Podcast: A New Player In The Transatlantic Market: How Will JetBlue Shake Things Up?

Listen in as Aviation Week Network editors discuss what could be one of the most significant developments in long-haul commercial air travel as New York’s JetBlue starts daily service to London.

Here is a rush transcript of the Check 6 podcast for August 12, 2021. 

Karen Walker:             Okay, so hello everyone, and a big welcome to Aviation Week Network’s, Check Six podcast. I'm Karen Walker, air transport editor-in-chief. So, it's an exciting day today for one of America's most liked airlines, JetBlue. flight 007, an Airbus A321LR narrowbody landed at London Heathrow this morning after departing from JetBlue's New York JFK base last night. That flight launched JetBlue's entry into the transatlantic market beginning with daily service from JFK to Heathrow, and then adding daily service to London Gatwick, ultimately following with Boston to London.

Karen Walker:             CEO Robin Hayes, a former executive at British Airways, has promised to create a permanent and disruptive effect in the transatlantic market. So, joining me today to discuss what that could mean are two of my Aviation Week Network colleagues, North American Air Transport Editor Ben Goldstein, and CAPA Senior Analyst for the Americas Lori Ranson. Hey Ben. Hey Lori. Great to have you on this. Thank you. So, I'd like to start off by just looking at that whole history that we know all too well of long haul, low-cost carriers starting up, especially in the transatlantic market and more often than not failing. What do you think might make this a different prospect with JetBlue and will this, like Robin says, be a transatlantic disruptor? What are your thoughts, Lori?

Lori Ranson:               Well, I think as you said, JetBlue is one of America's most liked brands and they have strongholds in New York and Boston. So, they have strong point-of-sale here in the U.S., and I think that's a little bit different than some of the point-to-point carriers that had tried to do this in the past with widebodies. You know, the A321 is the right airplane, I think. And they've studied how to configure the airplane for maximum revenue potential. They've added some more premium seats and they've configured the economy in such a way that I think passengers eventually will find the product and the price point very attractive. It's going to take some time simply because we're launching in a pandemic and there are still some travel restrictions in place and testing and so forth that may deter leisure travel travelers from going across the Atlantic.

Lori Ranson:               So I think it's a longer-term play. And I think that there's the prospect for success simply because JetBlue has carefully been planning this for years and years. They've studied the market, they're coming in at the right price point. Obviously, their competitors right now are matching those prices. So, we'll see how far that progresses. I think, ultimately, what's going to happen is they've had to go back and internally kind of reconfigure the spool-up time, the time period for when it's going to become a profitable route, simply Because, as I said, you're launching in a pandemic. But I think the prospects, long-term, are very good, and I think that they can be disruptive simply because of their brand and their network footprint here in the domestic market.

Karen Walker:             Yeah. That's important that strong network that they actually have, which again, a lot of long haul, low-cost carriers start off with very little of that, but that you've also got, as you said, a quality product with a good brand name, at least here in the States and the Caribbean, and a very efficient aircraft with a good quality product on board. So, Ben, so how do you think the major airlines, both sides of the Atlantic, are going to react to this new competitor in that very important transatlantic market?

Ben Goldstein:            Okay. Well, yeah, that's a very good question. What we're seeing right now is the majors are—initially at least—trying to match JetBlue on fares. You know, whether that will be a viable strategy longer-term remains to be seen, but you know, keep in mind that frequencies by JetBlue are going to be very low initially. They're once per day to both Heathrow and Gatwick and that'll go down to four times weekly in September. Now, they say that in October, it'll go back to daily. That remains to be seen whether that'll actually happen depending on how the pandemic goes, but at least initially they're not going to have a whole lot of seats in this market. So it shouldn't be too big of a competitive threat to the established incumbent airlines. And keep in mind that, you know, at least on the U.K. side, Jet Blue is kind of more of an unknown presence.

Ben Goldstein:            They have a very strong brand reputation IN the New York market, specifically for corporate accounts. And I think also with their mint product that will attract probably some higher-end leisure travel, however, they're not very well known in the UK and competing for that U.K. originating travel might be a bit more challenging. However, like you mentioned earlier, Robin Hayes was formerly the VP of British airways for the Americas. And so if anyone can make this, make this work, it's him. And I think he knows exactly what the competition is because he was formerly part of it. So yeah, it's not totally clear, but I think at least in the beginning, the majors are going to be trying to compete on price.

