Delta Versus JetBlue: Expansion Into Boston And Its Effect On Unit Revenues

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After flying high on low fuel prices for almost two years, the U.S. airlines are grappling with the hard reality of falling unit revenues and intense competition in the aviation space. The legacy carriers’ unit revenues face pressure not only from international foreign currency fluctuations and economic uncertainty, but also domestically due to strong competition from low-fare airlines like JetBlue, Alaska Air, and SouthWest. JetBlue, with its premium seat offering program “Mint,” has taken the U.S. transcontinental market by wind, establishing its foothold in the markets of Boston, Fort Lauderdale, and New York. To compete with these small-time players and reiterate its presence within the space, Delta Air Lines (NYSE:DAL) is planning an expansion strategy in the very busy and crowded market of Boston.

Expansion In Boston

In a press release last week, Delta Air Lines announced its plan to expand its operations from Boston, offering new service to San Francisco and Nashville, as well as more flights to Seattle, Orlando, and Milwaukee. It will also add weekly service from Boston to key destinations in Caribbean-Montego Bay, Jamaica, Punta Cana, and U.S. Virgin Islands-St. Thomas. The company will offer these services in a phased manner beginning in November, expecting completion by June 2017. By June of next year, Delta expects 90 departures at peak periods to 26 destinations, effecting its capacity significantly.

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Source: Delta Press Release

This move is being seen as a response to JetBlue’s increasing dominance in Boston, which already offers services on all of the aforementioned routes, except Milwaukee. Jetblue’s share of total enplaned passengers at the Boston airport stands at a strong 30% as of May 2016, as opposed to Delta’s 12%. Over the years, JetBlue has become the largest airline at the Boston Logan International Airport, offering more flights and nonstop destinations than any other carrier at the airport. With the already significant presence in the city, it has also initiated Mint services on its flights on the Boston-San Francisco route to capture business travelers.

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JetBlue’s Domestic Market Share By Geography

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Source: Bureau of Transportation Statistics

Impact On PRASM

In its latest earnings release, Delta cut its capacity guidance, both domestically and internationally, by half a percentage point to 2% for the second half of the year. This cut was aimed at pushing the company’s unit revenues in the positive territory after a prolonged decrease in the statistic. The legacy carrier expected a 3.0% – 3.5% drop in its capacity from peak summer to the winter.  Although positive unit revenues are an important metric by which the industry judges any airline, it is also important that the company continues showcasing growth in the face of significant growth coming from JetBlue and west coast rival Alaska Airlines.

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