American Airlines and JetBlue launched a route sharing partnership of more than 70 routes in late February, despite pushback from certain states and pilot groups. The code-sharing agreement allows the airlines to sell each other’s flights and share ticketing platforms, crews, planes, and terminals. Looking through the lens of a consultant, what can we learn about this partnership?
A Consultant’s Perspective On This Partnership
The business rationale behind this partnership is clear cut. The partnership benefits the two airlines financially through the sharing of resources: pilots, ground crew, planes, and booking systems. In addition, it benefits customers with increased flexibility, convenient international booking, more efficient connections, and cheaper ticket prices. The combined customer base of the two airlines creates a win-win situation. This spring, customers of JetBlue and American Airlines rewards programs will be able to use their rewards to redeem tickets with either airline.
Airline alliances – and business partnerships in general – can help companies overcome unfavorable economic situations. JetBlue’s Head of Revenue and Planning, Scott Laurence, reported the alliance is a response to the challenging environment brought on by the pandemic. Alliances allow airlines to expand routes without incurring the large costs associated with purchasing additional planes and terminal slots. Airlines can also monitor supply and demand of seats with increased accuracy and better fill seats at the highest possible price. This increased pricing accuracy can also benefit passengers by offering lower prices on some flights.
How would a strategy consultant assess whether the partnership is a good or bad business decision? First, a consultant would get a sense of the current economic health of both the airline industry and American Airlines/JetBlue at the end of 2020. AA reported fourth quarter revenue of $4 billion, a year over year decline of 64%, while JetBlue reported a YoY decline of 67%. These numbers confirm the need for a strategic response. “Our fourth-quarter financial results close out the most challenging year in our company’s history,” said American Airlines Chairman and CEO Doug Parker.
Next, a consultant would consider the partnership in light of the trend of major airline consolidation since 2000. For example, consolidations like the 2016 integration of Virgin American under Alaska Airlines, and the merger of American Airlines with US Airways in 2013. Both saved the acquired airlines from bankruptcy. Lastly, a consultant would determine the market size of ticket sales for the additional routes and the cost savings afforded by sharing ticketing and flying resources.
With this strategic partnership, American Airlines and JetBlue open new opportunities and incentives for customers to book flights despite delays in business and vacation travel due to Covid-19. Even if travel is slowed by restrictions, booking and connection just got easier.
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