What did I tell you?

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JetBlue may soon bring discount battle to O'Hare
Delta unveils plan for low-cost airline

By John Schmeltzer
Tribune staff reporter
Published November 21, 2002

Seeking to blunt the impact of low-cost carriers on the East Coast, the
nation's third-largest airline unveiled plans Wednesday to fight fire with
fire. A similar battle may be on tap for Chicago.

Beginning in early 2003, Delta Air Lines will launch its own discount
carrier in an effort to halt a gradual loss of passengers that has
accelerated since JetBlue Airways' entry into the East Coast market two
years ago.

It's the same fight that United Airlines and American Airlines could be
facing as soon as next year if New York-based JetBlue is successful in
negotiating access to gates at Chicago's O'Hare International Airport.

Unlike Delta, which is trying to protect its lucrative service from Boston
and New York to Florida, United and American would be faced with an attack
on markets in three directions: east to New York, west to California and
south to Florida.

American and United already are battling stiff competition from Midway
Airport-based discount airlines such as Southwest Airlines, a fight that
experts have said is reducing fares at O'Hare by about 10 percent. A
low-cost carrier at O'Hare could further erode fare prices.

Ray Neidl, airline analyst with Blaylock & Partners in New York, said
JetBlue's entry into the O'Hare market "can do something to pricing" by
American and United that would be limited only by the number of gates it is
allocated. The impact would be exponentially higher for each gate allocated
for JetBlue flights, he said.

Gareth Edmondson-Jones, a spokesman for JetBlue, said Chicago officials
thus far have suggested that the airline share space with other carriers at
four gates.

"We haven't been offered an allocated gate," which Edmondson-Jones says the
airline needs for its operations. "We can make it work in the near term
with one gate."

Eventually, he said, the airline would need several more.

Chicago officials reportedly are so eager to lure JetBlue to O'Hare that
they are attempting to pry as many as four gates loose from competitors to
assign to the new carrier, sources said. Airlines at O'Hare have leases
extending through 2018 on virtually all of the airport's 179 gates. A
number of those gates, however, have only limited use.

Efforts to force return of the gates include linking the construction of
new runways at O'Hare, which the airlines have long sought, to the release
of the underutilized gates, several airline officials said.

Neidl said United and American would have to consider a move similar to
Delta's if JetBlue gains a foothold at O'Hare.

"I've got a feeling if [the Delta experiment] works, the whole domestic
market will go this way," he said.

Delta's new low-cost airline will fly only 199-seat Boeing 757 aircraft
non-stop between Boston, New York and other Northeastern cities and
Orlando, Ft. Lauderdale and several other Florida cities.

Like JetBlue, Delta said its new airline will fly 13 hours per day rather
than the 10 hours per day that is the norm among the nation's largest
carriers.

"The new subsidiary represents an aggressive and proactive initiative to
meet the burgeoning competition from low-fare carriers," said Leo F.
Mullin, Delta's chairman and chief executive.

"We have previously noted that low-fare carriers represent a real threat to
Delta, substantially more than that from other hub-and-spoke competition.
Low-fare carriers have been making significant inroads, particularly during
this period of extreme financial duress for the industry."

Jamie Baker, airline analyst for J.P. Morgan Inc., who disclosed plans for
the new airline last week, dismissed Delta's plans.

"We are largely unimpressed," he said in a research report issued shortly
after Delta concluded its announcement.

"Why not everywhere? In Delta's own words, its new unit features elements
required for discount operations--simple low fares, low costs, high
utilization and low distribution costs. Actually, that should be the plan
for Big Delta everywhere, not just its Northeast unit," he said.

Edmondson-Jones said JetBlue isn't concerned by Delta's decision.

"Imitation is the sincerest form of flattery. As Delta tries to reinvent
itself, there are elements that we do that can be copied. But they can't
match the experience," he said. Edmondson-Jones added that JetBlue recently
was named the best carrier in North America by Conde Nast Traveler, a
travel magazine.

"We know we have a superior product," he said. For instance, he said, along
with low-cost fares, JetBlue provides a TV set at every seat.

yes, and those TV sets take away a lot of foot room in the middle seat and the TVs don't work on the JFK-SJU flights.

-n

Here's an interesting TV advertisement for jetBlue. I cannot be certain it is real but very funny either way!

http://www.jetblue.com/havefun/media/likedad_pop.html



View Large View Medium

Photo © Ben Wang


-Night_Flight-

JB says DL cannot copy everything. For example their "experience" and TVs in each seat.

