A route with so many flights and so many carriers must have huge demand making it profitable, right? Then again, all that competition and capacity makes it hard to drive solid yields and profits. Throw in a game-changing new entrant and, well, the only real surprise about United Airlines‘ decision to leave the JFK market should be that it took this long.
United dropped its service from JFK to Dulles late last year and, as of October 2015, will pull out of JFK completely. The “premium service” routes to LAX and SFO will shift to the hub at Newark, adding connection options which have never really existed for the p.s. passengers. Yes, JFK is a major gateway and offers connectivity across the globe, even on United’s Star Alliance partners. But almost none of those onward destinations were bettered served from the west coast over JFK. Even historically United had precious little in the way of onward connectivity. And that has only become worse over time, not better.
The move also creates potential for far more efficient fleet utilization. The new schedule – nearly hourly service on both routes – will use some of the 757-200 planes which have served transatlantic routes in the past. These aircraft are also occasionally serving Hawaii and other domestic destinations as the older 752s are being retired out of the fleet. By putting all of them into the same pool of potential aircraft it is possible to shift capacity much more easily. And for the business class passengers who are connecting on to Europe and India the shift means getting flat bed service the whole way through the trip rather than a 6 hour chunk in the domestic product. That’s a big improvement.
And then there is the financial aspect of the decision. At one point p.s. was believed to be terribly profitable. This week’s announcement says it has been losing money for years. Similar befuddlement about the numbers was seen when Cleveland was de-hubbed. But in many ways it doesn’t really matter what the longer history is because the current version is that the market is massively different than it was just a year ago. The introduction of JetBlue‘s Mint product has changed both the pricing in the market and the passenger experience expectations. It could be reasonably argued that United is simply giving up on competing in that space but, financially, that is likely the smart move to make. Mint essentially offered everyday customers access to corporate contract pricing levels. But the contract discounts remain in place in most cases so the legacy carriers saw their revenue for premium seats shrivel up in a big way. And if you’re not making money in the business why bother.
Read More: In-flight: The JetBlue Mint experience
The counter argument there is that only operating where you can force irrational pricing because of reduced competition does not succeed over the long term; new entrants come along and fortress hubs don’t last forever. Except in this industry they really mostly do. Delta and American Airlines have been mostly successful with their fortress hubs, too, though Dallas is a questionable one right now with the cross-town competition.
Finally, if this move allows United to consolidate and integrate the New York crew bases that would be a huge win operationally for the company. Of course, that will mean getting to an agreement with the flight attendants and addressing plenty of other bits, but it will be useful to the company once it happens.
Ultimately even the best routes rarely support themselves completely on O/D traffic and massive competition makes that harder. United gets to consolidate at Newark and double down on the fortress hub while also walking away from the yield pressures at JFK. Even if it loses some of its contract business – and it probably will – there is a pretty good chance those customers already had one foot out the door anyways.
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