JetBlue’s Mint Service May Pose A Threat To Delta’s Expansion Plans In New York-JFK

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Delta Air Lines

In an attempt to defend its leading position at New York’s John F. Kennedy (JFK) Airport, Delta Air Lines decided to launch new upgraded flights to Los Angeles and San Francisco in the second half of the year. The news came almost a week after JetBlue had announced its plans to add new flights with its premium Mint service from its JFK hub to the same destinations in the third quarter of this year. With United shifting its transcontinental operations to Newark, Delta plans to operate 10 daily flights to Los Angeles by November 2015, and 8 daily flights to San Francisco by the first half of 2016, and become the largest airline offering coast-to-coast services. However, we believe that JetBlue’s significant presence at the JFK Airport, coupled with the popularity of its Mint service, will pose a huge threat to the realization of Delta’s plans. We present the following facts that complement our view:

Delta Price Movement (26th to 30th June)

DAL - 26-30 June

Source: Google Finance

  • The market reacted negatively to the news which led to a 3% drop in the Atlanta-based airline’s stock price on Monday, when the news became public.
  • Delta, which already has a dominant position in the JFK market, plans to become a leader in the West Coast market by launching these transcontinental flights from the new slots that it expects to acquire from United in exchange for its Newark slots. However, the low cost carrier, JetBlue, is headquartered in New York and has a sizeable foothold in the JFK market. In addition, JetBlue’s premium Mint service has gained popularity since its launch in July 2014 and is seen as a perfect substitute for elite passengers traveling to the West Coast from JFK after United’s exit. Thus, we figure that JetBlue’s Mint service will attract more transcontinental passengers than Delta.
  • Delta plans to use a combination of Boeing 757s and Boeing 767 wide body jets to operate its transcontinental flights, while JetBlue aims to operate its additional flights on the new Airbus 321 aircraft, due for delivery in early 2016. On comparing the two aircraft, we find that while a Boeing 767 jet has a higher stage length, a Airbus 321 aircraft is much more fuel efficient. This would provide a long-term cost benefit to JetBlue over Delta.
  • In addition, the Airbus plane has a range of features such as a bar, power outlets, soundproof cabins, etc. that are not present in the Boeing 767. Since JetBlue will be the first airline to use this newer aircraft which offers a bundle of premium services, it will have a first mover advantage to penetrate the market .
  • Finally, even if we assume that the premium services offered by both Delta and JetBlue will largely be at par, the low cost structure of JetBlue’s operations and the higher margin generated on its Mint business will continue to create  pricing pressure on Delta, leading to lower unit revenues.

Thus, we conclude that while Delta may be successful in increasing its presence in the West Coast markets, it will have a tough time managing the competition from JetBlue’s Mint service.

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