That all good and well but I don't see how that really takes their business model to some level that makes it impervious to competition.

DL's 757 may very well have more legroom than JB, the route system and FF program can take you all over the World. Just two benefits that DL may have but no less and advatage than JB's IFE.

Padcrasher:

You do bring up a good point. DL's 757's would probably have comparable legroom to JB's A320's, they have no IFE but you can accrue frequent-flyer miles on them that can take you all over the world or at least get you upgrades on mainline flights. But do FF points really matter to people who fly only a handful of times a year and are looking for a cheap fare? Not really. And when you get a high-level of service and personal tv's for the same low-fare, who do you think these passengers are going to turn to?

Obviously jetBlue's niche lies more with the leisure traveller than it does with buisness pax. As such, they would have a slight advantage in this market.

Anybody know at which terminal these four gates are in?

I was talking to a buddy who works for the TSA at ORD. He said that B6 is probably going for Terminal 2. (the old National and Air Jamaica gates) 4 gates off the bat is being very optimistic. I'm not sure even B6 could pull that off. Besides they are not going to start service to ORD with 25+ daily flights that would necessitate the need for 4 gates.

I don't think they need 4 off the bat, one or two should serve them fine. I think they're talking about 4 gates for down the road. Terminal 2 F Concourse seems like a logical place to put them. Either there or at T5, where Spirit used to be.

National used nwa gates, and if jet blue thinks that they can just fly in ord and by pass other airlines that should rethink ops at ord. Spirit already flys to florida markets and lax and in dec las. Spirit uses delta gates and they are waiting for there own gates and why should jet blue get gates before spirit. Also spirit will start lga flights soon, so it seems jetblue will come in and fly low fare routes that already have a low fare carrier, so where is the benifit. It seems jet blue wants to knock off a few other low fare carriers in its path to be a major overnite. Spirit has been here for 13 years so if they want a fight bring it on!!

Catch The Spirit

Md80spirit,

No disrespect to Spirit, but I would think that Spirit is the last thing jetBlue would worry about in bringing service to ORD. Call me crazy but I think American and United would just a little (cough) more of a concern for jetBlue. Spirit has a reasonable presence at LGA to Florida and it didn't seem to stop jetBlue from flying from JFK to Florida. And just in the same light Spirit's one daily flight from ORD to LAS and LAX or 2 daily flights to FLL are not going to faze B6 any.

"Obviously jetBlue's niche lies more with the leisure traveller than it does with buisness pax. As such, they would have a slight advantage in this market."

Not really. JetBlue's passenger base is pretty heterogeneous. There are quite a few leisure travelers, but there are plenty of business travelers as well on most flights (except maybe for MCO).

"I'm not sure even B6 could pull that off. Besides they are not going to start service to ORD with 25+ daily flights that would necessitate the need for 4 gates. "

In order for JetBlue to compete with AA and UA to ORD, they would need to have a huge frequency from JFK-ORD. Both AA and UA completely dominate the NYC-CHI market with a ton of flights from LGA, EWR, JFK (I think) and HPN. JetBlue would need more than a few flights a day to stay competitive.

In order for JetBlue to compete with AA and UA to ORD, they would need to have a huge frequency from JFK-ORD. Both AA and UA completely dominate the NYC-CHI market with a ton of flights from LGA, EWR, JFK (I think) and HPN. JetBlue would need more than a few flights a day to stay competitive.

Not necessarily. The name of the game is profitability, not market share. There is only one JFK-ORD roundtrip a day, on a Comair RJ. All other NYC traffic to ORD is from either LGA or EWR. And they are all expensive. You can get an (very) advance purchase round trip for $175, but the one way tickets are really bad ($600+). Walkup fares for a roundtrip range from $500 to over $1300.

This is a large, overpriced, underserved (from JFK) market. It's a natural. Two or three flights a day to start, with a max fare of, say, $199 one way with no restrictions? Think you could make some money with JetBlue's cost structure? I do. Add reliability (completion factor well over 99%) and fewer delays associated with JFK and I think we have a winner.

If B6 thinks that they can get gates and other space at ORD right off the bat then they are smoking something. HP has been fighting with the city for over a year to get 1 gate and ticket counter that TW left behind in T2 at ORD. Currently HP has to use CO gates and part of CO's ticket counter which is unfair to our passengers plus there are other airlines that currently serve ORD that also have no space of their own, the city should look at these airlines first. If B6 wants to serve ORD then let them do what all the other small carriers do, lease space from other airlines!