It’s a tough time for the US airline industry, and consumers are the ones benefiting from that. Long story short, the industry is very much dominated by the “big four,” with Delta and United taking home the lion’s share of the profits.
The reality is that smaller carriers are really struggling to compete. That’s because so much of the industry profits come from loyalty programs and lucrative credit card agreements, and benefiting from that requires scale. Essentially, our airline tickets are either subsidized by shareholders (for airlines that are losing money) or by credit card companies and loyalty programs (for airlines that are making money). One wonders if the US airline business model may need to be reinvented at some point…
Among US airlines, I’d argue that JetBlue is in a unique position. The airline hasn’t turned a profit since the start of the pandemic, and at this point, doesn’t forecast making a profit this year or next year. What makes JetBlue different than other struggling airlines is that it has some really valuable assets… if only they could be used correctly.
JetBlue has a lot of potential, but also challenges
From a passenger experience standpoint, JetBlue is pretty great. JetBlue tries to offer a superior experience, from seat back entertainment, to free Wi-Fi, to more legroom, to free drinks and tasty snacks.
Most importantly, JetBlue has a strong market position in both Boston (BOS) and New York (JFK), which should be very lucrative markets. Arguably JetBlue’s biggest asset is its size at JFK, between its presence in Terminal 5, and its future presence in Terminal 6.
Under the leadership of former CEO Robin Hayes, I’d argue that JetBlue was simply distracted, and not paying attention to consumer trends. The airline was focused on sexy transatlantic flying, and on acquiring Spirit (in a failed merger). However, none of that really addressed the carrier’s underlying problem, which is its lack of profitability. It seemed to view the industry’s realities as a temporary blip that would self-correct.
While New York and Boston are lucrative markets, the airline is competing head-on with Delta, and that’s not really an airline you want to compete directly with, especially when those are your biggest markets.
In 2024, the airline got a new CEO and President, and they’ve been trying to turn the airline around. While I think they’ve generally been doing a good job, it just doesn’t seem like there’s actually that much of a radical vision to transform things. Their focus seems to be on cutting costs in order to restore profitability, while tweaking the route network.
The network changes basically seem to revolve around continuing to reduce capacity to match weaker demand, and also continuing to look for opportunities to wind down underperforming routes, and shift flying to more profitable destinations. But I’d also think that this is what every airline is always doing, no? When that’s the extent of the strategy, it’s not exactly ideal…
As JetBlue’s CEO recently explained in a memo to employees:
We’re hopeful demand and bookings will rebound, but even a recovery won’t fully offset the ground we’ve lost this year and our path back to profitability will take longer than we’d hoped. That means we’re still relying on borrowed cash to keep the airline running.
That’s not exactly good…
Can JetBlue independently return to profitability?
Where is there potential for JetBlue? The way I see it, there are several areas that can help the carrier’s financial performance:
- JetBlue plans to efficiently introduce first class throughout the fleet as of 2026; honestly, this can’t come soon enough, and I think it’s mind-boggling that this hasn’t happened until now
- JetBlue is trying to make its TrueBlue program more profitable by making it more lucrative and engaging for members, but that’s an uphill battle, since JetBlue is kind of late to the game
- JetBlue is launching a new “Blue Sky” partnership with United, though it’s not yet clear how this will materially improve the carrier’s financial performance
Of course then there’s JetBlue’s strategy of just trying to shrink into profitability, which also seems questionable, at best.
I’ve gotta be honest, I kind of struggle to see how JetBlue can actually become profitable, at least based on current market dynamics. I’d love to hear other viewpoints, because I’m not claiming to be right. What do you think JetBlue can do to become profitable, and with what timeline, and what market conditions? I’d love answers other than just the equivalent of “stop being poor.”
In theory, most people are opposed to industry consolidation, because of course we all want a healthy, competitive industry. Personally, I have a different take on consolidation:
- Perhaps aside from Taiwan, it’s important to acknowledge that the United States has one of the world’s most competitive airline industries, when you compare the number of major players to the size of the population
- I think what ultimately benefits consumers the most is to have as much capacity as possible flying for airlines that can generate healthy profits from their loyalty programs; those programs subsidize ticket costs, since even the most profitable airlines barely have any margins on the tickets they sell
I think the most fundamental issue here is that JetBlue’s JFK hub is an asset that would be worth billions to other airlines, but JetBlue just can’t use it properly:
- JetBlue is primarily a domestic and short haul international airline, and most people don’t want to trek out to JFK rather than LGA to take a domestic flight; it feels like the right hub for the wrong airline
- JetBlue’s heavy focus on leisure flying up and down the East Coast is tricky in terms of yields, given how directional demand is in this region; for example, in winter, the demand is going south on Thursdays through Saturdays, and going north on Sundays and Mondays
JetBlue could be a huge asset to other airlines
For a moment, let’s forget regulatory concerns. If an acquisition of JetBlue were possible, what would make the most sense? The way I view it, there are three possible JetBlue acquisitions that could make sense (and one that I just think is totally unrealistic).
