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The two airlines plan to code share flights and integrate some of their networks.
Bloomberg (2)
JetBlue Airways and American Airlines Group are forming an alliance in which they plan to share flight codes and integrate some of their networks. It could be a sign of industry consolidation as carriers try to regain profitability in a world of heavily reduced air travel.
JetBlue (ticker: JBLU) and American (AAL) said their partnership, announced Thursday, will include code-sharing and network cooperation. JetBlue will add more than 60 routes to its network with American-operated flights, expanding JetBlue’s presence at all three major airports in the New York region. JetBlue plans to add flights in LaGuardia and Newark and increase its presence in JFK to connect to international flights operated by American.
American will add more than 130 JetBlue-operated routes. He said the deal will allow him to launch new international routes, including flights to Tel Aviv and Athens from JFK.
The companies said the deal would include “loyalty benefits” for the customers of both operators, although they did not say that customers could redeem points on each other’s networks.
The association largely covers the Boston and New York markets, according to blog Cranky Flier. Airlines will continue to compete aggressively in markets such as Philadelphia and South Florida. It is also structurally similar to a code exchange agreement that American signed with Alaska Air Group (ALK) earlier this year.
American has long tried to feed more passengers to New York for domestic and international flights. Adding JetBlue improves your power system from smaller regional airports.
“This will eventually result in a code share and frequent flyer partnership,” according to Cranky Flier. “That means loyalists to either program will now be able to meet most of their needs by sticking with their preferred airline and partner.”
The deal could also be a precursor to consolidation and possible industry mergers. Carriers are now aggressively downsizing, planning to lay off thousands of employees as they try to regain profitability on a smaller revenue base. American said Wednesday it could cut as many as 25,000 jobs in October, after payroll support under the Care Act declines. United Airlines Holding (UAL) made a similar announcement last week. And Delta Air Lines (DAL) said in its latest quarterly filing that it anticipates taking a charge of $ 2.7 billion to $ 3.3 billion in the third quarter related to early retirements and separation agreements for employees.
“All airlines are trying to figure out how to rearrange the chess pieces,” says Bernstein analyst David Vernon Barron’s. “The industry is looking for ways to market more products with less capacity. If we have learned a lesson from Covid, it is that a smaller number of better capitalized airlines will be better able to deal with this. ”
One problem, of course, is that Americans don’t have the balance or the capital flexibility to make a capital deal. Its debt has soared to more than $ 38 billion, while its equity value has dropped to $ 6.5 billion in market capitalization. JetBlue’s capital is worth $ 3 billion, based on its market capitalization. His total business value, which represents his debt and cash, is $ 5.3 billion versus $ 40 billion for Americans.
An American spokeswoman says Barron’s “We have no intention of merging.”
A JetBlue spokesperson said: “We continue to believe that our independent organic plan will produce the best results for our investors.” The code exchange agreement with American “further strengthens our ability to offer low rates and great service to customers.”
If JetBlue goes on sale, it would probably be more valuable to another legacy operator.
One reason is that American and JetBlue operate fleets of young planes. JetBlue’s assets, which consist primarily of Airbus aircraft, would be worth more to an airline that operates a fleet of older aircraft and could generate more cost savings by upgrading its line. American, however, recently spent billions of dollars building a new fleet, following its merger with US Airways.
“If you’re trying to maximize marginal dollar yield, there are other airlines that need JetBlue more than American,” says Vernon.
United is an operator that could pay JetBlue and benefit more from its assets. The airline’s fleet is not as young as JetBlue’s, and United has no presence at the JFK in New York, while JetBlue does, making it a better strategic fit. “If we looked seriously at who could pay JetBlue and get the most value, it would be United over American,” says Vernon.
United left JFK in 2015, selling its 26 slot machines to Delta and moving its operations to Newark. But United has always wanted to return to the market. United CEO Scott Kirby, who was previously president of the airline, told United employees in April 2017 that leaving JFK was a “wrong decision.”
A United spokesman said the airline had no comment on the merger speculation.
Write to Daren Fonda at [email protected]
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