When he outlined his carrier's plans to starting serving London from New York and Boston in 2021, at the UK Aviation Club in April, JetBlue chief executive Robin Hayes seemed entirely unfazed by the prospect of securing the necessary slots.
Hayes not only expressed confidence that the US airline would have access to slots at more than one London airport for its first intercontinental services, but also stressed that JetBlue was not prepared to buy the slots or acquire other airlines in order to obtain them.
But how does a new entrant pick up enough slots to provide a substantial offering, having ruled out paying for them?
The UK capital has one of the most congested airport systems in the world. All five of its principal gateways – Gatwick, Heathrow, London City, Luton and Stansted – are defined as Level 3 co-ordinated facilities, meaning that demand for slots exceeds supply.
As a result, allocation of slots is tightly governed, especially during peak times at Gatwick and Heathrow.
The scarcity of slots and the particular allocation regime in the UK has led to an active secondary market.
While airlines are not compelled to reveal the monetary value of slot trades, some have been made public. In the case of slots at preferential times, especially at Heathrow, they have changed hands for tens of millions of dollars in recent years.
So, if JetBlue is unwilling to buy new slots, what other avenues lie open to the US carrier?
NEW ENTRANT
Under EU slot regulations, an airline seeking to access an airport for the first time is classed as a new entrant. The regulations specify that 50% of any new slots that become available at a co-ordinated airport must be made available to new entrants if they request them.
Airport Coordination (ACL), the UK national slot co-ordinator, says that new entrant status is applied at each airport to which an airline operates, which means that it is possible for an airline to be classed as an incumbent at one London airport and as a new entrant at another.
An airline is classed as a new entrant until it has five slots per day, and retains that status until it has the slots to operate two daily frequencies at an airport.
Edmond Rose, ACL's chief executive, tells FlightGlobal that slots do become regularly available and are allocated under this system.
"ACL continues to allocate slots each season to new entrants and incumbent airlines at all of the five constrained London airports," says Rose. "There are fewer slots available at the times most in-demand by carriers, but there will still be opportunities for carriers to be allocated slots at London's airports in the next two years."
Theoretically, then, JetBlue could secure twice-daily slots as a new entrant at a number of London airports without paying for them.
Consultant and former ACL managing director Chris Bosworth is equally optimistic that the US budget carrier could be accommodated with slots at multiple locations.
"I think that they are right to say they won't rule out other airports; I think there is opportunity for them. If you look at the building work at Stansted at the moment – that work is basically to redevelop the terminal so they can accept more long-haul flying, to change the balance of short- and long-haul that they currently have.
"So if they can accommodate more long-haul flights in a redeveloped terminal, that becomes an option for JetBlue too," he adds.
Bosworth says Gatwick could probably also find a way to accommodate what JetBlue wants.
LIFTING THE HEATHROW CAP
But Bosworth believes the real opportunity for the carrier may lie at Heathrow given the hub's plan to lift capacity – even before its new third runway becomes operational.
At present, the airport is limited to 480,000 air traffic movements per year, but it intends to submit a planning application to raise this to 505,000.
Heathrow is to publish the plan as part of its new-runway masterplan, due this summer. Upon receiving feedback, the airport will submit the plan to regulators in 2020 as part of its development consent order to build a new runway – a process it expects will take about 18 months.
The airport expects 25,000 additional movements to be available from late 2021 or early 2022.
These translate into 12,500 round trips, potentially allowing an additional 34 daily slot-pairs per year at Heathrow – more than enough for substantial new daily services to the USA.
Boswoth believes the new slots would be snapped up quickly and would likely be allocated by ACL in the normal way.
"My sense is that it is no coincidence, shall we say, that Robin [Hayes] is targeting 2021 because that is when the new capacity is expected to come on stream," he says.
Bosworth says that while JetBlue's theoretical new-entrant status would work in its favour within this process, what could work against it is that the routes the airline is planning are already served from Heathrow. This could be seen as reducing the potential consumer benefit of these new services in ACL's calculations.
"There is not exactly a shortage of capacity at the moment," he adds.
When Hayes spoke at the UK Aviation Club, he described the transatlantic market, especially the business-class offering, as being characterised by "very high fares and very poor premium service". He argued JetBlue would change that by introducing a version of its Mint premium-cabin product.
Bosworth says the co-ordinator will not necessarily take this into account in its calculations of the potential consumer benefits of awarding slots to JetBlue.
"They would be much more likely to take into account routes already served and the prospects for new entrants," he says.
