AMR Is Said to Be in Talks With JetBlue Airways to Widen Booking Agreement

[Hatu]

American Airlines and JetBlue Airways Corp. (JBLU) are in talks to add more cities outside the U.S. to their joint booking and frequent-flier agreement, two people familiar with the discussions said.

“It definitely furthers cooperation between them,” Higgins said of the current discussions. “If the benefits to AMR of the JetBlue tie-up are as good as I think they’ll be, I also believe it increases the odds there may be a merger down the road.”

http://www.bloomberg.com/news/2011-06-09/amr-is-said-to-be-in-talks-with-jetblue-airways-to-widen-booking-agreement.html?cmpid=yhoo

 

[WorldTraveler]

AA can and should develop its relationship with B6 but it doesn't at all mean there will be a merger - and I doubt very many people on either side want one, even if it could happen.
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AA's costs are much higher than B6's which is why a merger would make no sense. It is possible that AA could buy B6 but without being able to bring AA's costs down thru labor agreements of its own, a B6 acquisition would only result in exaclty what has happened in AA in NYC already - being overtaken out by larger, lower cost competitors.
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What is most likely is that AA and B6 will decide to put B6's code on AA flights outside of the US - but that might require B6 buying back LH's ownership position in B6. It could be that AA could buy a part of B6, even operate it as a separate entity - if it can get its unions to agree to such a move.
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AA could very much use the extra feed and market position that B6 could provide. B6 could use a larger position in the market.
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It is doubtful that meeting those needs will lead to a full fledged merger, although deeper codeshare relations and a possible AMR ownership stake in B6 could happen - but like so much, it is all dependent on AA's labor union cooperation.

 

[Super FLUF]

AA's costs are much higher than B6's which is why a merger would make no sense.

"Deeper ties between the carriers may lead to an eventual merger, possibly in about two years, said Ticonderoga’s Higgins, who recommends buying JetBlue and holding AMR."

AMR is going to buy JBLU, and this will be one of the worst kept secrets in the industry. The two companies are already greasing the skids for DOJ approval by (quietly) eliminating overlapping routes.

That is in addition to the business partnership that have already established:

JetBlue Agreement
American and JetBlue will be working together in New York and Boston to benefit customers of both airlines — including convenient interline-connectivity.
Customers flying in and out of New York's JFK and Boston's Logan airports will have access to more destinations. For example, JetBlue customers can now travel from Burlington, Vermont to JFK where they can then board American to Paris — and back. JetBlue customers will have access to 14 of American's international destinations from JFK and Boston.
In addition, American customers will have access to 18 new domestic non-stop markets from JFK and Boston on JetBlue, including Portland, Maine, and West Palm Beach, Florida, for instance.
The agreement will provide connections for more passengers at JFK and Boston to American's international destinations in Europe, Asia, and South America.
None of the routes on which the airlines will cooperate overlap current flights and routes served by the other.
American and JetBlue said they will also explore other way to cooperate in the future.

***

There is a reason that management is in a huge rush to all-of-a-sudden get the pilot's contract done. When management brings up certain items at the table that they want that are suddenly important to them, it becomes more than obvious what is going on. I don't know when the JBLU thing will happen, but I would be shocked if we don't see a large aircraft order (my money is on Airbus) within the next few months (in addition to the recent trickle orders).

This airline will not look the same a year from now, and it will be for the better.

 

[Frank Szabo]

... snip

This airline will not look the same a year from now, and it will be for the better.

Define "better".

 

[BonTemps]

AA will ruin JetBlue if they buy them. I think JetBlue employees are actually happy, have the tools needed to do their jobs and *Gasp* are treated well!!

 

[FlyUs]

AA will not buy B6. They can't fly their routes out of BOS and make a profit. Not sure about NY. Cost structures are way off. Hypothetically, they would eliminate a low cost competitor and maybe then the legacys could make money again out of BOS. That would be a good thing.