Karen Walker:             I agree. And I think you're right. I mean, on the one hand, it doesn't look much, you know like, sort of once a day from Heathrow once a day from Gatwick, relative to what the majors are doing seems small. I think the bigger concern by the majors is just the longer-term effect of Jet Blue, who we've seen JetBlue has a track record here in the states. What they did transcontinental here really changed that market by offering a premium what they call mint product at a really competitive price, forced the majors to do both look at those fares and look at their product for the business traveler.

Karen Walker:             And I'm sure, I don't think they're as concerned about the leisure side as what ultimately Jet Blue could do to the business market when that picks up. Both of you have mentioned about one unusual element of this launch service is that it's being done while the pandemic still goes on and while traffic demand is still very low and lots of travel restrictions still. Lori, you know, for them to go ahead at this time, do you see that as a risk or an opportunity?

Lori Ranson:               Well, I think they had to go ahead by necessity at this point because of the Heathrow slots, they are temporary. We don't know how long Jet Blue is going to have those Heathrow slots. I believe that they've said they're trying to work for a permanent solution, but what will that permanent solution Be? Will they buy slots or are they going to work with the airport operator?

Lori Ranson:               So I think there was a bit of necessity in terms that they needed just to launch, to hold onto the slots. But I also think there's a little bit of opportunity, as Ben said, all carriers have pulled back because of travel restrictions and low demand. So, there's a way to sort of get in and maybe it's a little bit lower risk in terms of just, it won't be an all-out war at the beginning.

Lori Ranson:               So, I don't see that as a big risk in terms of launching. And as I said, sort of, I'm sure that they've revised their internal focus in terms of when they're going to reach profitability. So I think if you're going to launch, just go ahead and launch, there's no perfect time to enter the market right now. And I think they wanted to sort of maintain the momentum and sort of just be able to go ahead, get into the market, see what the competition is and go from there. And again, I think a big point is the slots as well. They just needed to hold on to the slots and see how the market performs.

Karen Walker:             Yeah, I mean Heathrow, they never said it specifically, but Heathrow was clearly their first target, but it's so hard to get it. And if there was one thing about the pandemic, it gave them that opportunity to get those slots. And I'm sure they're going to want to try to keep hold of those. Ben, what's your thoughts on pandemic launch?

Ben Goldstein:            Well, going off what Lori said, you know, the main driver behind the timing was access to those Heathrow slots. So I think the question is, could JetBlue have obtained those slots if there was no pandemic going on? And I think the answer is probably no, maybe they could have at Gatwick, but at Heathrow, I think it's a lot less likely and keep in mind, I think pre-COVID, it could cost between $30 or $40 or $50 million to obtain a slot pair at Heathrow.

Ben Goldstein:            And Jet Blue's shareholders have been skeptical of those kinds of plans for a long time. Would they have signed off on that? I'm not so sure. So I think, the real answer is, you know, you can't really have it both ways. The opportunity is here, you know, precisely because of the pandemic.

Karen Walker:             So yes, I agree with both of you, those Heathrow slots could make a huge difference. And that was part of launching in the pandemic opportunity. Let's talk a little bit at the specific aircraft that JetBlue is using on this. Not unheard of, but still unusual for narrowbodies to be used on the transatlantic market. And in this case, it's the A321LR, long-range, as we've already said. So they've got a new cabin design for this, for the transatlantic market, that includes suites at the front end, private suites in their mint cabin. So, do we think that that's another change that could be now seen more broadly in the market with more use of narrowbodies in the transatlantic market, Lori, any thoughts there?

Lori Ranson:               Oh, I think so. Definitely. And you know, just as you were making that point, what popped into my mind is, this is really the test case for the A321LR, isn't it, to meet the mission that everyone says it is capable of completing. So I think that's another point to watch out for, all eyes are going to be closely watching how that aircraft performs on that transatlantic route. And indeed, if JetBlue is successful and has the right aircraft and the right revenue mix, I can think that other carriers will probably consider using that type of aircraft in the transatlantic. So yes, definitely.

Karen Walker:             It's interesting, as you said, that's sort of what Airbus has been talking about, now there comes to the proof in the pudding with this high-profile route. And what it does, of course, is it gives them both flexibility. You know, a narrowbody is much easier to fill, and that's very important in the current market, and it really helps them with their trip costs. It's not just about the seat cost anymore. It's a trip cost aspect. So I think that will be interesting.

Karen Walker:             On that, when we talk about the business side and we all know that the business travel has still got to come back, I think you mentioned it, Ben, about the frequency, very few frequencies that moment. How soon do you think they will need to start ramping frequency up to really have a business traffic appeal?

