JetBlue To Gain From The American-US Airways Merger Despite Its American Partnership Termination

JetBlue (NASDAQ:JBLU) and American Airlines announced Monday, March 10, the termination of their partnership which allowed them to split passenger revenues on a limited number of flights originating from New York’s JFK and Boston’s Logan airports. ^[1] We figure this development is a result of the American-US Airways merger, which brought US Airways’ extensive east coast network to American Airlines. Consequently, American no longer needed to partner with JetBlue to augment its relatively weak position in these east coast markets.

However, we figure JetBlue’s gains from the American-US Airways merger, namely its acquisition of the slots vacated by American at the Washington Reagan National Airport, far outweigh its revenue losses from this partnership termination. In our opinion, the American-US Airways merger has overall been favorable for JetBlue.

We currently have a stock price estimate of $9 for JetBlue, marginally above its current market price.

See our complete analysis of JetBlue here

American-US Airways Merger Resulted In Termination Of American-JetBlue Partnership

In 2010, American Airlines and JetBlue entered into a partnership agreement called ‘Interline’, which allowed passengers to book their itinerary involving both these airlines on a single ticket. This agreement between American and JetBlue was applicable on a few dozen routes starting from New York’s JFK and Boston’s Logan airports. We figure JetBlue’s strong presence on domestic and Caribbean routes connecting New York and Boston was beneficial for American, whose own network on these routes was not as extensive. At the same time, JetBlue customers benefited from American’s extensive international network connecting New York and Boston.

The merger with US Airways, however, disrupted this mutually beneficial partnership as American’s east coast weaknesses were plugged by US Airways’ extensive presence in these markets. A reciprocal frequent flier program between JetBlue and American that allowed their passengers to earn miles through each other’s flights is also set to expire from April 1, 2014.

Slots Gains Overshadow Impact From Partnership Termination

We figure that the revenue loss to JetBlue due to the termination of this partnership will be more than offset by the additional revenue that will come its way from the 12 new round trip flights that it will start from the recently acquired slot pairs at the Washington Reagan National Airport. ^[2] American, in accordance with the merger approval conditions laid down by the Justice Department, gave up 52 slot pairs – specific take-off and landing timings – at Washington Reagan National Airport. JetBlue acquired 20 of these slot pairs along side Southwest (NYSE:LUV) which acquired 27 and Virgin America which acquired the rest. ^{[2] [3]} Additional JetBlue flights from these slots in a high fare market like Washington will add to growth in the carrier’s 2014 flying capacity. In turn, this additional flying capacity will raise JetBlue’s passenger traffic and revenues offsetting the minor revenue loss from the termination of Interline agreement with American.

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1. American Airlines And JetBlue Airways Discontinue Partnership, March 10 2014, www.jetblue.com [↩]
2. JetBlue Successfully Acquires 12 Slot Pairs at Ronald Reagan Washington National Airport, January 30 2014, www.jetblue.com [↩] [↩]
3. Southwest brings new service and low fares to the nation’s capital, January 30 2014, www.swamedia.com [↩]