JetBlue “played the field” before reaching an agreement with United Airlines on a partnership, a shrewd move that forced United to pay up for a partnership of, at least in its initial stage, questionable value.
Report: JetBlue Played The Field Before Settling On United Airlines Partnership
The revelation comes from a Brian Sumers interview with JetBlue President Marty St. George, who shared that JetBlue spoke to American, Delta, United, and even budget carriers Frontier and Spirit (after the merger attempt failed) in search of the best offer:
“Over time, St. George called at least one executive from nearly every U.S. airline, reading from a script for each call, presumably to ensure he would not botch a talking point or run afoul of regulators. Amazingly, even Delta’s Glen Hauenstein — who probably has done more than anyone to thwart JetBlue’s ambitions in New York and Boston — was on St. George’s list. It even included low-cost airline executives, though an agreement with Spirit or Frontier was very unlikely.”
American and United emerged as the two finalists and United won out in a partnership dubbed Blue Sky, not because JetBlue was particularly inclined to go with UA over AA, but because United offered the better deal:
“St. George said he had been agnostic about JetBlue’s counterparty. It all came down to money, he told me, or more specifically the net present value of each airline’s offer. He said Hauenstein was cordial (“I had a very nice conversation”), but ultimately the two finalists were American and United.”
Why no codeshares? It’s not to avoid regulatory muster, but because JetBlue does not currently have the backend technology in order to do this while effectively managing dynamic pricing.
View From The Wing argues that United CEO Scott Kirby was inclined ot “overpay” for the deal because United is desperate to return to New York JFK and because Kirby still harbors personal animus against American Airlines when Doug Parker made Robert Isom his heir apparent rather than Kirby.
That’s a fair assessment and probably a correct one, but I would argue (based on Kirby’s own words ot CNBC) this is more about Delta. United was willing to overpay for this deal not so much for its own direct gain, but to slow the defection to Delta in the New York and Boston markets. If loyal JetBlue customers can fly United instead of Delta when JetBlue does not fly to their destination, they are unlikely to defect to Delta for all flights. The problem of course, is that Boton Logan and New York Kennedy customers have limited options on United, but the hope is that United can bank on JetBlue’s loyalty to draw people away from Delta (and to a lesser extent, American).
Of course, any analysis of overpayment is predicated on incomplete information: we don’t have the actual agreement to review or what may come next in future phases.
Kirby did tell The Wall Street Journal on Thursday that, “There’s a lot of brain damage that goes with doing a merger, and so I’m reluctant to do a merger.” (which is still different than denying the merger is the ultimate goal).
CONCLUSION
It’s no surprise that JetBlue played the field in its search for an airline partner, though I’m a bit surprised that it came down primarily to which carrier offered the most money. United may well have overpaid for what it gets in return from JetBlue, but United hopes (like any front-loaded investment) that the deal will pay for itself many times over as time passes.
Is Kirby a genius or did United likely overpay for its new Blue Sky partnership with JetBlue?
Did United overpay? I couldn’t find the price.
Essentially, United bought 7 slots at JFK and some cooperation. The cost was presumably some Newark slots and money. How much money is important to know. LHR slots can be really expensive, like $30M, but I don’t think JFK slots are that expensive. Alaska someone got some, mostly from Virgin America, I would guess.
B6 having FLL and MCO as focus cities is also something UA wants to capture. For example, UA flies lie-flat 752s from EWR-MCO at least once a day in the spring and summer. They have a bit of a geographic void with markets in Florida and if they’re able to increase their partnership, they’ll capture a lot of the market from ULCCs, DL, and AA.
first, Kirby’s own words indicate that DL’s strategy of serving all 3 airports including hubs at 2 of them is a superior strategy to UA’s strategy of a single hub at EWR. Most of us recognized that a single hub at any NYC airport is not possible because of the airspace and runway limitations. AA and DL both opted for double NYC hubs and DL has done far better at making its hubs work. Even the notion that UA will be able to compete with DL via a loyalty program partnership and 7 flights at JFK is laughable.
