such trips include service from the U.S. west coast to Hawaii, and from the east coast to Europe.
All in all, the challenges JetBlue faces, especially at the beginning, are not erased. For one thing, the reliance on the A321-neo will shift JetBlue’s cost structure from what is already in place.
Furthermore, JetBlue’s London competitors will continue to utilize widebody aircraft that comes with clear advantages. Widebody aircraft has the ability to combine premium products up front with lower unit costs down the back in economy. Obviously, widebodies can also operate a greater volume of seats per flight, which can be critical at slot-restricted airports.
For example, average load factor for airlines worldwide in 2005 75.2 percent. In other words, about three out of every four seats were sold on average, Forbes noted. As of 2018, the average airline load factor hit 81.7 percent on a global basis.
In the U.S. load factor on domestic air travel has grown from 67.88 percent in 2002 to 86.08 percent in 2018. During the same period, the number of domestic flights has pretty much stayed the same.
For JetBlue, load factor in 2018 was 84.8 percent, up slightly from 84.3 percent the year before. For the most part, JetBlue passenger load has generally been hovering around 85 percent for the past five years, suggesting a consistent track record of managing to fill seats.
At the same time, considering the only choices are legacy brands with a lock on supply or low-cost carriers that are straining to survive, JetBlue has spent years building its sweet spot.
It’s important to note that JetBlue’s rivals can’t just add new capacity on whim. Slot constraints serve to keep capacity growth muted. It can be argued that makes the route something of a cartel. Of course, JetBlue has to figure out how to gain slots and enter this club, so it cuts both ways.
So why now? For starters, JetBlue has built up the wherewithal to compete on transatlantic service against whatever its rivals throw at it (and its loyal, cost-conscious flyers). After all, JetBlue typically prices its flights on the same level as the legacies, with the exception of its business class program, MINT.
Secondly, the U.S. market for JetBlue’s business is fairly saturated. It has nowhere else new to go but London.
JetBlue has the fleet to make London from NYC and Boston work. The arrival of 13 Airbus A321-neo narrow-body jets will also make its transatlantic program attractive to travelers.
With the right aircraft — and the right cost structure — firmly in place, JetBlue’s plans for London seem well timed. The question is whether that is enough for JetBlue to go head-to-head against the legacy carriers.
JetBlue’s London plans aren’t yet complete. The big question is which specific London airport its flights will land at. The four main airports serving international flights to the UK capital are London City, which is popular with the business travelers it can expect to draw in NYC and Boston, along with Gatwick, Stansted, and Heathrow Airport, the busiest of the four.
It’s fair to say Heathrow is still the preferred option. We have to believe JetBlue will continue to lobby for Heathrow slots, but in the event JetBlue is unable to secure Heathrow, suitable alternatives exist since all London airports have direct train access.
Still, London City might be a tough fallback option for JetBlue because the Airbus A321 is still too big for that airport’s short runway. It’s also possible that JetBlue’s A318 and the A220 planes could land in London City. Either way, the likely availability of either Stansted or Gatwick should suffice.
The timing of JetBlue’s London call has to do with the fact that the airline needs to find a new direction to grow. And this is a ripe market to disrupt and help JetBlue expand its franchises in New York and Boston
JetBlue’s focus on London does follow a path the company has taken from its very beginnings, as Joanna Geraghty, JetBlue’s president and COO, outlined it in the company’s announcement.
“Twenty years ago, our founders had a simple formula for choosing a new market — it had to be overpriced, underserved, or both,” Geraghty says. “London is the largest metro area JetBlue doesn’t yet serve from both Boston and New York, and we could not be more thrilled to be changing that in the years ahead. The fares being charged today by airlines on these routes, specifically on the premium end, are enough to make you blush.”
By continuing to draw on loyal flyers, particularly ones who appreciate its business class program, JetBlue doesn’t have to be the number one airline in the world, or the U.S., for that matter. It just needs to maintain its passenger load rates by continuing to deliver the right flights at the right times for the right costs.
Still, 2021 is a long way away. Even if JetBlue, which has never faced a challenge of this magnitude, gets everything right at the start — a major if — it’ll be many years before anyone can determine if this moment represented a winning move for JetBlue.
Therefore it is almost assured that no matter the individual outcome for JetBlue and its rivals, this is a historic moment in the business transatlantic aviation.