Why jetBlue is coming to Vancouver

JetBlue is finally coming to Canada, planning routes to link Vancouver with New York and Boston starting next year. It’s not a move that made headlines, but it’s still nice to see expansions like this, especially after JetBlue said in 2011 that Vancouver’s “local market [wasn’t] large enough to support daily non-stop service” to US destinations.

This begged the question: Why wait this long? Why do it at all? And why Vancouver? We think that there are 3 drivers behind the move into Canada:

1. The Northeast Alliance between JetBlue and American Airlines
2. The upside of the Vancouver-New York route
3. JetBlue’s successful track record of disruption

Northeast Alliance with American Airlines

This partnership is a key reason why jetBlue has the mandate to expand to destinations like Vancouver. We’ll explore what the Alliance is, why it exists, and what it means for new destinations. 

What it is: both airlines offering new destinations and codeshares

The NEA is a partnership between AA and jetBlue that involves new codeshare routes, reciprocal benefits between loyalty programs, and “seamless integration” between the two carriers. In more concrete terms, this means new routes and more destinations to choose from.

One of these routes connects New York and Vancouver. To understand how that came about, we'll explore why the Northeast Alliance came to be.

Why create the NEA?

The largest driver is COVID, but a bit of background on each carrier will get us a complete picture of the motivations behind launching the NEA.

JetBlue started out as “New York’s hometown airline”, but they’ve grown to serve most of North and South America from the northeast US. They’re dominant at JFK and Boston Logan, holding down 37% and 33% of the market share respectively in these two airports.

They’re also headquartered in Long Island and have Terminal 5 in JFK as their personal playground. JetBlue expanded to the West Coast in the mid 2010s and recently launched a transatlantic route to the UK, but remains heavily focused on the continent.

American Airlines has a much more international focus, focusing on transatlantic and South American travel more than their domestic network. They had a strong presence in JFK after the TWA acquisition, but shifted most of their transatlantic traffic to Philadelphia after merging with US Airways in 2013. Their remaining JFK routes are primarily high-yield business routes, such as to London or San Francisco, owing partially to the slot-constrained nature of the airport.

Bringing COVID back into the picture, both airlines were heavily affected at the beginning of the pandemic.

“This partnership with American is the next step in our plan to accelerate our coronavirus recovery, get our crewmembers and our aircraft flying again, and fuel jetBlue’s growth into the future.” - Joanna Geraghty, President and COO of jetBlue

The hope is that joining forces will strengthen both carriers by allowing each to focus on what they do best. AA can double down on their international network without addressing their domestic softness, especially in places like New York and Boston, while jetBlue can focus on improving their already-impressive domestic connectivity without losing out on future international growth. 

It’s a pairing born out of desperation but one that could work, although only time will tell if perceptions about the quality of each airline will be consistent. JetBlue has long been seen as a leisure-first airline, despite recent moves towards full-service with their Mint offering. We’ll see what the NEA means for new destinations next.

Outcome: what this means for both carriers

We’re more interested in the jetBlue angle here, and they’ve announced 7 new destinations as a direct result of the Northeast Alliance. As expected, these all reinforce jetBlue’s existing strongholds in New York or Boston with additional connectivity in North and South America, in their words “strengthening jetBlue’s service in the Midwest, southern U.S., Central America and introducing JetBlue in Canada and Honduras.”

So Canada’s on the list, but why Vancouver specifically? To answer that, we’ll explore the specific route between Vancouver and the northeast US.

The Vancouver-New York route

There has to be some upside here, otherwise there’s no point in doing it. But how much exactly? We'll first examine what’s available between the two locations.

Current state

There isn’t much going on. In 2019, pre-COVID, only 4 airlines connected Vancouver with New York: Cathay and Delta to JFK, and Air Canada and United to Newark - which doesn’t have the exact same catchment area as JFK. Delta and United also only operated these flights during the summer, so it’s closer to 2 airlines in reality.

If the presence of Cathay Pacific confuses you, that makes sense. It’s an airline from Hong Kong pulling off a 5th freedom flight on another continent. I could easily let this slide for the purposes of this video, but I’m taking a detour to explain the context behind this one because I love Cathay. Who doesn’t?