JetBlue & United combination
This is the most obvious one. JetBlue and United are launching a partnership, and it’s clear that United would love to acquire JetBlue, if there were no regulatory issues:
- United CEO Scott Kirby salivates at the thought of returning to JFK, and would pay just about anything for JetBlue’s assets there, if the deal could get approval
- United doesn’t have a hub in Florida, and has reportedly been exploring that, so it seems like it could benefit from JetBlue’s presence in Fort Lauderdale (FLL)
- United would benefit from JetBlue’s aircraft, and there’s quite a bit of fleet commonality there, plus JetBlue’s interiors are already somewhat comparable to how United is retrofitting its aircraft at this point
- United could fly JetBlue’s A321LRs much more profitably than JetBlue could, especially across the Atlantic out of New York and Newark
- JetBlue could really be the key to allowing United to compete more directly with Delta, and get into the carrier’s league
JetBlue & Alaska combination
Keep in mind that back in the day, JetBlue and Alaska were fighting against one another to acquire Virgin America. Alaska ultimately won, though paid quite a pretty penny for the airline. Arguably Virgin America would’ve been better suited for JetBlue, given the complementary route networks, commonality in aircraft types, etc.
Now we’ve seen Alaska acquire Hawaiian, and I can’t help but think that JetBlue and Alaska could be good complements to one another. For one, they’d allow Alaska to be a “national” competitor, by beefing up its East Coast presence in some markets that can be lucrative.
Alaska also belongs to the oneworld alliance and has much more robust airline partnerships, so has more potential to leverage JetBlue’s position in the Northeast to its advantage, including in partnership with American. Now, I think Alaska probably has its hands full already trying to figure out its current merger, but in theory, I could see this becoming interesting some point down the road.
JetBlue & American combination
We know that American and JetBlue had a partnership in the past, and ultimately JetBlue has now decided to pursue a partnership with United rather than American. Financially, American is in third place, behind Delta and United, and the airline really needs something to give it some momentum.
I can’t help but think that there would be huge upside to American acquiring JetBlue:
- It would allow American to expand in New York and (to a lesser extent) Boston, which really seems like a missing part of American’s strategy, in terms of beefing up long haul connectivity, and increasingly competing against Delta and United in the Northeast
- American could fly JetBlue’s A321LRs much more profitability, as part of the oneworld transatlantic joint venture
- It feels like in general, JetBlue would benefit greatly from joining oneworld, much like Alaska has
Simply put, American needs to do something to build momentum and compete, given what a financial mess the airline is compared to Delta and United. If nothing changes, the airline will just become increasingly irrelevant, which isn’t good for anyone. Admittedly a merger isn’t some magic pill that will solve everything, but I do think there could be merit to this…
American acquiring JetBlue would sort of also be the ultimately revenge against United, given the dynamics between the management teams at the two airlines.
JetBlue & Delta combination
In theory, I’m sure Delta would love to acquire JetBlue, in the sense that it could knock out its biggest competitor in both Boston and New York, and have an ultra-dominant position. However, I have to imagine that such a combination wouldn’t receive regulatory approval no matter what, since it would be impossible to argue that there’s any real consumer benefit there.
Could a JetBlue takeover get regulatory approval?
Of course the immediate response people have is that “nope, there’s no way a ‘big three’ takeover of JetBlue would be approved.” That may very well be true. What I can’t wrap my head around is what alternative people propose.
Currently JetBlue is burning through borrowed money with no profitability on the horizon. The airline keeps shrinking and parking planes. If that trend continues, how do we benefit, as consumers, with JetBlue remaining independent?
