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Morningstar | JetBlue's Trans-Atlantic Ambitions Will Face Stiff Competition

JetBlue operates a hybrid model that blends low-budget airline and full-service carrier traits. Over the last decade, it has adopted full-service carrier products, like premium cabin configurations, and eased into unbundled fares. The carrier met growing success as it injected premium products from its Mint offering into its increasingly transcontinental exposed network. The carrier now plans to take its strategy and apply it to international markets, specifically on trans-Atlantic routes to the United Kingdom.We expect the carrier will benefit from repackaging its fares, enhancing its fleet with cost-saving A220s, and carefully integrating its Mint product into different markets. But JetBlue faces several tall challenges in the form of Delta’s ever-growing presence in the Boston market, fierce low-cost carrier competition in Florida markets (mostly Fort Lauderdale), and steep barriers to trans-Atlantic markets. Avoiding cost inflation and maintaining competitive prices versus market-gripping legacy carriers will be critical for JetBlue. The carrier has made considerable progress in several cost initiatives and now expects to incur a $171 million savings run rate through 2020. We expect the delivery of new A321neos and A220s, concurrent with the exit of A320s and E190s, will deliver savings as it resets maintenance costs under new engine deals. Combined with capacity growth plans, we envision manageable nonfuel unit costs through the next five years.JetBlue plans to enhance its East Coast product by serving business-centric international routes to Europe. Trans-Atlantic fares typically earn a premium versus other international markets, but we are concerned that new capacity from U.S. and Canadian carriers could drive price pressure. Moreover, incumbent airlines with significant share through joint ventures could react severely against new entrants. Global airline alliances control well over 50% of the trans-Atlantic market through joint venture structures that enjoy anti-trust immunity. Versus JetBlue, airlines participating in any of the global alliance get the advantage of combined loyalty programs and established gate and slot positions.