Ben Goldstein:            Well, it's a very tricky question. I think the conventional wisdom is that, to really compete for the business traveler, they would have to ramp up. Most of the established players on this market I think offer, pre-COVID you know, maybe about four flights per day. And the reason being is business travelers have a premium on flexibility. They don't know when their meeting is going to be out or if they'll be delayed a little longer and they want to always be able to get the next flight.

Ben Goldstein:            So you would think they have to ramp up. But of course the problem is the lack of slots that Heathrow. So how is JetBlue going to be able to ramp up and get additional slots? I mean, that's not at all clear, sometimes slots become available at Heathrow, but not very often. They’re doing some runway expansion, but that's a long way out, and they make marginal improvements to ATC and other things. But I think, Heathrow also, places a premium on adding new routes to markets in Asia. I don't think that it's their top priority to secure more slots for JetBlue. So I think, they would need to eventually ramp up frequency, but how they do it, that's a little bit more of a tricky question.

Karen Walker:             Yeah, I agree. And I think it also has to be said that while, yes, it was obviously important for them to secure that Heathrow slot at the end of the day, the current schedule, the flight arrives at about 10:00 AM in the morning, local time, and then the departing flight leaves at about 2:00 PM. Again, local time. Those are not the ideal business times, obviously because the business traveler typically would want to be there early in the morning, still have a shower and then get to the meeting and would prefer to have a full day before they have to go to the airport at the end of the day.

Karen Walker:             So, yeah, that's, as you said Ben, a tricky one. Of course, this is not just for JetBlue all about the UK, that's where they've chosen to start, with London, but they've said: "we're going into transatlantic service". So, they're looking ultimately to go to other destinations in Europe. Lori, where do you think will be their next priorities outside of the UK?

Lori Ranson:               Well, I think they're probably going to target some of the larger markets, say Paris or, you know, other large markets within the range of the A321LR. I think they have a really interesting opportunity from Boston where they're just so huge and they're the largest carrier there. So, I think they could really capitalize on their presence and a good leisure product when demand returns and what is it, they have 26 of these aircraft that are coming in. So I think if this experiment is successful, they're going to look to grow pretty rapidly in terms of transatlantic markets. So I'd say Paris and Rome, maybe a couple other markets. [crosstalk 00:20:14].

Karen Walker:             Yeah. They looked like the most obvious markets certainly. So, and of course, you know, strong leisure opportunities there, but also again, would have business [inaudible 00:21:12] market, ultimately. So I'd like to just do a little thinking here from each of you. As I said at the start, we've seen lots of people enter the long haul, low-cost market and this market in particular saying they're coming in as the low-cost carrier, and then it hasn't worked out. We've talked here today about why JetBlue is so different, but the market is also now incredibly different from when they first decided they were going to do this. So what are each of your thoughts about JetBlue's chances for this and whether they will be in this for the long-term and more importantly, make money out of it. Ben?

Ben Goldstein:            Yeah, I mean, I think the odds are good that they will be successful. If it's not a resounding success right off the bat, I think the odds are good they will break even. I see it as a less likely scenario that they're going to be losing a lot of money on this route. You know, like I mentioned earlier, they're not super overexposed. The frequencies are low. Keep in mind, Norwegian was flying five or six Dreamliner flights per day at one point and Norwegian had no business class product like JetBlue has to subsidize the cheaper economy seats. So I think, I think the odds are good given JetBlue's strong reputation, their brand and their really strong product that, they will be a success. And I think it's less likely that they're going to really lose money doing this.

Lori Ranson:               I agree with what Ben said. I think over the long-term they have the chance to be successful in this market. And I know that the American partnership doesn't really cover this aspect of JetBlue's network, but you have to think if they're feeding passengers into Boston and New York, that does sort of present an opportunity for JetBlue to capture probably some feeds, some informal feed for those flights.

Lori Ranson:               So, I think over the long-term with JetBlue's brand and its strategy and not a lot of capacity in the market, it's going to be tough. I mean, their competitors are fierce and you know, you’ve seen United say that it plans to add Boston to London. So the competition is going to be fierce, but JetBlue has faced that sort of competition before. And I think JetBlue has such a loyal following among passengers and has such kind of, a much more better image than some of the majors right now that it really does have a shot and making this work. It could take longer. It's probably going to take longer than initially expected, but I think the odds are high that they're going to have some success in this market.

Karen Walker:             Thank you, Lori. And thank you both for joining me today. That was a good discussion. And so thank you very much and also a big thank you to our producer, Donna Thomas. So that's a wrap for this Check Six podcast. You can subscribe to Check Six at Apple podcasts, Google podcasts, Stitcher and Spotify. So, thank you again, have a great day and a great rest of your week.