Monday, January 25, 2021

What's Happening with JetBlue's Network?

It's been nearly three months since ya'll have heard from me. Like many in the aviation community, I have found it hard to develop meaningful domestic network-focused articles. If we are honest, since about August, most network-focused articles have been updating the same story: TSA screening and airlines hacking away at capacity the airlines knew were pipe dreams. There's been a few interesting route additions here and there (Hawaiian and Spirit), but nothing pointing to a strategy change at least not yet. 

At a high level, I can only think of two genuinely unique stories—first, Southwest's restructuring into hub structures allowed the onboarding of numerous small cities. While we continue to see Southwest expand this approach with their latest route announcements, the overall strategy remains the same. Even with all the new small city announcements, I still don't believe they finished executing their small city strategy. That said, it's still the same strategy. 

Next, and one I haven't seen discussed, is Frontier's insane 400+ days of inventory. While I like the approach and think I understand the reasoning (direct distribution, bookings get much-needed revenue in the door, etc.), no GDS system or scheduling partner that I'm aware of offers more than 330 days of schedule. I like the approach; however, it is difficult to get their last bits of schedule to provide a comprehensive analysis. As of this writing, Frontier continues to expand its schedule well beyond the industry standard 330 days. Currently, their schedule is published until February 2022. 

Outside of Frontier and Southwest, few items have piqued my interest recently outside JetBlue's network adjustments. When we take a more in-depth look at B6's 2021 schedule, there is still a lot of variation and unreliability. March departures have been brought below last year's level. However, not shown in the chart below is the carrier has not adjusted its day-of-week flight schedule. I bring this up as the analysis below assumes March is a reliable schedule to review. In reality, that might be a terrible assumption. 

As we would expect, JetBlue's network is centered in some of the most COVID travel restricted areas in the county, New York and Boston. In 2019, New York City stations (LGA, EWR. JFK) and Boston accounted for 75% of JetBlue's network ASMs. In 2021, the amount of network investment decreased to 67%, mostly driven by Boston. Something to keep in mind, this doesn't mean that each of the catchments has retained capacity. The reality is JetBlue has taken a hacksaw to their network. This view shows outside of Boston, they aren't cutting their core catchments heavier than the rest of the system. 

When we drill deeper into the individual airports within the three catchment areas, we see the carrier isn't sitting ideally by. Instead, JetBlue is fragmenting the capacity across multiple airports within the same catchment for these cities. Boston stands by itself as the only catchment losing investment. ORH, PVD, and MHT (not on the B6 network) aren't seeing the same benefit regional fragmentation. This could be indicative that the carrier views BOS as the only Boston area airport. 

JetBlue's willingness to split capacity between the NYC area and Southern Florida airports is due to how poorly the Northeast is recovering from the COVID declines. While this is entirely understandable given how hard the Northeast was hit initially, JetBlue has to adjust its portfolio investments to tap into different local population centers. This allows them to compete with different parts of the city while limiting capacity from directly competing with themselves at the same airport. 

While JetBlue is willing to fragment New York and Southern Florida, they are unwilling to take the same approach in Washington DC and California. Beyond removing LGB and OAK from their network, the carrier has "suspended" service to BWI, BUR, ONT, and SJC. These suspensions have to do with where JetBlue's customers live, and they aren't in California nor Baltimore. The customer bases in secondary California cities are too small for JetBlue to justify deploying transcon capacity. With so few originating passengers in each of these stations, it is simpler to consolidate around the single major airport in the region with a customer base. 

Other city suspensions such as ABQ, BTV, MSP, and PDX all appear to be performance-based. Excluding BOS-BWI, most routes appear to be subpar to marginal performers during the pre-COVID days. This calls into question if any of these cities will return in the near term. I suspect the answer is no unless the DOT requires it as part of CARES 2.0 funding. If we are honest, while the communities would like the service back, we would likely see weekly ABQ-DEN type service on JetBlue. While the route might sound silly, JetBlue did operate the route to maintain CARES 1.0 compliance.

Not all of JetBlue's capacity decisions are cuts or reallocations to/from secondary markets. In September and December, the carrier announced twelve new routes out of Raleigh. If the March schedules hold, JetBlue will increase the station from 3x daily to 13x daily. It also is important to note all of these routes are single daily frequency or less. This means there's the additional upside for depth growth back to core B6 cities (BOS, FLL, JFK, MCO) as the industry recovers. 

JetBlue's expansion in the Research Triangle should come as no surprise. JetBlue is trying to make steaks from Delta's previously abandoned meal scraps. Delta drastically reduced their RDU network following COVID related passenger declines. Magically (said with spirit fingers) after JetBlue announced their expansion, Delta reinstated a number of their suspended RDU markets. With these suspensions lifted, Delta will overlap JetBlue in 11 out of JetBlue's 15 markets. 

Delta's reaction to JetBlue honestly bothers me. During a healthy industry environment, if carriers want to compete for focus cities, have at it. But Delta, like all carriers, is hemorrhaging cash. However, they have decided RDU was worth withdrawing bags of cash from the bank and tossing it right into their turbines. At the end of 2020, Delta was burning $12M in cash every day. If RDU was truly meaningful to Delta's network, they should have returned some capacity as soon as last summer as demand partially recovered and long before JetBlue started poking around in the city.  

Additionally, I think it's important to realize how much of a challenge it would be for a single carrier to be the dominant carrier in RDU. When we look at T-100 enplanement data,  no carrier has recreated American's dominance that ended in 1994. Multiple carriers attempted to make a run at it, including Midwest Airlines' in 1996 to 2002. Even with Delta's expansive 2019 network, they still only carried 31% of the originating market (Source: The Hub by Airline Data Inc, Resident/Visitor Report). Nothing to shake a stick at, but honestly, not a commanding lead in the market either. 

It is unlikely there will ever be a single dominant RDU carrier. This is in part due to current demand and migration patterns in the community. Wake County, the primary county that RDU serves, has seen population growth concentrated in the Northeast, upper Midwest, Florida, and California populations. Relocations out of the state follow a similar pattern. But importantly, no single carrier controls all of these regions. It is heavily fragmented across multiple carrier networks.

The upcoming spat between JetBlue and Delta will be costly to both companies at a time where cash conservation should be the highest priority. Unlike Delta, JetBlue has few options other than deploying its idled capacity into cities like RDU. So don't expect them to back down to Delta's market resurgence. 

As airlines start to develop their summer plans in the next couple of months, it will be interesting to see if JetBlue continues to execute on this city consolidation (California), city fragmentation (NYC/South Florida), and focus city (RDU) strategy. It would not surprise me to see JetBlue add other new stations or focus cities to complement their Northeast to Florida network. I could be easily convinced that it might be time to see JetBlue expand into the Midwest to Florida markets.