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New Partnership May Make American Airlines Relevant Again In New York City - And JetBlue A Lot More Relevant Outside It

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Will its new partnership with JetBlue make American Airlines the once and future king of New York?

Probably not.

But 15 years after it lost its dominant position as the Big Apple’s go-to carrier among high-paying corporate travelers, and five years after it began significantly pulling back on its operations at both John F. Kennedy and LaGuardia airports and retreated to its previously obscure and poorly functioning hub at Philadelphia, American now has a shot to become relevant once again in New York.

JetBlue, meanwhile, may now finally have the ability it long has sought to compete effectively with its hybrid-quality service beyond the limited confines of its Northeastern stronghold.

To be sure, the JetBlue-American partnership, announced Thursday, falls short of a corporate marriage-of-necessity. But American’s desperate need to rebuild at least some of the valuable New York customer base it has abandoned over the last two decades, and JetBlue’s long-standing need for more domestic and international routes to beef up its limited network, do make the partnership something akin to a “friends with benefits” kind of business relationship.

The couple may never get to the altar via an actual merger. Potential barriers to that include anti-trust concerns, likely opposition from labor unions at both carriers, and the sky-high levels of debt they’ve taken on this year (especially American) to stave off financial collapse after Covid-19 wrecked global air travel demand. But in these modern times the notion of a strong friendship from which both can get some of their needs met just might work.

In American, JetBlue would get a much larger network that would vastly improve the 20-year-old, New York-based carrier’s ability to compete on routes between the nation’s largest and most economically vibrant market with large second-tier cities throughout the nation.

Meanwhile, the partnership with American will improve JetBlue’s ability to serve lots of large, and normally profitable domestic U.S. and European markets that it does not now serve because of its limited route network and relatively small size.

American’s large footholds at LaGuardia and Kennedy will give JetBlue lots of room for adding more domestic flights, something it previously had only limited ability to do.

Scott Mayerowitz, executive editorial director at ThePointsGuy.com, an online travel news and booking service that focuses primarily on frequent fliers, said JetBlue’s desire to grow has been well known for two decades. “But space and government limitations in New York, Boston and Washington have prevented it from doing so,” he added, noting that JetBlue has tried a number of similar – though less ambitious – partnerships with other carriers over the past 20 years.

For American, JetBlue will give it greater access to the enormous domestic business travel demand among residents of New York City and throughout the densely populated Northeast where American no longer has the presence it once had. The carrier, which relocated its headquarters from New York City to Fort Worth in 1979, has seen its share of the enormous air travel market in the New York area shrink from nearly 20% in the late 1990s to only around 10% today. Rival Delta Airlines now carries nearly a third of all air travelers whose trips begin or end there.

American also long dominated the important New York-Los Angeles route that connected the nation’s two largest economic markets. But, while it still competes on those transcontinental routes, American’s scale back of both its domestic and international schedules in both cities, along with Delta’s aggressive growth in New York, had seen American lose its once-dominant position as the preferred carrier of corporations that generate billions of dollars in travel by their New York-based employees.

American also likely will see some improvement in its market position in Boston, another Northeastern city where it historically held a strong position but from which it largely has retreated in recent years.

JetBlue long has considered Boston its second-most important market. But with its limited domestic route network it has struggled to compete there with Delta. Thus, gaining access to American’s huge domestic network should strengthen JetBlue’s position in yet another economically vibrant Northeast metro area.

“America Airlines has been pulling back on New York flights for years,” said Mayerowitz. “This partnership will allow it to become a more powerful player in the country’s economic center. American will fill its extremely lucrative international flights without investing in a network of domestic routes. That will let it better compete with Delta and United, which have been stealing away corporate contracts that lead to the best profits.”

Not all details of the partnership are fully worked out. International service growth plans for both carriers remain cloudy at the moment because of the unprecedented weakness in travel demand caused by the global Covid-19 pandemic and governments’ restrictions on international travel. But both carriers expect to engage in “code-sharing” on some of their domestic flights and, potentially, on some international flights. They already have code sharing deals in place on several international routes. Code sharing is industry lingo for flights operated by one carrier but which carry the airline code and flight numbers of both carriers when listed in online and travel agents’ reservations systems.