 

[Maark767]

AA will not buy B6. They can't fly their routes out of BOS and make a profit. Not sure about NY. Cost structures are way off. Hypothetically, they would eliminate a low cost competitor and maybe then the legacys could make money again out of BOS. That would be a good thing.

Dont be so sure about that.... Something is up with AA spinning off AE. Thats the answer to a low cost operation. Plus AA wants valuable slots at JFK/LGA. Something is up !!!

 

[FWAAA]

B6 CASM is certainly less than AA mainline but the B6 pilots make almost as much per hour as AA pilots on similar equipment. Of course, AA's benefits cost more than at B6.

 

[Mach85ER]

Remember to that Senator Chuck Schumer will sponsor legislation to force AA to give up 1/2 of the combined AA/BLU JFK slots in order to protect the "con-soom-mah"

According to him, it's a God-Given right for his constituents to fly from NY to South Florida for $85 one way to torture the FL residents.

 

[damajagua]

Am not sure if AA will eventually merge with jetblue or not. But I have always found
the relationship between AA and jetblue odd. It seems like AA does not want to
compete with jet blue. Something is defenetly brewing behind the scenes.
I would hate for AA to destroyed the jet blue brand though. They have a very
Nice product. It would be a shame if the companies where to merge and AA would
not put live tv on the entire domestic fleet.

 

[commavia]

Remember to that Senator Chuck Schumer will sponsor legislation to force AA to give up 1/2 of the combined AA/BLU JFK slots in order to protect the "con-soom-mah"

Not necessarily. Senator Chucky, who was so instrumental in getting JetBlue started in the first place, would have his say in all this - that's for sure - but I'm not so convinced that if, hypothetically, AA and JetBlue were to announce a merger, they couldn't get him onboard. JetBlue still has a very strong political presence in New York - and with Chucky in particular - so if JetBlue management were to convince him that this merger was in the best interests of New York, they might be able to get his buy-in and political support (which in turn would probably mobilize the support of much of the rest of the NY congressional delegation, and help with approval). Plus, for political face-saving purposes, while NY would lose the headquarters, that is largely symbolic anyway, and Chucky cares more about jobs (as jobs = voters) in general, so if the airlines were willing to make some sort of a guarantee on jobs (maybe by turning JetBlue's new Queens HQ into a massive reservations center or something), plus perhaps vague promises on fares, and capacity into upstate, I think Chucky could be bought off.

Am not sure if AA will eventually merge with jetblue or not. But I have always found
the relationship between AA and jetblue odd.

It's not odd - it's rather simple. JetBlue has the largest share of a growing but capacity-constrained market: JFK. AA, unfortunately, lacked the financial wherewithal, operational flexibility, and strategic foresight to hold onto its leadership position at JFK ten years ago when it had it. In that time, AA has basically stood still in New York (and JFK) while others have grown, and now AA wants to grow itself in the market. Given that all three New York airports are already full (over capacity, actually), and they are not making any more slots at either LaGuardia or JFK, AA recognizes that JetBlue's slot holdings are an asset. JetBlue sees the same - it is competing against carriers with broad global networks of operated and partner flights feeding their domestic systems at JFK, which JetBlue largely does not itself benefit from.

In essence - AA and JetBlue found each other because each brought the thing the other needed in New York. AA has a strong, O&D-centric network in New York, and at JFK in particular, but lacks the depth of connections (particularly domestically) that it once had. JetBlue has the single most extensive domestic network of any airline at JFK, but has no longhaul network to feed it. Combining one with the other, both are stronger and more effective at competing against United (the region's largest heavy-hitter) and Delta (which has grown substantially at JFK and likely soon will at LaGuardia).

It seems like AA does not want to
compete with jet blue. Something is defenetly brewing behind the scenes.

It's not that AA doesn't "want" to compete with JetBlue - it's simply that they "can't" in all but a few select markets.

