JetBlue and American Airlines got the go-ahead for their partnership from the US Department of Transportation (DOT). The two carriers had to agree to give up some slots and limit some cooperation. Here’s what the two carriers agreed to.
Service mandates
The DOT required a commitment from JetBlue on service. The airline has agreed not to exit any nonstop non-seasonal service served as of February 2020. The exceptions are John F. Kennedy International Airport (JFK) to Long Beach (LGB), Oakland (OAK, and Worcester (ORH).
One concern for skeptics was the loss of American or JetBlue service on a route in favor of another, leading to higher fares amid reduced capacity and reduced competition. JetBlue will now continue to serve its breadth of JFK schedules.
Limits on communication
JetBlue and American will be communicating and cooperating with schedules and network planning, but those discussions must remain limited to the scope of the Northeast Alliance (NEA) agreement.
The DOT is taking this very seriously. Any meetings or teleconferences between the two airlines must be conducted with in-house or external legal counsel. These meetings must have a pre-established agenda and can only include issues related to the NEA network.
The two airlines can also not coordinate future fares or fare levels.
Reporting to the DOT
By the last Monday of January each year, American and JetBlue must provide seat and departure numbers per distinct nonstop origin and destination airport-pair market served. This must be broken out on a monthly basis, including data on new or incremental airport pairs added or any airport pairs that have been removed during the prior January to December period.
The two airlines also have to provide slot utilization data. The airlines will provide twice per year (the last Monday of January and the last Monday of June) a report detailing slot utilization at New York-JFK and LaGuardia (LGA).
In addition, gate metrics are due annually at each NEA airport. The report must detail the information on a monthly basis. The DOT cares about carrier and non-carrier flight on each exclusive or preferential use leased gate at each NEA airport, the total number of seats (arrival and departure) per gate, the total number of departures per gate, and the average number of seats per departure for American, JetBlue, and any AA/JetBlue partners who sublease or utilize AA/JetBlue leased gates at each NEA airport.
What slots are the airlines giving up?
American and JetBlue have agreed to divest a small number of slot pairs at New York-JFK and Washington-National (DCA). At New York-JFK, American Airlines will divest four slot pairs, and JetBlue will divest three slot pairs. At DCA, American will divest four slot pairs, and JetBlue will divest two slot pairs.
The official slots to be divested is as follows:
The JFK slot divestitures are to be permanent and non-revocable. These slots will not be leased. The DCA slots will be divested in the form of renewable leases with commercially reasonable and industry-standard provisions.
Neither American nor JetBlue can control how the slots are used by the carrier who takes them. JetBlue and AA will get their slots back upon the termination of the NEA.
If American and JetBlue do not meet their capacity targets, they will need to divest additional slot pairs. Losing slots at JFK would be incredibly painful for both airlines.
Capacity targets
At JFK and LGA (combined), American and JetBlue’s 2022 capacity must be 105% of their combined JFK and LGA capacity per JetBlue’s 2019 capacity at JFK, Americans 2018 capacity at JFK, and their combined capacity in 2019 at LGA.
For the calendar years 2023 and 2024, the total operating capacity must be 110% of that baseline and, for 2025, that must be equal to 2025 of the baseline number. The baseline number will be reduced to compensate for JFK slots initially divested. Those slots, the 14 total, multiplied by 72 seats per operation, multiplied by an 80% utilization factor is also considered.
There are limits and considerations for American’s transatlantic and transpacific additions to and from JFK. Only capacity additions within the scope of the NEA will count towards seat capacity. JetBlue’s transatlantic capacity will not be included.
If capacity targets are not met, American and JetBlue will agree to divest up to ten additional slot pairs at JFK. This will be determined based on how far off the airlines were from their capacity target.
What to make of all of this
The DOT is letting the American-JetBlue Northeast Alliance move ahead, but it is also mandating success from the alliance. The capacity targets are especially interesting.
A 5% growth in capacity from 2019 levels by the end of 2022 is not necessarily unattainable. Much of that is out of American or JetBlue’s control, but considering how the two are already planning to fly more, the airlines should be on track to meet that.
Added capacity, however, does not mean seats sold at a premium profit. If American Airlines can fill up an Airbus A321 with 187 seats onboard with customers paying an average fare of about $150, then that really is not much of a win for American Airlines.
However, meeting these capacity targets as they come– even if it is not at a huge profit– is beneficial for the two carriers. Losing more JFK slots means losing out on potential revenue in the future. Even though there may not be 187 passengers heading to a specific destination willing to pay an above-average fare for a nonstop flight right now, there could be in three or four years, and it is in American’s best interest to be ready for that day.
For now, the DOT is mandating that the airlines actually achieve the goals of their NEA and have something to show for it. Spirit Airlines and Southwest Airlines had concerns over the partnership, and Southwest was especially vocal about slot divestitures at DCA. Whether the airline gets those slots, however, remains to be seen.
Do you like the terms JetBlue and American have agreed to with the DOT to move forward with the Northeast Alliance? Let us know in the comments!
