Will United Buy JetBlue To Get Back Into JFK?

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United CEO Scott Kirby had a number of interesting things to say yesterday at the JPM Industrials Conference.

• He confirmed that government and government adjacent business, which make up 5% of United’s business, is down by 50% this year. That mirrors the slowdown that other US airlines have been reporting.
• He confirmed they will shrink capacity due to the slowdown, including early retiring 21 aircraft to save $100M on engine overhauls.
  • We reached out to United to ask which aircraft he was referring to, but the airline wouldn’t comment on that. I would assume it’s United’s ancient A320s, but it could also be their aging 757-300 fleet, which does happen to be exactly 21 in number.
• He said that Ryanair is the only successful ultra low cost carrier in the world, and that’s because they avoid high-cost airports like London/LHR. He said US based ultra low cost carriers will fail due to trying to grow by flying into high cost airports like Chicago, LA, NYC, and San Francisco. He blamed those airport authorities for making it too expensive for the low-cost model to work in big cities.
• Mr. Kirby was the first to get rid of change fees, which he said removed Southwest’s biggest advantage over United as it overwhelmed their superior mileage program, first class cabin, clubs, and meal service. He credits that move with the success United has had over the low-cost carriers since then, as passengers moved to United due to that move.
• He said that he first said there’s only room for 2 premium carriers in the country when his USAirways merged with American. He planned to make AA one of those alongside Delta, but when he was passed over for CEO there and bolted to United, he used the playbook to propel United to be one of the 2 premium carriers.
• He said their partnership with Chase isn’t as lucrative as Delta with AMEX or AA with Citi, but only because theirs is the oldest contract. He expects they will come out ahead again when the contract is up for renewal in a few years.

Earlier this year, United shot down rumors that it was in talks with JetBlue about a merger.

But in yesterday’s talk, Mr. Kirby said that JetBlue is the only obvious merger candidate in the industry outside of Frontier and Spirit.

Would it be with United though?

He said that United’s business plan is working just fine and that mergers are disruptive. United has been able to invest in an industry leading app because they don’t have to take the IT team aside for 2 years to integrate 2 airlines, and that customers can expect some very cool new app features this year.

But…

“We don’t need a deal for sure. The hurdle to go do a deal gets a whole lot higher. That said, at least at United, I would like to have a bigger — I’d like to have a presence on the other side of the river, at JFK. But man, all the headache, all the brain damage of buying a whole airline to get there. That’s a lot to do. So really, I think the ball is going to be in JetBlue’s court. They’re working on spec form. They’re working hard. They’re also an airline that focuses on brand loyalty.

So from a customer perspective, they have a lot of those sort of core DNA things. That are also competing with another airline JFK and Boston, that has that, too. And so it’s a tough position for us to be in. So sort of their decision on how to sort through that. That’s the only one that I think really is potentially in play one way or another.”

It’s old news that Mr. Kirby is passionate about JFK.

I wrote back in 2020 that he was proud of his time at American and considered it a big win when he was able to push United out of JFK.

But when he switched to United, he separately wanted to get back into JFK and was mad at former United CEO Jeff Smisek for ditching JFK.

Or, as I wrote in 2015 about Mr. Smisek,

“Of course, Smisek’s motto is “Ultimately, we can’t create demand, but we do have a responsibility to react to it.” As in, why proactively improve our first class product to compete when we can just reactively decide that it’s not profitable and eliminate it.

The irony is that Gordon Bethune, one of the most popular airline CEOs of all time, wrote in his excellent book “From Worst to First” exactly how that kind of reactionary thinking is what nearly drove Continental out of business is the early 90s. Or as he put it, “You can make a pizza so cheap, nobody will eat it. You can make an airline so cheap, nobody will fly it.”

Smisek may think that United is unable to create demand. The truth is that they’re quite adept these days at driving away premium demand.”

JFK may have been a money loser on paper, but the move away from JFK cost United many lucrative corporate contracts that went to AA and Delta and hurt their Los Angeles hub performance as a whole.

United was able to sneak back into JFK in 2020 when slot restrictions were loosened due to COVID, but had to bail again in 2022 due to lack of slots when the AA-JetBlue alliance failed without a settlement that would have given slots to United.

It sure sounds like United would be willing to buy JetBlue for the right price, should JetBlue decide they want to sell, just for their JFK slots. But United also feels that they don’t need to buy JetBlue to be successful and will be OK without access to JFK.

Clearly, Delta won’t be allowed to buy JetBlue due to their overlapping hubs in Boston and JFK.

That leaves American and United as potential suiters. American would stand to gain a large enough presence in NYC to compete with Delta and United, so there’s big upside there for American. United would also gain with that merger, as they would likely have to divest slots to them. Or American could try for another alliance with JetBlue, which may have an easier approval path under the Trump administration’s DOT, which previously approved their Northeast Alliance, before it was revoked by the Biden administration’s DOT.

On the other hand, United would stand to gain access a lot more if they just bought JetBlue themselves, got access to JFK again, and avoided a stronger American Airlines.

United also lacks a Southeast hub, so JetBlue’s presence in Fort Lauderdale would be a massive help there.

United is also in a stronger financial position to pull off the merger.

Or would there be a dark horse JetBlue merger? Could Alaska pull it off to gain a much-needed East Coast presence? That airline is still in middle of integrating Hawaiian Airlines, so it may struggle to integrate JetBlue as well.

Either way, I’d bet on one of those mergers with JetBlue happening this year. The airline has struggled mightily to make it on its own.

I’d guess that the most likely merger would be with United, closely tailed by American, and followed by Alaska.

Which do you think is most likely? Or will JetBlue decide to remain a standalone carrier?