Winners And Losers In The Airline World

Bob Herbst of Airlinefinancials.com exclusive special to 24/7 Wall St.

Winners are: #1. American (AMR) and #2. JetBlue (JBLU)
Losers are: Delta (DAL) and US Airways (LCC) with notable mention to Continental (CAL)
 
In the last year, Delta made a big move capturing more of the NY market when they worked out the deal to take most of US Airways landing/take off slots thereby increasing their to-from passenger/cargo feed for international markets. Note that it was only 18 months ago Delta added significant European routes from their merger with Northwest.
 
Looking at some of the New York Airline realities and the American-JetBlue announcement:
 
* JetBlue is a big domestic operator in JFK and Boston but operates zero flights to Europe.
 
* American, on the other hand, has a large NY and BOS operation to/from Europe but is weak in US domestic feed.
 
No doubt the AA labor response/argument will be against this more-or-less “interline ticketing agreement”. However, I see this agreement as a positive, especially for American’s labor. Here is why:
 
Accepting JetBlue has an agreement with Lufthansa, this American/JetBlue arrangement will now provide real encouragement to more JBLU customers who would have otherwise likely chosen Delta, Continental or US Airways for their European destinations.  
 
For American, they now have increased US domestic feed coming from JetBlue for their international routes out of both NY and Boston. Getting JetBlue’s US domestic feed this way is at virtually zero cost to American. Some, mostly labor will suggest, American should simply go into those JetBlue markets and compete themselves for the feed. Of course to do that would only add more capacity and push fares/revenues lower which is just the opposite of what the airlines need. In the end, this should encourage more and better international service for American.
 
It should be noted that there are essentially three different ways airlines “share” their routes and capacity:
 
* The large global alliances are generally set up to – share – revenue and costs regardless of which airline operates the specific flight segment(s). These global alliances are the single largest threat to labor.
 
* Regional/affiliate code-shares vary in how they are structured. Some mainline airlines both own and contract with various smaller carriers operating aircraft with 70 seats or less. These code-share contracts provide revenue guarantees to the regional/affiliate carriers that for the most part, cover all operating costs while the mainline carriers keep all of the revenue.
 
* Straight domestic code-shares, which it appears is being structured for American and JetBlue, allows for each airline to keep only the fare portion that is applied to that airlines passenger passage. In other words. If a passenger books a JetBlue/American ticket from Ithaca, NY to London; JetBlue keeps only the fare value for the Ithaca-NY flight and American keeps the fare value from NY to London. Obviously for this specific interline ticketing agreement, American has the most revenue to gain.

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