Last week, Delta Air Lines (NYSE:DAL) reported excellent second-quarter results. Delta executives pointed to Boston as one of the key markets driving the company's growth. Revenue rose 25% at the carrier's Boston hub, driven by a 10% unit revenue gain -- far ahead of the domestic average of 3.6% growth -- on top of a double-digit capacity increase.

In light of its strong results in Boston, Delta Air Lines plans to continue expanding aggressively there over the next couple of years. In fact, the carrier set a new medium-term target of growing to approximately 200 peak-day departures at Boston's Logan Airport by 2021.

This will further increase the intensity of competition between Delta and Boston market leader JetBlue Airways (NASDAQ:JBLU). Let's take a look at why Delta Air Lines thinks it can continue to build on its success in Boston and what it could mean for JetBlue.

A Delta Air Lines jet flying over clouds.

Delta plans to grow to around 200 peak-day departures at its new hub in Boston. Image source: Delta Air Lines.

More growth in the pipeline

Delta and its international joint-venture partners are in the midst of a growth spurt in Boston that will give them more than 150 peak-day departures by the fall. Delta added extra flights on several existing routes this spring. It is also beginning flights from Boston to five new domestic destinations this year, all with multiple daily frequencies: Chicago; Cleveland; Miami; Newark, New Jersey; and Washington, D.C.

Some of this growth will be enabled by Delta gaining five additional gates (for a total of 21) at Logan Airport later this summer. That will also leave some room for growth in 2020.

Delta's president, Glen Hauenstein, described 200 daily departures as a medium-term objective for Boston that can be reached within 18 to 24 months. (It's not clear if that would require expanding beyond 21 gates.) Incidentally, JetBlue also plans to reach 200 daily departures in Boston by 2021, by which point it will have access to 30 gates there.

Delta is still much smaller than JetBlue in the local market

While Delta Air Lines operates nearly as many daily departures as JetBlue in Boston, it still has much lower market share, particularly in the domestic market. That's because many of Delta's flights in Boston are operated using smaller regional jets. In fact, JetBlue has a 32% share of the domestic market at Logan Airport, compared to around 20% for Delta (exact figures aren't publicly available for the latter).

A JetBlue Airways plane about to land.

JetBlue is the market share leader in Boston by a wide margin. Image source: JetBlue Airways.

Furthermore, Delta relies on connecting traffic far more than JetBlue. During Delta's recent earnings call, Hauenstein emphatically described Boston as a hub, saying that the carrier is now connecting almost 1,000 people a day from the U.S. to Europe via Boston. That means the equivalent of more than a dozen daily domestic regional jet flights are filled with connecting passengers going to markets that JetBlue doesn't serve today.

Indeed, one of the main reasons why Delta is growing in Boston -- aside from the region's strong economy -- is that it faces capacity constraints at its main Northeast hub in New York. As the carrier adds more flights in Boston, the percentage of connecting traffic will likely grow. In other words, some of Delta's capacity growth in Boston isn't targeted at the local market.

JetBlue is also likely to carry more connecting traffic in Boston in the future than it does today, as it plans to begin transatlantic flights from Boston to London in 2021. The carrier will add other cities in Europe to its route map in subsequent years.

Plenty of room for both airlines to grow

Boston has one of the strongest regional economies in the U.S., with lots of high-wage jobs. It has the third-highest GDP per capita among large U.S. metropolitan areas, and the region's economy has averaged annual growth of nearly 5% in recent years.

As a result, air travel demand in Boston is substantial and rising -- including plenty of lucrative business travel. Moreover, the Boston market is underserved compared to other top 10 metro areas, all of which already have one or more established major airline hubs. Thus, there is plenty of room for Delta and JetBlue to stimulate the market to fill extra seats on Boston routes.

Growth in transatlantic service from Boston by Delta (including its JV partners) and JetBlue will also drive more connecting traffic through Logan Airport. While Delta and JetBlue will compete with one another for those passengers to some extent, they will be competing far more with larger hubs in cities like New York, Philadelphia, and Washington, D.C.

Delta's ability to post strong unit revenue growth in Boston while growing seat capacity rapidly shows that there is a ton of pent-up demand there. This provides a solid foundation for Delta and JetBlue to carry out their aggressive Boston growth plans without sacrificing profitability.

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