LEASING
Another option for JetBlue would be to lease slots from existing London airport users.
Bosworth says the lease would be controlled through a contract between the two airlines, with ACL facilitating the transfer. He points out that such an approach is common, especially at Heathrow.
It would offer several advantages. While the amount of money required to lease a slot is shrouded in commercial confidentiality, it would be fair to assume it is far cheaper than trying to buy slots outright, and the airline could secure them at relatively short notice as it would essentially only require a simple procedural notice from the incumbent airline to inform ACL of the change of user ahead of the planned use.
JetBlue could also avail of flexibility as regards the timing of slots, the duration of their use, and the airport at which they are leased.
The downsides are that the US carrier would be relying on airlines' willingness and ability to lease slots to them at the right times, locations and commercial rates. JetBlue would also lose the certainty that owning the slots provides for continued use each season – not to mention any inflation in asset value.
REMEDY SLOTS
Another course open to JetBlue could be to secure remedy slots, which are released on an annual basis by airlines under historical commitments entered into to gain regulatory approval for a commercial tie-up or merger that raised competition concerns at the time.
This practice is designed to benefit the consumer by giving new entrants and existing competitors the chance to offer rival services on routes where there is a danger of a monopoly situation developing.
For example, IAG subsidiary British Airways has released slots at Heathrow each year since 2012 on selected European routes under the conditions of its approval to take over BMI.
The advantage of such a move is that JetBlue could secure slots at Heathrow or Gatwick for free. After three years of operating on specific routes, the incumbent is also able to take full control of the slots and use them on routings of their choosing.
In his speech, Hayes criticised the strength of the global immunised joint ventures that in his view control much of the transatlantic market, contending that the potential to co-ordinate schedules and pricing while sharing revenue represented a form of "legalised collusion".
He called on regulators to be "bold" and intervene to ensure that new entrants to the transatlantic market can obtain the slots and market access needed and described London as the "ground zero" of transatlantic competition, noting the commercial tie-ups between British Airways and American Airlines on one hand, and Delta Air Lines and Virgin Atlantic on the other.
Henk Ombelet, head of advisory operations at Ascend by Cirium, interprets these comments as being part of efforts to "persuade" competition authorities that Air France-KLM and Delta Air Lines should be compelled to give up slots as part of any approval of the Franco-Dutch airline group’s planned acquisition of a 31% stake in Virgin Atlantic.
Given that Virgin and Delta operate from London to New York and Boston, it seems reasonable to assume that any slots released in this process in the future could be tied to these routings.
However, Ombelet warns that JetBlue would be taking some risk if it pursued this option of securing slots.
"There is no guarantee, though – firstly that the authorities will set that [slot release] as a condition, and secondly whether [JetBlue] would get the slots. This would usually go out to some kind of bidding process."
JetBlue could also attempt to secure the Heathrow or Gatwick slots released by American Airlines, BA and Iberia each year under competition commitments associated with their transatlantic joint venture.
Several of the slots released by the Oneworld carriers' venture, which now includes Finnair, are tied to routings from New York and Boston to London. One problem is that the commitments were entered into in 2010 for a duration of 10 years and are therefore set to expire in 2020, a year before JetBlue intends to enter the London market.
In October 2018, the UK Competition and Markets Authority opened an investigation into the case and wanted to "review afresh" the competitive impact of the joint business agreement. No updates have been issued since then.
SLOT REFORM
When Hayes called on regulators to be "bold", he may also have been referring to the UK government's green-paper discussion document on its future strategy.
Among the topics in its Aviation 2050 paper, the government floats the possibility of reforming existing slot allocation rules as a way of ensuring the most efficient use of them at congested airports.
The proposals include options to enhance the transparency of the allocation system, provide increased clarity and certainty for airlines, and seek earlier allocation of slots at constrained airports. The government would also look at whether airlines should be able to re-time existing slots into desirable newly created slots.
The proposals include changes to new-entrant rules, guidance on secondary trading, the offering of slots in bundles as incentives, and mechanisms such as "slot renting" and slot auctions.
But while any reforms to slot allocation could benefit new entrants in the future, the government's white-paper policy statement on its new aviation strategy is not due until later this year, and it seems highly unlikely that any changes would be made by 2021.
Equally, the European Commission has signalled its intention to reform EU slot regulations in its aviation strategy. But with the end of the present Commission's mandate in sight, little progress is in prospect in the near future.
While some seem more challenging or remote than others, JetBlue does appear to have several promising options for gaining access to the London market over the coming two years.
Source: Cirium Dashboard
