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JetBlue and Norwegian Team Up in the Transatlantic Market

By Adam Levine-Weinberg - Oct 21, 2019 at 9:37AM

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The two budget carriers are cooperating to bring low fares to transatlantic markets that Norwegian can't serve on its own.

Over the past six years, Norwegian Air Shuttle has shaken up the market for transatlantic flights. The European budget airline's rock-bottom fares have enabled it to gain a significant foothold in the transatlantic market since it launched its first route to the U.S. in 2013. Norwegian's rapid growth helped to spawn the creation of several imitators offering a similar blend of low base fares and high fees for flights to Europe.

However, making money selling cheap tickets for transatlantic flights has been harder than these airlines expected. Several budget airlines that competed in this market have shut down over the past year or so, including WOW Air, Primera, XL Airways, and Thomas Cook. Norwegian has racked up big losses, too, putting its survival at risk.

As a result, Norwegian has recently shifted its focus from growth to profitability. This has included cutting numerous unprofitable routes. But a new partnership with JetBlue Airways ( JBLU -1.80% ) announced last week could also help the budget carrier become profitable in the transatlantic market.

A JetBlue Airways plane about to land on a runway.

JetBlue plans to form an interline partnership with transatlantic budget carrier Norwegian. Image source: JetBlue Airways.

Interlining coming in 2020

JetBlue and Norwegian have signed a letter of intent for an interline agreement, according to the airlines. Beginning in early 2020, for departure dates in the summer of 2020 and beyond, customers will be able to book itineraries including flights on both carriers on either one's website. Additionally, JetBlue and Norwegian will transfer bags to each other, enabling customers to check bags to their final destination when traveling on interline itineraries.

Travelers will be able to connect between JetBlue and Norwegian flights in the former's three largest focus cities: New York, Boston, and Fort Lauderdale, Florida. Norwegian currently offers more than 20 nonstop routes to Europe from those airports, while JetBlue flies to about 100 cities in the U.S., the Caribbean, and Latin America from these three bases.

Unless JetBlue and Norwegian come to another arrangement, fares for interline itineraries will just be the sum of the nonstop fares for each leg. That could lead to uncompetitive fares on some routes, as the legacy carriers often charge much less for connecting flights than they would charge for booking each leg as a nonstop. However, on routes with less competition -- and routes where JetBlue and/or Norwegian often offer cheap tickets to fill their planes -- this interline partnership could deliver huge savings for travelers.

Why this partnership is great for both airlines

On its most popular transatlantic routes, like New York-London, Norwegian can usually fill its planes without resorting to unsustainably low fares. However, on many routes, the airline is offering roundtrip flights for less than $400 -- and in a few cases, under $300 -- during the off-peak season. (Taxes and government fees can make up a substantial proportion of those prices, too.) These fares are not high enough to enable Norwegian to cover its costs.

A Norwegian 787-9 flying over clouds.

Norwegian has had trouble getting adequate fares on many routes during the off-season. Image source: Norwegian.

As part of its profit improvement plan, Norwegian recently dropped numerous unprofitable routes while adding extra flights on higher-traffic routes. This will make it even harder for the airline to fill its planes on the routes getting extra flights. However, partnering with JetBlue will mitigate this problem by allowing Norwegian to tap into demand that it couldn't meet on a nonstop basis.

Meanwhile, JetBlue plans to replace its smallest planes -- 100-seat Embraer E190s -- with 140-seat Airbus A220s between 2020 and 2025. This will add a ton of incremental capacity on many JetBlue routes out of New York, Boston, and Fort Lauderdale. While the A220s will have much lower unit costs than JetBlue's E190s, the airline might need to reduce fares significantly to fill the extra seats. Teaming up with Norwegian will make it possible to fill some of those seats at more sensible fares with passengers traveling on to Europe.

There are still some big unanswered questions

Earlier this year, JetBlue confirmed that it will begin flying to London from New York and Boston in 2021. Norwegian serves both of those city-pairs today. JetBlue has also ordered longer-range planes that will be delivered beginning in 2023, enabling expansion deeper into Europe. In other words, in the not-too-distant future, JetBlue could be competing with Norwegian in many of the markets where they plan to cooperate starting next year.

It's not clear what this will mean for the JetBlue-Norwegian partnership. At one end of the spectrum, they could seek to imitate their larger rivals by forming a full-blown joint venture for transatlantic flights and share the revenue and costs. At the other end, they may remove routes where they compete directly from the interline agreement.

Additionally, Norwegian operates far more flights in New York than it does in either Boston or Fort Lauderdale. However, making connections there is especially tricky, as Norwegian and JetBlue operate in separate terminals, requiring long connection times. (Frequent flight delays for both airlines at JFK will only aggravate that problem.)

JetBlue does host two other airlines in its terminal at JFK, but the customs facility may not be able to handle all of the Norwegian passengers on top of the JetBlue international passengers it has to process. Co-location is more likely to be feasible after JetBlue opens a new international terminal adjacent to its current facility, which will be 2023 at the earliest.

Thus, the Norwegian-JetBlue interline agreement holds lots of potential for both airlines and for air travelers. But we'll have to wait and see whether the partnership actually lives up to that potential.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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