JetBlue's costs are dramatically lower than AA's - driven by the fact that it has no unions, lower pay, no pensions, outsources maintenance, etc. As such, JetBlue (again, far lower-cost) sets the fare in many markets it serves and, needless to say, in all but a very few of those markets, AA could never profitably match those fares.

That is why, if AA and JetBlue were hypothetically to merge, you would - I believe - see a substantial redistribution of JetBlue's slot holdings at JFK, with far less capacity to Florida, a reshuffling of capacity in transcon markets (some getting more, some getting less), and perhaps a better of a reconfiguration of JetBlue's current schedule in the Northeast. JFK could potentially support some additional markets in the northeast through using some of the cut frequencies in existing markets.

All of this is purely hypothetical, though - and I myself don't see this happening anytime soon. (Although, I have to admit, it would certainly be fun to watch and make for some interesting reading here and on other forums!)

I would hate for AA to destroyed the jet blue brand though. They have a very
Nice product. It would be a shame if the companies where to merge and AA would
not put live tv on the entire domestic fleet.

Very true - JetBlue's product and service is far better than AA - at least in Y. The best possible outcome in such a hypothetical scenario would be for AA to adopt JetBlue's Y product across the entire AA fleet, although that seems highly unlikely due to the cost.

 

[Super FLUF]

Define "better".

Tied in to an aircraft order I see meaningful growth at mainline. Besides a hook-up with JBLU I also see a lot of "organic" growth at mainline.

Also, despite the on again, off again divestiture rumors over Eagle, I do see Eagle being divested.

 

[WorldTraveler]

