For years, executives at JetBlue Airways (JBLU -3.12%) have been talking about initiating flights to London. Now, it's finally happening. Last week, JetBlue began selling tickets for new routes from Kennedy Airport in New York to London's two biggest airports.
Building a successful trans-Atlantic franchise will take time. That said, the launch of these new routes represents an important step toward capitalizing on a massive opportunity for profitable long-term growth in Europe.
JetBlue finalizes its initial London plans
After JetBlue officially announced that it would enter the London market, the biggest question was which airport (or airports) it would serve there. Prior to the pandemic, slot constraints made it hard for new entrants like JetBlue to serve the city's two main international gateways, Heathrow Airport and Gatwick Airport.
When the pandemic torpedoed air travel demand (particularly long-haul flights), JetBlue's problem ended. Earlier this year, the slot coordinator for London's airports awarded slots at both Heathrow and Gatwick to the popular low-fare airline.
On Wednesday, JetBlue announced that it will begin daily service between JFK and Heathrow on Aug. 11. It will add a daily flight between JFK and Gatwick on Sept. 29. It will operate both routes with Airbus A321LR planes configured with 141 seats, including 24 private "suites" in the premium Mint cabin. Even coach customers will benefit from amenities included in the fare like meals and alcoholic beverages, a self-serve snack bar, and Wi-Fi.
The Mint cabin on JetBlue's Airbus A321LR jets includes seats that fold out into flat beds. Image source: JetBlue Airways.
JetBlue hopes to make a splash with low introductory fares. It is selling round-trip flights starting at $599 for U.S.-based customers -- and even less for U.K.-based customers. Even the Mint cabin carries an accessible starting price of less than $2,000 round-trip.
More growth coming in 2022 and beyond
When JetBlue converted 13 of its A321neo orders to the A321LR two years ago, it planned to take delivery of all 13 in 2021. That would have allowed it to rapidly build a significant footprint in London. As recently as last May, JetBlue's fleet plan still called for five A321LR deliveries in 2021 and another seven in 2022.
However, JetBlue subsequently deferred many aircraft deliveries to reduce near-term capital expenditures and better match its growth with expected demand. It now expects just three A321LR deliveries this year and three more in 2022. As a result, it has delayed the launch of Boston-London flights until next summer. Even then, it will only have enough aircraft to fly four or five daily round-trips to London. This suggests that JetBlue's London operation won't reach full strength until at least 2023.
JetBlue says it has a path to grow its slot portfolio at Gatwick Airport over time, paving the way for these additional flights in 2022 and beyond. By contrast, it is using temporary slots for its JFK-Heathrow flights. As airlines holding Heathrow slots restore their schedules over the next year or two, JetBlue will be forced out of that desirable airport unless it manages to secure permanent slots.
Image source: Airbus.
Short-term pain for long-term gain
Investors shouldn't expect JetBlue's new London flights to be profitable from day one. For one thing, U.S.-U.K. travel remains subject to severe restrictions, despite airlines' efforts to lobby for a quarantine-free air corridor between the two countries. Until the U.K. lifts the onerous quarantine requirements that currently apply to travelers arriving from the U.S., it will be hard to sell tickets for New York-London flights.
JetBlue's low introductory pricing will also weigh on the profitability of its new London routes. Other airlines will likely mount competitive responses, adding to the pressure on unit revenue. JetBlue's thin schedule and its suboptimal flight times at Heathrow will make it hard to court business travelers for now. Finally, starting with just one flight per day at each of the London airports may lead to some cost inefficiencies.
But any near-term losses should be viewed as worthwhile investments. JetBlue will be able to start building brand awareness in London ahead of commencing flights from Boston and increasing flight frequencies. As it gains scale in London, the carrier could become a formidable rival to the legacy carriers that currently dominate the U.S.-U.K. air travel market.
JetBlue's experience in London over the next year or two will also inform its expansion deeper into Europe, which will likely begin in 2023. If the airline hits upon a successful formula, it could unlock a sizable opportunity to grow and disrupt trans-Atlantic air travel. That's the big prize. Investors will have to wait patiently to see if JetBlue can cash in.
