Why the American Airlines-JetBlue Alliance Sends Aviation Back to the Future
Sometimes, what’s old is new again. A deal struck by American Airlines AAL and JetBlue in mid-July reveals what airline networks might look like under Covid-19. The answer is a throwback to how things were 50 years ago, when airplane seats had orange flower patterns and governments regulated which routes each airline could fly to reduce competition. How did we get here and what does it mean for airlines and airports?
The deal will allow American and JetBlue to sell tickets on each other’s flights, making it easier for American to expand international service from JFK airport in New York. Taking advantage of JetBlue’s domestic network adds connecting passengers to American’s flights, which helps to fill up larger aircraft while supporting the high-frequency schedules that business travelers value. With demand down across the board, this feeder traffic is especially valuable today. Fewer passengers flying makes it harder for some routes to cover their costs – especially to overseas destinations.
Prior to deregulation, airlines mostly concentrated on serving a single region of the country, or in some cases a single region overseas. From New York JFK, for example, Pan American and Trans World Airlines flew to Europe and beyond, but neither had comprehensive networks to the US interior. For Pan Am, virtually the only domestic routes it served before the late 1970s were the additional “tag ends” or unpublished stops of its international flights, such as San Francisco-Seattle-London. Since nearly all transoceanic departures from the US left from one of a handful of gateway airports (e.g., New York, Boston, Los Angeles, San Francisco, Seattle, Dallas), it was common for passengers to fly to the international gateway on one domestic airline, then make an interline connection to Pan AM or TWA for their international flight.
Approaching and following deregulation in the late 1970s, airlines reshaped their networks around nationally-connected mega-hubs. Rather than count on competitors to provide the short-haul flights necessary to feed their international routes, major airlines increasingly took control of regional operations, either through wholly owned subsidiaries such as American Eagle AEO and ExpressJet, or through long-term capacity purchase agreements with regional carriers. The regionals, in turn, segmented their operations into mini-airlines that serve just a single major airline.
For example, Pan Am operated three 747 departures per day from New York to London, as well as flights to Frankfurt (twice daily), Rome (once daily), and Dhahran (four times a week) in 1979. But with very few domestic routes of its own, Pan Am relied on Delta Air Lines DAL , National Airlines, Eastern Airlines, and others to bring passengers to New York from Florida – as well as other points on the East Coast. It was the job of travel agents to piece together smart itineraries that used interline connections. That is one of the reasons that airlines have historically cooperated with one another to transfer passengers and baggage.
Fast forward to summer 2019 and United Airlines operated 5 flights per day from Newark to London. To fill this schedule, United counted on 22% of passengers on board these flights to connect from another flight. The difference was that nearly all of these connecting passengers flew on United Airlines (including flights operated by United’s regional partners, collectively operating as United Express) to or from their ultimate destination.
By taking control of their own connecting networks, United and other major airlines can provide a seamless product for customers. They can coordinate schedules, align the product experience and, of course, retain more of the passenger revenue. With those goals in mind, big airlines in the US and Europe have spent years building networks with captive regional airlines. Although some regionals operate on behalf of more than one major, the regional aircraft are fully dedicated to one airline customer. When SkyWest Airlines operates a fleet of 191 United Express aircraft, for instance, those same aircraft do not ply Delta’s routes.
The downside of this arrangement is duplication. American Eagle and United Express operate 88 overlapping regional routes to Chicago’s O’Hare Airport, with aircraft that average just 59 seats per departure. Think of the savings that could be realized if the majors could “share” these routes and consolidate those 555 daily small flights into fewer larger flights.
A more likely sharing model looks a lot like the recent AA-Jetblue deal — which is much the way things were done before deregulation. For over a decade, JetBlue has been proving this model with foreign airlines. Over ten international airlines, including Emirates, Aer Lingus and Icelandair, have all put their code on JetBlue flights from Boston and JFK to connect passengers from their long-haul international routes. Until now, the largest US carrier in the mix has been Hawaiian, with its daily long-haul flights to Honolulu from Boston and New York.
A scenario similar to the AA-JetBlue scenario could develop at other hubs, especially during the downturn when many airlines are looking to rationalize capacity. For example, at Paris, Toronto and Mexico City, among others, the major long-haul carriers duplicate many routes that are flown by low cost carriers. In some cases, it would be more economical to codeshare on a single flight instead of operating wingtip-to-wingtip. Indeed, London arguably had such a feeder airline in the form of bmi British Midland, which code-shared with more than two dozen airlines at Heathrow before being acquired by BA in 2012. Today, easyJet has the network, if not the business model, to do something similar in Paris and Berlin.
Pulling it off well has implications for airlines and airports both. Customers benefit from single-airline connections in three principal ways that need to be addressed for multi-airline feed to work well:
First, airlines need to coordinate marketing to win customers. This includes coordinated schedules, sales and frequent flyer miles. Airlines are used to managing all of these with their codeshare partners, but the proposition still needs to be presented clearly to overcome confusion among customers.
Second, airlines need to coordinate operations to deliver a seamless product. It should not be on the customer to figure out where to check in, or how to sort out flight delays on the fly. From the customer’s perspective, if someone bought a ticket on American, they should be able to follow American’s rules about baggage. That is one reason why so many procedures were harmonized among airlines prior to deregulation, when interline itineraries were common.
Last, airports need to reduce interline friction. To be able to connect with international airlines, for example, JetBlue worked with Boston Logan’s operator to build a connector between terminals that allows for seamless transfers behind security. At other gateway airports, inter-terminal connections can be time-consuming or intimidating.
It is worth getting these points right. In the Covid-19 economy, many airlines are going to be pressed to maintain their full networks. Long-haul and international routes, in particular, will take longer to recover. With a smaller number of long-haul routes in operation, there will still be a need for connecting flights even while there are fewer passengers to fill them.
By expanding the partnership model at long-haul gateways, airlines and airports together have the potential to meet the community-service ideals of 1960s aviation while still pursuing the profitability of airlines over the past ten years.