I actually think it’s really interesting to reflect on the January 2024 filing, where a judge blocked JetBlue’s takeover of Spirit. In his decision, he wrote the following:
In sum, the Court has made its best attempt, applying the law to the evidence in this case, to predict the future of a dynamic market recovering from the COVID-19 pandemic, in markedly uncertain times. For the reasons set forth above, therefore, the Court rules that the proposed acquisition violates Section 7 of the Clayton Act. Spirit is a small airline. But there are those who love it. To those dedicated customers of Spirit, this one’s for you. Why? Because the Clayton Act, a 109-year-old statute requires this result –- a statute that continues to deliver for the American people.
18 months later, how has that decision aged?
- Spirit has gone through bankruptcy protection, and has shrunk considerably, and continues to have absolutely horrible margins, burning through hundreds of millions of dollars per quarter
- The judge fundamentally misunderstood why people fly Spirit; people flew Spirit because the airline offered the best value (because their margins are negative 20% due to lack of pricing power), not because “there are those who love it” who are “dedicated customers of Spirit”
- I can understand that at the time, the judge may have decided that coming out of the pandemic, it was hard to determine the independent prospects of Spirit; however, I think most of us would now agree that the industry has fundamentally shifted
Presumably the argument against any sort of takeover of JetBlue would primarily center around the NYC area airports. Let’s actually talk about that a bit, by looking at domestic market share at the three NYC area airports:
- JetBlue has around 30% market share at JFK, around 5% market share at LGA, and around 5% market share at EWR
- Delta has just under 50% market share at JFK, around 50% market share at LGA, and around 5% market share at EWR
- American has around 20% market share at JFK, around 25% market share at LGA, and around 5% market share at EWR
- United has 0% market share at JFK, around 5% market share at LGA, and around 80% market share at EWR
Delta absolutely dominates NYC, with roughly 50% market share at both JFK and LGA. With that in mind, let’s look at the merger possibilities.
For example, if American were to acquire JetBlue, the airline would have around 50% market share at JFK and around 30% market share at LGA. The airline would still have an overall smaller presence at NYC area airports than Delta. Wouldn’t a strong, direct competitor to Delta be good, especially since that would almost certainly lead to global expansion from the airport? I think that would be better than two small competitors that are struggling, and being pushed around by Delta.
Alternatively, if United were to acquire JetBlue, the airline would have 30% market share at JFK, 10% market share at LGA, and 80% market share at EWR. Okay, maybe there would be some slot concessions at EWR, but that actually sounds to me like a much more competitive industry, no?
As a condition of a merger, require that the airlines maintain at least as much of a presence at JFK as JetBlue had before the merger, for some lengthy period of time. That way capacity will be maintained, and capacity is ultimately what matters.
None of this is to say that a merger would be approved. One would think that in theory, the Trump administration would be friendlier to consolidation than the Biden-Harris administration. That’s not to say that would actually be the case, though.
To me, it just comes down to recognizing that if airlines lose money for long enough, they won’t be in business anymore. And when the thing driving profitability is large scale loyalty programs (which benefits us consumers), then I think consolidation that maintains capacity has consumer benefits.
If you force JetBlue to remain independent, I can’t help but think that the airline will eventually end up in Chapter 11. However, that’s not some magic pill that fixes an airline — just look at Spirit. Instead, the underlying economics will remain unchanged, and if anything, the airline will just continue to shrink.
Bottom line
JetBlue hasn’t turned a profit since the start of the pandemic, and as much as the carrier has been trying to turn things around, things aren’t looking great. What makes JetBlue different than many other struggling airlines is that JetBlue has one of the most valuable terminal assets of any US airline, with its presence at JFK Terminal 5, and future presence at JFK Terminal 6.
Something’s gotta give here, and I don’t see how JetBlue is actually going to become profitable in this market, given the shift in industry dynamics. Maybe it could happen several years down the road, but one wonders just how much JetBlue will have shrunk by then.
Obviously there are concerns about regulatory approval for consolidation, and I get it. Though when you actually analyze the data, a pretty clear question emerges. Delta currently dominates NYC, and either an American or United takeover of JetBlue could give them a much more competitive position.
If American were to acquire JetBlue, the airline would still have an overall smaller presence in NYC than Delta. Wouldn’t consumers benefit from a strong, global competitor? Meanwhile if United were to acquire JetBlue, I think some slot concessions at Newark would be needed, but again, wouldn’t we be better off with the carrier actually being able to compete somewhere other than Newark?
What do you make of JetBlue’s financial situation, and the prospect of profitability and/or a merger?