second, B6 might not have wanted a codeshare relationship but UA’s pilot agreement doesn’t permit a codeshare with another mainline domestic airline – that is why there will be no codeshare between UA and B6, making the B6/UA partnership far less than the AA/AS partnership which has codesharing and an alliance relationship.
third. as I noted yesterday, Port Authority data for April -just released yesterday – shows that United significantly lost traffic at EWR which AA DL and WN gained at LGA and JFK; UA partially offset some of its EWR traffic losses with passenger growth at LGA. UA execs said their EWR load factors fell by 15% which has resulted in deep discounting. Scott Kirby’s incessant need to try to blame the FAA for the EWR issues kept EWR in the news for a solid month and scared a lot of revenue away from UA at EWR and to AA and DL at LGA and JFK. Ironically B6 saw little improvement while DL’s traffic at EWR actually increased, one of the few that did.
in April, DL displaced UA as the largest airline in NYC – the two had been separated by just 0.3% but DL is now 0.6% larger and the gap is likely to grow until the runway project is complete. Even then, UA will not be able to regrow its EWR to the same size based on DOT comments that they will cap EWR flights below what UA operated into the future. AA and DL are both certainly working to retain the customers they gained.
and Gary likely is right that UA paid more than AA or DL would have offered because UA wanted JFK slots which AA and DL don’t need and probably would not have gotten DOJ approval to add to their current slot portfolios.
UA’s 7 flights will amount to 1/20th of DL’s DOMESTIC JFK flights. DL uses about 1/3 of its slots for international flights so the 7 flights that UA might obtain is not enough to be competitive with AA, B6 or DL in more than a single market.
and finally, B6 and UA have agreed to a loyalty program partnership and some backoffice amrketing stuff – and a potential 7 JFK flights. EWR is not slot controlled so UA could run into DOJ concerns by saying it will reduce flights to allow a partner to grow. The notion that a large number of UA passengers are suddenly going to start flying B6 is totally disconnected w/ real world experience with domestic codesharing in the US, including the AA/AS partnership which has done nothing to improve AA’s position on the west coast.
Very nice summary but wrong. In particular, Delta serving all 3 airports?
Delta’s service at EWR is lousy. It flies between EWR and its hubs in addition to Delta Connection flying to Boston (jsut 3 flights, not a frequent schedule), Cincinnati, and Raleigh.
If I lived in northern NJ or Battery Park City/WTC which there’s frequent PATH train service, I wouldn’t fly Delta except to the hubs unless I had no choice.
no airline other than NK has more than 5% of traffic at EWR – which is similar to just about every other dominant airline hub.
and, you know what, Derek? DL’s traffic over the past 12 months is UP 9%. Every other airline including UA is down except NK and DL. in fact, DL carried 1/3 of the passengers that UA lost.
and DL serves All 3 NYC airports, as does AA and B6. UA does not serve JFK which is 99% of what this is all about. Kirby saw years ago that the decision to pull out of JFK was a mistake.
DL has been slowly closing the gap with UA and it was down to 0.3% before the runway closure; now DL is ahead.
We have heard for years about how much better UA’s single airport hub strategy in NYC was to DL’s 2 airport hub strategy – and it is clear that UA was living on borrowed time with the size of its EWR hub operation. The FAA has now said the size of UA’s hub will never be what UA has tried to operate.
UA is trying desperately trying to come up w/ strategies to grow its presence in NYC, and as Matthew notes, stop DL from running away w/ the NYC market.
oh, and you do realize that EWR is not and will not be slot-restricted which means that if either AA or DL believe their positions at JFK are threatened by UA’s return to JFK, AA and/or DL can add EWR to west coast flights? The A321NEO long haul/transcon configurations that each of the big 3 are putting into service over the next year are very well-suited to adding service in other airline hubs.
Is this the same Kirby who denied a deal was in the works? Obviously a trustworthy person.
Interesting that the airline that would best complement JetBlue’s network wasn’t mentioned. Alaska and JetBlue would be an amazing combination and could realistically provide an alternative to the Big 3.
I argued that before. The bigger problem was that B6 did not scoop up VX.
Cmon……