Bloomberg News

AMR Said to Be in Talks With JetBlue to Widen Booking Agreement

June 09, 2011

June 9 (Bloomberg) -- American Airlines and JetBlue Airways Corp. are in talks to add more cities outside the U.S. to their joint booking and frequent-flier agreement, two people familiar with the discussions said.

An expanded accord would help AMR Corp.’s American fill more seats on international flights from New York and Boston, and let JetBlue win domestic passengers by offering destinations it can’t reach with its own planes, said the people, who declined to be identified because the discussions are private.

New York is home to JetBlue’s headquarters and biggest base and American’s chief East Coast hub for trans-Atlantic flights. American is fighting for market share there after being eclipsed by the merger of United and Continental airlines and Delta Air Lines Inc.’s purchase of Northwest Airlines.

“If they want to be a bigger player, they are going to need more presence and more feed,” said James M. Higgins, an analyst with New York-based Ticonderoga Securities LLC. “JetBlue is a way to get that.”

There is no timeline for Fort Worth, Texas-based American and JetBlue to decide on broadening their 15-month-old interline agreement, the people said.

The existing accord lets each airline sell tickets on specific partner flights and check bags on a full itinerary, with the revenue going to the flight’s operator. JetBlue travelers can book on American to 15 foreign cities from New York and Boston, while fliers to the two destinations on American jets from abroad can reach 26 U.S. cities via JetBlue.

JetBlue’s Interest

While those JetBlue airports aren’t in competition with markets served by American, JetBlue would like to expand the relationship to cities where the carriers do compete, one of the people said. JetBlue’s main U.S. airport is New York’s Kennedy, where American serves destinations such as London and Paris.

Spokesmen for American and JetBlue declined to comment on the talks.

“American and JetBlue continue to explore opportunities to expand commercial cooperation where it makes sense for both airlines,” American’s Sean Collins said. Alison Croyle, a JetBlue spokeswoman, said the airline would like to add more cities outside the U.S. to the agreement.

Deeper ties between the carriers may lead to an eventual merger, possibly in about two years, said Ticonderoga’s Higgins, who recommends buying JetBlue and holding AMR.

‘Further Cooperation’

“It definitely furthers cooperation between them,” Higgins said of the current discussions. “If the benefits to AMR of the JetBlue tie-up are as good as I think they’ll be, I also believe it increases the odds there may be a merger down the road.”

The challenge for American is to first resolve contract talks with its three largest unions, Higgins said. The current labor negotiations date back as far as September 2006, when bargaining began with pilots.

American and JetBlue unveiled their accord two months before United and Continental agreed to the tie-up creating United Continental Holdings Inc. The new United Airlines is the world’s biggest carrier by traffic, ahead of Delta, which overtook American with the 2008 Northwest acquisition.

After sitting out consolidation that included those deals and Southwest Airlines Co.’s May 2 purchase of AirTran Holdings Inc., AMR is the only large U.S. airline company likely to post a 2011 loss, based on analysts’ estimates compiled by Bloomberg.

Declining Shares

AMR tumbled 27 percent this year in New York Stock Exchange composite trading through yesterday, and JetBlue fell 17 percent on the Nasdaq Stock Market, joining declines for most of the U.S. industry.

While interline accords are common among U.S. carriers, the American and JetBlue linkage is unusual because it connects a carrier that collects travelers at hub airports to one focused on point-to-point flights. Interline agreements are used in cases such as an airline scrubbing flights and being unable to rebook passengers on one of its own planes.

Will Randow, a Citigroup Inc. analyst, expects that the carriers’ current accord may evolve into a so-called code-share arrangement, in which airlines agree to share some revenue for joint bookings, and stop far short of a combination.

Moving JetBlue employees to American’s higher union wage rates would be too costly and blending different aircraft fleets would be difficult, said Randow, who has hold ratings on JetBlue and AMR. JetBlue’s planes are from Airbus SAS and Embraer SA, while American’s main jet fleet is from Boeing Co.

‘Strong Presence’

“JetBlue’s strong presence at JFK can bolster American’s position and extend their network, which is a good thing,” Randow said. “American’s strategic vision is to solidify that relationship as much as possible.”

JetBlue has 10 interline agreements, two with U.S.-based carriers. It has two code-share arrangements, including one with its largest shareholder, Germany’s Deutsche Lufthansa AG. The code shares allow the international partners to put their designation on certain JetBlue flights.

American also agreed as part of the original accord to give eight pairs of takeoff and landing rights at Washington’s Ronald Reagan National to JetBlue in exchange for 12 pairs at Kennedy. The trade allowed JetBlue to initiate service at Reagan.

JetBlue has focused over the past two years on building its network in Boston and the Caribbean, markets where American has reduced service.

--Editors: Ed Dufner, James Langford

To contact the reporter on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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