JetBlue and the global battle for air supremacy
— -- Big changes are underway in the European skies, and now that Lufthansa has acquired a 19% stake in JetBlue, the U.S.-based discount airline may help shape the outcome of a struggle for air supremacy half a world away.
Once a region comprised of 20+ state-supported or subsidized flag carriers, the liberalization of commercial aviation in the European Union (E.U.) is changing the airline landscape in swift and dramatic fashion. One by one, national flag carriers are vanishing, their routes subsumed by one of three emergent mega-carriers and a multitude of low-cost, regional discount airlines like easyJet, Flybe, and Ryanair are now flooding the continent.
Gone from the skies are Belgian flag carrier Sabena and Swissair, and it is probable that Alitalia, Iberia, Olympic Airlines, and others will disappear in the coming year. Meanwhile, Air France/KLM, British Airways, and Lufthansa are transforming themselves from national airlines to global players that will dominate air traffic in Europe much the same way the big six network airlines dominate U.S. skies.
Once constricted to hub operations based solely within their home country, the three burgeoning mega-carriers are now free to operate hubs based in any E.U. city and may fly from any E.U. airport to any U.S. airport under the open skies treaty beginning early in 2008. As weaker flag carriers disappear, the big three will most likely expand operations into other E.U. countries and operate multiple hubs throughout Europe much the same way the big six network airlines in the U.S. operate multiple hubs in different states across the U.S.
It is no coincidence that the three E.U.-based mega-carriers are members of different global airline alliances (British Airways with oneworld, Air France/KLM with SkyTeam, and Lufthansa with the Star Alliance). Alliances have strengthened these airlines globally and these same alliances are driving the Lufthansa-JetBlue investment.
When E.U./U.S. open skies takes effect, the battle for European air supremacy will expand to the heavily congested skies and airports of New York. Two U.S. airlines from the same alliance dominate international departures in New York today. SkyTeam members Delta Airlines at JFK and Continental Airlines across the river at Newark Airport each fly to more than 20 European destinations from their respective hubs. JFK is also the No. 2 long-haul international gateway for oneworld founder American Airlines, and their alliance partner, British Airways, is the fourth largest long-haul international operator in New York.
Lufthansa's two U.S.-based Star Alliance partners, United and US Airways, don't have a substantial intercontinental presence at either JFK or Newark, the New York airports that serve European flights. United retreated from JFK a decade ago after failing to turn a profit with defunct Pan American's international routes and the carrier relocated much of that service to its Washington Dulles hub. And US Airways' international hub is based in Philadelphia.
With neither Star Alliance partner able to feed or accept traffic in New York, Lufthansa wisely turned to JetBlue, which operates a sizable domestic hub at JFK serving more than 50 cities and is not affiliated with an airline alliance. Although the announced terms of the relationship were purely financial, it doesn't take much of a leap to conclude that Lufthansa would not invest in JetBlue if feeder traffic was not its main objective down the road.
Lufthansa has a history of investing in airlines to bolster feeder traffic and extend its sphere of influence. It owns European regional airlines Air Dolomiti and Lufthansa CityLine, as well as the Swiss International Air Line. Lufthansa also holds a 49% stake in Eurowings, a 30% stake in BMI, and a 13% stake in Luxair. Lufthansa has recently been shopping for other European airlines, considering ailing Alitalia and Iberia, but only at the right price. With U.S. skies about to open, a weak U.S. dollar, and a depressed JetBlue stock price, a JetBlue investment makes perfect sense for Lufthansa.
Lufthansa also faces additional competition from Virgin Atlantic Airlines, which owns 23% of recently launched Virgin America, an affiliate which will certainly provide feeder traffic for its North Atlantic routes at JFK and other international gateways.
With the federally mandated flight caps just imposed at JFK and Newark, Lufthansa also wants its JetBlue relationship to help assure its own survival at JFK. With 80% of all European departures concentrated in a six hour time slot from 4 p.m. to 10 p.m., this is one of the busiest times at JFK and these European flights are likely to be affected. While long haul international flights generally operate within a narrow time window, JetBlue's domestic departures may be spread out more evenly over the course of the day and thus less likely to be affected by flight restrictions.
Many frequent fliers may wonder if Lufthansa's JetBlue investment is the beginning of a new trend of European investment in U.S. airlines or if we might someday see JetBlue become the first low-cost, discount airline to join the Star Alliance.
With a weak U.S. dollar and a battle for European air supremacy it is difficult to imagine that Air France/KLM or British Airways will sit idly by and allow a major competitor to gain a leg up in the U.S. market without contemplating a counter move. But there's no reason to invest in airlines already in your alliance, and Lufthansa may have already picked off the best non-alliance affiliated U.S. airline for feeder traffic.
An AirTran relationship might appeal to a oneworld or Star Alliance airline wanting to get a foothold in SkyTeam's Delta hub, or a Frontier deal could be attractive to a oneworld or SkyTeam airline wishing to invade the Star Alliance United Airlines hub in Denver, but these and other arrangements with smaller low-cost airlines don't offer much international traffic potential compared with New York. Southwest is by far the largest U.S. airline not affiliated with an alliance, but Southwest is a problematic feeder-traffic partner because so much of its operation is splintered by point to point rather than hub flying.
With many possibilities and equally many questions it is impossible to predict what will happen next as this European battle for air supremacy plays out in the U.S. But as is usually the case when airlines compete, fliers are poised to benefit in the short term, as Lufthansa's JetBlue investment should afford more choices and lower prices for air travel across the pond.
Send David your feedback: David Grossman is a veteran business traveler and former airline industry executive. He writes a column every other week on topics of interest and concern to business travelers. E-mail him at travel@usatoday.com.