With Designs on London, JetBlue Continues to Hammer at Heathrow Access

Rumors continue to swirl about what exactly will be announced at JetBlue’s employee meeting on April 10, but many are speculating that . While people ponder what’s to come, JetBlue’s lawyers have been working furiously, pounding on the US Department of Transportation (DOT) to force open some room at London/Heathrow and other slot-constrained airports in Europe. Its latest target is the Virgin Atlantic acquisition of Flybe.

It’s no surprise that JetBlue would want to gain access to Heathrow. After all, time and time again it’s been proven that business travelers want access to primary airports. Heathrow is obviously the big prize despite there being many alternate airports, but it’s not alone. Amsterdam is also an important destination in range of the A321LR from Boston and New York. It’s one that has no alternate…and according to JetBlue, no room. In JetBlue’s mind, there is an opportunity to pry free some slots by getting aggressive in fighting against the big three joint ventures, or at least two of them.

The opportunity presented itself when two of the Transatlantic joint ventures opened themselves up for scrutiny in order to expand. American British Airways, Iberia, and Finnair are looking to bring Aer Lingus into their joint venture. Meanwhile, Delta is looking to combine its two joint ventures, one with Virgin Atlantic and the other with Air France/KLM (and for now, Alitalia).

At Heathrow, British Airways controlled 45 percent of slots at Heathrow when its joint venture with American was approved. Since then, it has merged with Iberia to form IAG, a company that then acquired Aer Lingus. It also took a bunch of bmi’s slots. Meanwhile American was acquired by US Airways. Slots were consolidated dramatically and the American/BA joint venture now controls just shy of 60 percent of slots at the airport. Separately, Delta/Virgin Atlantic/Air France/KLM control 8 percent of slots, but 24 percent of operations between the US and Heathrow.

JetBlue has tried to have the two dockets combined into a single review. It has also tried to force a more thorough review that would effectively start from scratch. This would greatly increase the scrutiny over whether these joint ventures are causing any competitive harm and whether they should have to give up slots to continue to work together. The joint ventures argue that there is huge consumer benefit, and there is, but that doesn’t mean there can’t also be remedies.

What exactly does JetBlue want? Well, this…

1) a limitation on the time period for [anti-trust immunity] approval to no more than five years, with any renewal subject to a docketed, on-the-record de novo review;

2) a guarantee that airport access at the Applicants’ primary hubs be available for competitors in the form of gates, facilities, and commercially viable slots and if not, the imposition of slot remedies; and

3) a meaningful and enforceable prohibition on any of the Applicants engaging in exclusionary conduct (i.e., efforts to prevent any other Applicant from entering into or maintaining codeshare, interline, frequent flyer, and other types of cooperative arrangements with third-party carriers). This would include, but not be limited to, prohibiting exclusivity provisions in the Applicants’ alliance agreements.

The first point is a tough sell for airlines that want to really focus on long-term planning. A five year horizon makes that difficult, especially since it’s a process that can be at the whim of political winds at any given time. I might be able to understand a 10-year period, but even that is a tough sell.

The third point I think would be welcomed by everyone except for those in the joint ventures themselves who are trying to block competition. That’s a sensible rule that should allow Aer Lingus, for example, to continue working with JetBlue for in cities like Boston and New York where American can’t help much. If it makes sense for one member of the joint venture to stray for a specific purpose, then that shouldn’t be prevented by contract.

But it’s the second point that’s going to be more controversial. JetBlue isn’t hiding its motivations here in wanting to free up slots.

JetBlue is one of very few (if any) carriers that is not a party to an alliance but is a potential new entrant, positioned to pose a competitive alternative to the “big three” immunized alliances in transatlantic markets. JetBlue’s interest in this proceeding is not hypothetical. It will make a decision about whether to initiate transatlantic service this year. However, it has been advised that it cannot obtain slots at [Heathrow] or [Amsterdam] in the foreseeable future.

This is a bold effort to try to get something for free that it could get on the open market, at least in London. Slots at Heathrow are available all the time… but for a hefty price tag. When JetBlue says it can’t get slots, I assume that it means it can’t get slots for a price that makes sense for the airline. I will say, it does make a compelling argument, especially as it relates to the Virgin Atlantic/Flybe deal.

When Virgin Atlantic (with partners) rescued Flybe from imminent doom earlier this year, it ended up controlling Flybe’s 12 Heathrow slots (in addition to slots at other constrained airports on the Continent). These slots are currently used for flights within the UK, but they can be used to go anywhere in Europe. If the joint ventures combine to form one big Delta/Virgin Atlantic/Air France/KLM group, then these slots could be used to fly Heathrow to Paris while Air France’s slots could then be used to fly over the Atlantic. This would get rid of the original point of requiring those slots to be used within the UK and just further help consolidate market power to the US by a group that already controls a quarter of the market.

Even more concerning is that Delta and friends have been granted remedy slots in the past because they had access issues in the early days of open skies. Now that they are aligned with Virgin Atlantic and have acquired more slots, should they really continue to have access to those slots that were meant to be given to new entrants? JetBlue says they should be revoked and given to true new entrants… like itself.

I can’t say I blame JetBlue for trying to go this route, and the effort certainly seems worth a fight. There is a case to be made that slots that were originally meant to remedy the access issue should stick with a carrier that really is having an access problem. I eagerly wait to see if the government decides to take this into account as it decides on these two dockets.

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