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JetBlue Lands Slots for London Expansion

By Adam Levine-Weinberg - Nov 21, 2020 at 9:09AM

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The low-fare airline's attempt to enter the transatlantic market in 2021 remains on track.

The COVID-19 pandemic has upended many airlines' strategic plans. Yet other airlines -- especially those with strong balance sheets and a focus on the leisure market -- are forging ahead with their plans, seeing the pandemic as an opportunity to gain market share from weakened rivals.

JetBlue Airways ( JBLU -4.17% ) is firmly in the latter camp. While the company has deferred some aircraft orders, it still plans to take delivery of its first Airbus A321LR next year, allowing it to launch its long-awaited service to London. Earlier this week, one of the last puzzle pieces fell into place, as the airline was granted slots allowing it to operate up to three daily roundtrips to London starting in the summer 2021 season.

An Airbus A321LR parked on the ground

Image source: Airbus.

JetBlue secures slots

Several of London's major airports are typically overcrowded. As a result, airlines must apply for takeoff and landing slots if they want to fly to London. Heathrow Airport, the region's primary airport, is the most extreme case. The cost of a single slot-pair, allowing one roundtrip flight, has averaged tens of millions of dollars when traded on the private market. Gatwick Airport has also been operating near capacity in recent years.

Airlines have dramatically reduced slot utilization because of the pandemic. Normally, they would have to give up their unused slots, but the standard use-it-or-lose-it rules have been suspended in the U.K. until at least next spring. Thus, JetBlue had to go through a competitive slot-allocation process to get the slots it needs for its planned London flights.

Earlier this week, reports from Airport Coordination Limited -- the company that manages slot allocations for the London airports -- showed that JetBlue has received slots for up to three daily roundtrips to London. However, they are spread across two airports.

At Gatwick Airport, JetBlue received 14 weekly slots -- half of what it had requested. That's enough to operate one daily roundtrip, which it will use to fly to New York's JFK Airport. JetBlue also landed all 28 weekly slots it requested at London Stansted Airport, which it will use for up to two daily roundtrips to Boston.

The big prize remains elusive

While having JetBlue's flights split across two London airports is not ideal, it's not a shocker, either. More than a year ago, company president Joanna Geraghty said the airline might fly to two London airports.

A JetBlue A321neo airplane tail

Image source: JetBlue Airways.

The bigger disappointment was that JetBlue wasn't able to get slots at Heathrow, the preferred airport for most business travelers. JetBlue's planned London flights would almost certainly be more successful at Heathrow than at any other airport.

That wasn't exactly a surprise, though. (Heathrow only awarded four new weekly slots, good for two weekly roundtrips. Airlines had requested 1,394 weekly slots!) JetBlue's management thinks the pandemic could ultimately make it easier to pick up slots at Heathrow, but slot holders have no incentive to give up slots until the use-it-or-lose-it rules are reinstated. Remedy slots designed to ensure adequate competition could provide another avenue for JetBlue to gain access to Heathrow, but probably not until at least 2022.

This can work -- for now

Gatwick Airport is a well-established alternative to Heathrow and has sustained plenty of flights from the U.S. over the years. However, many pundits are concerned that JetBlue's planned Boston-London flights via Stansted Airport are doomed to fail. Previous attempts to offer transatlantic service from Stansted haven't been commercially successful.

In reality, JetBlue's prospects aren't that bleak. JetBlue mainly caters to leisure travelers -- even for its premium lie-flat "Mint" service. Leisure travelers tend to be more flexible about which airports they use (particularly if they're getting a good deal). Furthermore, Stansted is the closest major airport to Cambridge, a key U.K. tech hub. Boston is also a major base for technology companies, so JetBlue could potentially develop a lucrative niche carrying tech-related business traffic between Boston and Stansted.

Additionally, Gatwick is a major base for Norwegian Air, which was struggling before the pandemic and is now on the verge of collapse. Even if Norwegian does survive, JetBlue will probably be able to pick up additional Gatwick slots in 2022 if it decides Stansted isn't working. Beyond that, there's a chance that regulators will force other airlines to make room for JetBlue at Heathrow in the next few years to preserve competition in that key market.

For now, JetBlue just needs a foothold so it can offer access to London to its customers and start to build name recognition in the U.K. The slots it has secured at Gatwick and Stansted will allow it to do just that.

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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