JetBlue's criticism of airline joint ventures shows concern and opportunism
17 April 2019. By Victoria Ibitoye.
JetBlue’s planned foray across the Atlantic is breathing new life into a debate about whether joint-venture agreements between legacy airlines are anticompetitive — and positioning the US budget carrier to take advantage of any regulatory crackdown.
The low-cost airline last week announced plans for “multiple daily flights” from Boston and New York to London by 2021 — its first destination outside the Americas.
There’s plenty of logic behind the move: Those are big routes for US airlines and they lack competition in the budget segment, with only Norwegian offering low-cost options.
But JetBlue’s comments also suggest that it wants to take a chunk out of the premium market, and is hoping for some regulatory help to do so.
“The smaller airlines have never found it harder to get access” to the long-haul market, JetBlue President Joanna Geraghty said in a statement. “It is time for regulators here [in the UK] and in the US and across Europe to create conditions where smaller carriers and new entrants can thrive.”
The call to arms comes as the UK Competition & Markets Authority probes a joint-venture agreement between American Airlines, British Airways, Iberia and Finnair — dubbed the Atlantic Joint Business Agreement, or AJBA.
Notably, JetBlue didn’t say which London airport it was hoping to fly to, suggesting it may be keeping its options open in the hope of picking up some landing spots at either Heathrow or Gatwick, if the CMA decides that they should be spun off under its review of the AJBA.
Last Thursday the CMA, which opened a probe into the AJBA last October, extended the timetable for its investigation, saying it would be gathering and analyzing information into the summer — having previously planned to conclude the information-gathering process by March.
The UK Department for Transport, which is reviewing the future of UK aviation, has also extended the consultation period of its probe to June 20, having previously set a deadline of April 11. The delays suggest the reviews have attracted considerable interest, with potentially conflicting views.
— Premium market —
Joint-venture agreements allow airlines to coordinate prices, schedules and frequent-flyer programs. They are by nature anticompetitive to some degree, but are typically waved through by antitrust regulators due to benefits brought to customers.
JetBlue’s comments raise an argument rarely floated in the aviation joint-venture debate — the impact of such agreements on the premium segment of the market.
The US-to-London aviation market is currently dominated by two key airline alliances — the AJBA, and one between Air France-KLM, Delta Air Lines and Virgin Atlantic. In Boston, the only other operator offering daily flights to London outside those alliances is Norwegian — a budget operator that doesn’t have a premium offering.
JetBlue says the lack of competition in the premium market has allowed airlines operating under JVAs to charge excessively high prices to business and premium customers, with little offering in between.
“Travelers flying across the North Atlantic between the northeast US and London have long faced sky-high fares — particularly in premium cabins — or mediocre service in a market effectively controlled by legacy carriers and their massive joint ventures,” Geraghty said.
— Angling for slots —
But are concerns about the premium sector enough to render JVAs obsolete? Aviation consultant John Strickland thinks not.
“Joint-venture agreements have allowed airlines to operate routes not viable to operate directly by any [one] airline,” he told MLex, adding that the agreements have been hugely beneficial for offering more choice and flexibility in the market.
It’s the flexibility and improved customer choice offered by JVAs that have seen them approved by competition authorities worldwide.
More likely, then, is that JetBlue is positioning itself as a viable candidate for slots at Heathrow and Gatwick, should the CMA stipulate selloffs in its AJBA review.
When the European Commission looked at the AJBA in 2010, it raised antitrust concerns over six routes operating under the agreement — including London-Boston and London-New York. It accepted commitments from the parties to release slots for their own slot holdings at Heathrow to other carriers, to remedy its concerns.
Slots were handed off to carriers following a selection process carried out by an independent monitoring trustee with Airport Coordination Limited, or ACL, facilitating the exchange of the slots.
Edmond Rose, chief executive of ACL, told MLex that it expects to play a similar role, should the current CMA investigation result in the requirement for slot remedies.
— Long haul —
Lingering in the background is the UK Department for Transport’s work on the future of UK aviation, dubbed Aviation 2050.
The CMA is advising the DfT on the competition aspects of its work, including options for allocating slots at airports.
In a consultation in December the DfT said it has “no real evidence about the impact of alliances and joint ventures on consumers or on other airlines” and invited views from interested parties.
It extended its consultation period to June 20, after it became clear from discussions with stakeholders that more time would be needed to respond to the breadth of the proposals, MLex has learned.
“Aviation markets must be competitive and work in the best interests of passengers and consumers. This is why we are using Aviation 2050 to better understand and overcome barriers to greater competition in the sector,” a DfT spokesperson said.
It is clear, then, that the aviation sector is on course for significant reform. JetBlue, like its budget rivals, wants to position itself to benefit from whatever form that takes.