Neither carrier mentioned in Thursday’s announcement whether JetBlue might join the oneworld global airline alliance led by American and British Airways. Nor did they say whether they might at some point seek antitrust immunity that would allow them to go well beyond code sharing via a joint operating agreement on certain international routes. That degree of partnership between airlines would require that they seek a federal grant of immunity from antitrust laws.

JetBlue is not a member of any of the three big alliances, but it has frequent flier program relationships with a number of carriers that are members of all three: oneworld, Star and SkyTeam.

For American, the JetBlue partnership effectively replicates on the East Coast the West Coast-focused strategic relationship it agreed to create with Alaska Airlines early this year. American sees Seattle-based Alaska as an inexpensive way for it to compete effectively in the valuable West Coast markets where it for years has struggled to operate profitably because of its high cost structure. Alaska once had a similar relationship with Northwest Airlines only to see it eroded once Delta acquired Northwest and began in recent years to significantly increase its presence in the Seattle market. Now, Alaska is turning to American to provide its West Coast loyal travelers better access to the rest of the nation and non-stop long-haul service to Europe and Asia.

American’s eagerness to ally itself with JetBlue in a New York-focused partnership has waxed and waned since the mid-2000s, when Delta began its assault on the New York market. The competition there includes United, operator of a large hub at Newark, just across the Hudson River from Manhattan, plus domestic behemoth Southwest and all of the nation’s discount carriers. That has made it very difficult for higher-cost airlines like American, Delta and United to make profits there. Still, because of the sheer size of the New York City air travel market, and its well-above average economics, New York remains a very important market for U.S. carriers.

American, in effect, gave up trying to win back its leadership position in the New York market after it was acquired by the former U.S. Airways in 2013. Under the old U.S. Airways, its Philadelphia hub become notorious for shoddy operations, lost bags, flight delays and unattractive flight schedules. Since the merger, operations at Philadelphia have improved dramatically and its schedule has been greatly enhanced. But it remains only the 20th busiest airport in the nation, one spot ahead of New York’s LaGuardia and considerably behind No. 6 Kennedy and No. 11 Newark airports.

While it grew at Philadelphia, American shrank its domestic operations at both Kennedy and LaGuardia airports, ceding the turf to the combination of Delta, JetBlue and Southwest. It also scaled back its own international flying at Kennedy Airport, shifting much of it to its oneworld partner, British Airways, with which it has an antitrust-immunized joint operating agreement.

Now, though, American’s new partnership with JetBlue shows that it recognizes that its pull-back in the New York market was a strategic mistake that has hurt its ability to compete for very lucrative and strategically important corporate travel contracts with the many, many large corporations that have headquarters or large offices there. Many such companies also generate hundreds of millions of dollars of air travel that does not involve New York City at all, but choose other airlines anyway because American can’t deliver enough seats in the New York market as well.

Without such contracts not only has American seen its share of travel  on domestic routes to and from New York shrink, it has lost business to United and Delta’s international flights. That’s because once corporate travelers began flying more domestically – and earning lots of frequent flier points - on American’s rivals those travelers tended to shift much or all of their international flying to those rivals as well.

American’s move to build up its international hub at Philadelphia, 100 miles southwest of New York, had little impact on international travelers transferring from or to cities in the U.S. interior. That’s because there’s almost no difference between changing planes in Philadelphia and changing planes in New York.

But the buildup of service at Philadelphia, now only the nation’s eighth-largest market with 6.2 million people, and shrinkage in New York left American at a significant disadvantage in trying to compete for travelers from the 19.2 million-person New York metro area. New York also is a significantly more economically vibrant market than Philadelphia. While New York is 315% larger than Philadelphia in terms of metro population, it is 375% larger in terms of metro area GDP. Thus, not only did American dramatically shrink the size of the pool of local residents it could serve from its Northeastern international gateway hub by shifting its focus to Philadelphia, it also shrank the potential economic impact that could be generated by the local component of its Northeastern international gateway.

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