As recently as late 2013, Delta Air Lines (NYSE:DAL) operated just 35 daily departures at Seattle-Tacoma International Airport (Sea-Tac). However, it began growing rapidly there in early 2014 -- challenging hometown carrier Alaska Air (NYSE:ALK) -- and named Seattle as a new hub in June of that year. By this summer, Delta had roughly quintupled its flight schedule at Sea-Tac, operating 174 peak-day departures.
Delta is looking to repeat that success in Boston, which officially became its newest hub city earlier this year. This time, it's taking on JetBlue Airways (NASDAQ:JBLU), which has been the market leader in Boston since 2010. Yet the market dynamics in Boston could end up being quite different than in Seattle. Let's see what that may mean for Delta.
Boston is following a trajectory similar to Seattle for Delta
Delta Air Lines began its growth in Boston a few years ago. By the end of 2018, the carrier and its joint-venture partners were offering more than 120 daily departures there. As was the case in Seattle, Delta started with an unusually high number of international routes for a non-hub market and has gradually grown its domestic-route network to attract business travelers, enable more connecting itineraries, and support further international growth.
However, gate constraints have impeded Delta's expansion in Boston recently. Those gate constraints are about to ease, though. On Aug. 29, Southwest Airlines will move its operations in Boston to Terminal B, giving Delta control of all 21 gates in Terminal A.
This will allow Delta to launch new routes to three key domestic business markets -- Chicago, Newark, and Washington, D.C. -- next month. New service to Miami will start in December. These new routes will give Delta and its partners more than 150 peak-day departures in Boston. That number could grow to 200 by 2021, according to company president Glen Hauenstein.
Why Boston could be even more successful than Seattle for Delta
So far, Boston appears to be a great market for Delta Air Lines. The carrier's revenue in Boston surged more than 25% last quarter on a stellar 10% increase in unit revenue.
In some ways, Delta could have an easier time becoming the preferred airline in Boston than in Seattle. Alaska Airlines operates more than 300 daily departures at Sea-Tac, ranging from short-haul turboprop service to transcontinental flights. Despite Delta's growth there, Alaska still has slightly more than 50% market share on domestic routes in Seattle, compared to 23% for Delta.
By contrast, the Boston market is quite fragmented. JetBlue's market share currently stands at 32%, while Delta's growth this fall will likely push its domestic market share above 20%. JetBlue plans to reach 200 daily departures in Boston by 2021 -- the same year that Delta hopes to hit that milestone.
Furthermore, JetBlue doesn't operate any regional jets. Its smallest plane has 100 seats, and that model will be phased out by 2025 in favor of the 140-seat Airbus (OTC:EADSY) A220-300. As a result, JetBlue has a hard time serving small and midsize markets, relative to Delta, which has a large fleet of 50- to 76-seat regional jets. For some business travelers, that could make JetBlue a non-option.
Why Delta could still run into trouble in Boston
While the Boston market currently seems very attractive for Delta, JetBlue could prove to be a tough competitor in the long run. Alaska Airlines has all but ruled out flying to Europe or Asia -- which would require adding a new aircraft type -- allowing Delta to market itself as "Seattle's largest global airline." (Alaska Airlines has partnerships with more than a dozen international airlines, but that's not equivalent from a customer's perspective.)
Today, Delta enjoys the same advantage of being the leading "global airline" in Boston. That said, JetBlue already has firm plans to start service from Boston to London in 2021. It now has 26 A321LR and A321XLR jets on order with Airbus, which will allow it to add additional routes from Boston to Europe over the next five years.
It's not feasible for JetBlue to fly to Asia without adding a new aircraft type, but Europe routes have far more strategic relevance anyway. JetBlue's growth in Europe could thus blunt one of Delta's main competitive advantages.
Furthermore, while JetBlue's new Airbus A220-300s will have 140 seats, they will have very low unit costs. This could enable JetBlue to enter smaller markets by stimulating demand with rock-bottom fares. If it does so from Boston, that could cause severe unit revenue pressure for any existing Delta routes that the new JetBlue flights compete against.
Finally, whereas Delta didn't have a good alternative to Seattle as an international gateway for flights to Asia, it already offers lots of flights to Europe from New York's JFK Airport. That's less than 200 miles from Boston. The more it turns Boston into a hub for transatlantic flights, the more Delta will be competing with itself.
New aircraft technology could be the difference-maker
JetBlue's growth over the next few years will be guided by the unique capabilities of the three new Airbus models it's adding to its fleet: the A220, A321LR, and A321XLR. The A220 will dramatically improve its cost structure on high-frequency short-haul routes, while the range of the A321LR and A321XLR will allow it to fly from Boston to almost anywhere in Europe. (The low fuel burn of those models will make them among the most cost-efficient long-haul aircraft, too.)
Of course, Delta also stands to benefit from new-technology aircraft. In fact, it's currently Airbus' No. 1 customer for the A220 and plans to use the ultra-fuel-efficient jet on a number of routes from Boston. This could support the profitability of its newest hub.
That said, new aircraft technology could also reduce Delta's need to use Boston as a connecting hub for transatlantic flights. The A321XLR has the range and cost structure to enable Delta to significantly increase its transatlantic route network from Detroit, where it operates 460 daily departures to 121 destinations, creating tons of connecting opportunities. If Boeing goes ahead with its proposed new mid-market airplane and Delta orders it, even more European cities could be within reach from Detroit, making the Boston hub superfluous.
The availability of aircraft models with new capabilities and related strategy changes at Delta and JetBlue could thus change the competitive dynamic between the two carriers. However, it's too early to be confident about what this means for Delta's Boston hub in the long run.