good points, Commavia....
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AA and B6 both have no choice but to act given the growth of DL first at JFK and now with the slot swap as well as the merger of CO and UA which makes both DL and UA both viable carriers at all 3 NYC airports - and both transactions have the potential to reduce AA and B6's position in the market.
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AA and B6 have several options.
1. Continue the codeshare relationship as it exists now - but it does not make AA employees or unions happy to see AA suspend market after market and then codeshare on B6 flights. AA and B6 can crossfeed each other even with a fully developed codeshare relationship but they will not be able to coordinate schedules and fares or share revenue since in the US those activities are not permitted among separate domestic airlines. The value in a deal like this comes if AA can reduce its labor expenses so that whatever it gives up to B6, it receives back in new flying that B6 cannot do. So far, AA and B6 have indicated this approach is all they are pursuing.
2. AA could buy B6 and operate them as a subsidiary which would allow the benefits of B6's lower costs to benefit AA... AA and B6 could then coordinate schedules and fares and create an optimized network based on each other's strengths. Labor contracts at US network airlines do not currently permit this type of arrangement - but it is possible that AA could obtain it if it provided VERY STRONG guarantees that AA employees would gain more than they give up.... For folks like Bob, it might mean bringing some of B6's maintenance back home... for AA crew members, it might mean many more longhaul flights.
3. AA could buy B6 solely for its current franchise and assets including its JFK and LGA slots. At some point, B6's business model becomes worth less than the underlying assets and the ability of someone else (AA) to operate those assets under THEIR business model. B6's market cap (stock market value) is about $1.7B... which is only about 15% less than AMR's - which is obviously significantly depressed due to the lack of a profitable current business model.
B6's current business model doesn't work with AA's costs - but AA's business model doesn't work w/ AA's costs either. AA mgmt knows that.
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AA will not be able to come anywhere close to B6's costs - but keep in mind that an AA acquisition of B6 would all but finalize the consolidation of the low fare carrier segment in the same way that has occurred among network carriers. WN and FL's combination eliminates a major LFC competitor- and also one that has had a large downward pressure on fares. F9's model will likely fail, partly at the expense of WN. An AA acquisition of B6 would leave WN as the only viable LFC in the US. AS may be a low fare carrier in terms of pricing but it is also easiliy and accurately considered a niche network carrier.
WN will have no incentive to keep its prices as low as they have been if they are competing with network carriers who operate in congested parts of the nation - where WN is increasingly having to grow its presence to compete with those same network carriers.
Therefore, the difference in what AA would need to operate B6's current network changes a great deal if fares rise which they likely would and today is not as big as some might think.
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Increased fares will reduce a lot of leisure demand - and markets like BOS which have been hyperstimulated by low fares will likely lose some service... but other markets like the BOS transcons will see an increase in service as network carriers can boost fares - but not all the way to levels they once had. The tradeoff for markets like JFK will be a larger combined B6/AA footprint, including a potentially larger Caribbean/Latin network using a cost structure that is somewhat between what AA and B6 each have today.
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To be honest, though, there are alot of risks to AA and B6 both by attempting to move beyond a simple codeshare arrangement - and that option still leaves AA and B6 vulnerable to competitors even if AA gets its costs down.
1. A B6 acquisition is costly - nearly 80% of AMR's market cap- although again AA's market cap might start going up if it solves the AE problem, reaches labor agreements etc.
2. DL and UA esp. are well posiitioned NOW to respond to changes in the marketplace, including growing at LGA and EWR which have a higher concentration of higher yield business traffic.
3. There will be intense political scrutiny of eliminating a low fare carrier, including the very real history that AA has tried a couple times before (Reno, TWA) to buy lower fare carriers which resulted in their dismantling. Jobs in NYC do matter - but there have to be assurances that an AA acquisition of B6 don't result in reduced capacity and higher fares which has often been the result of mergers.
4. Every option requires significant rework of AA's current labor costs and agreements... but I believe AA labor is coming to the reality that they cannot continue down the road that AA has been on for 8 years - unless they are willing to standby while the company becomes history. I think there are people who recognize this is do or die time for an AA restructuring.
5. An AMR focus on protecting NYC could allow other carriers to attack AA's presence in other parts of its network including the US west and Latin America. AA does not have the financial resources to fight multiple battles in its network. Remember that AMR would likely have to pay cash for B6.... DL could then be in a position to purchase AS (if anyone offers enough money to AS, they have a responsibility to their stockholders to protect their interests), UA could increase pressure on AA at ORD, UA or DL could increase their Latin or Asian service competitive with AA, DL could move forward with a Virgin acquisition and LHR growth plan or UA could do the same with BMI (or Virgin).....

But with the right labor agreements, a rejuvenated fleet of new technology aircraft, and a greater ability to compete against larger carriers DL and UA, AA could be back in the game big time if it can make bring all of the necessary pieces of a restructuring together.
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It would appear that all of the rumors indicate that a major AA restructuring is in the works - and that could be what many of us have been waiting eight years to see.

 

[Hopeful]

But with the right labor agreements, a rejuvenated fleet of new technology aircraft, and a greater ability to compete against larger carriers DL and UA, AA could be back in the game big time if it can make bring all of the necessary pieces of a restructuring together.
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It would appear that all of the rumors indicate that a major AA restructuring is in the works - and that could be what many of us have been waiting eight years to see.

If this were indeed the case, that AA will be undergoing a major restructuring, don't you think the company needs to bring this to the negotiation table(s) and try to work out new labor agreements rather than continually trying to shaft the employees first?
If there is a master plan in the works, then bring it to unions and see if something fair and equitable can be worked out....

 

[AANOTOK]

If this were indeed the case, that AA will be undergoing a major restructuring, don't you think the company needs to bring this to the negotiation table(s) and try to work out new labor agreements rather than continually trying to shaft the employees first?
If there is a master plan in the works, then bring it to unions and see if something fair and equitable can be worked out....

Well, after Missy (whatever her new name is) stated Fleet and the company had an agreement on all articles (as shown in AAnegotiations.com) and there would be no more sessions, apparently something has changed after over a year of no talks. At someones request, Fleet and the company will once again resume negotiations on June 28th. Hmmm......