Cathay Pacific - the best airline in the world - has connected Hong Kong with every major financial destination since the beginning of time, also known as 1983. This involves New York, but they didn’t have planes that could make the non-stop 16 hours between the 2 cities. The solution was a 747-200 to link Hong Kong and Vancouver, then flying on towards New York’s JFK.

What was initially a stopgap turned out to build a cult following. Cathay began offering direct flights between Hong Kong and New York in 2004 with the more powerful 747-400, itself pioneered by the epicly-named Polar One for being the first commercial flight over the North Pole, but the Vancouver-JFK link had already established itself as a rare opportunity to experience Cathay hospitality without actually travelling to Hong Kong.

It was also the only way to get the full first class experience between the two cities for a while, and up until 2019 was the only connector providing complimentary checked bags and meals. 

I said until 2019, because it turns out the route was never profitable and Cathay eventually pulled the plug. 

This leaves Air Canada as the only year-round operator linking Vancouver and New York, and that was pre-COVID. There simply aren’t many options right now. 

How about current demand? We unfortunately don’t have access to precise passenger numbers on these existing flights, but let’s focus on Vancouver first. Around 3 million people live within 30 minutes of YVR, and a 2 hour catchment area includes beautiful Victoria and Whistler. 

In terms of the type of travel, the bulk comes from leisure travel - around three quarters of visitors from the US - with just 12% being for business.

The tourism contributions are well-known by now. Some estimates peg that before COVID, approximately 40% of all visitors to Vancouver - not just from the US - came for tourism purposes, helping to directly drive an incredible - and probably inflated - 10% of the city’s GDP.

Cruises are also extremely popular, driving over a million passengers in 2019. These aren’t just routes that originate/end in the city, but ones between Seattle and Alaska as well; we can thank an antiquated piece of legislation for this: foreign vessels travelling between 2 U.S. ports have to stop in a foreign port halfway - and very few “American” cruise ships are actually US-flagged. This act was suspended during COVID and might not return, but the appeal of stopping over in Vancouver for food and entertainment will likely keep a large portion of American cruises coming. 

That’s the current state between New York and Vancouver: not much direct connection, and the bulk of it is leisure. There already seems to be potential here for jetBlue, so let’s dive into the upside of launching a new route.

Future upside

The obvious upside for jetBlue is to take advantage of the current situation, specifically by launching a viable year-round alternative to Air Canada and taking advantage of Vanouver’s vibrant tourism offerings. 

It’s not a stretch to imagine there being a supply gap between the 2 cities as demand recovers from the pandemic. Air Canada ran a 787 between Newark and Vancouver as part of their New York - Brisbane service pre-COVID, but hasn’t operated this since March 2020.

In addition to Cathay Pacific retreating from the two cities in 2020, Philippine Airlines also pulled their Vancouver - New York flights after receiving A350XWBs in 2018, allowing direct service from Manila by obviating the need for a technical stop in Vancouver. 

Load factors for the Cathay and Philippine trips did regularly run light - at least from anecdotal evidence (video, forum) - but these were on widebody 777s, and in Cathay’s case a daily occurrence. There will likely be some latent demand that jetBlue can capture, especially if they run smaller A321s with ~150 seats a few times a week.

In some ways, the inherent attraction of Vancouver as a leisure destination might be enough to create an “if you build it they will come” situation, meaning all jetBlue has to do is provide seats and those living around the New York area will fly. I’ll break this down into the winter and summer.

In the winter, BC is great for skiing and New York isn’t. You have to drive at least 7 hours to get to decent slopes in Western Maine, just far enough for a weekend trip to become an unpleasant drive. The effects of climate change haven't done any favours for smaller ski resorts within New York either.

A 5 hour flight to Vancouver suddenly doesn’t sound so bad anymore, and might actually be preferred to driving in the snow - and you get to go to Vancouver. Whistler and other BC destinations outrank east coast slopes on pretty much every ranking you’ll find, and there is demand - at least anecdotally from the internet.

In the summer, Vancouver’s cruise industry should be an intriguing opportunity for jetBlue. The north-west cruise market - basically Alaska - is tiny compared to the Caribbean scene, but that’s not for lack of demand - or lack of interest.

Google search trends for the term “Cruise Alaska” in the state of New York showed statistically significant growth of around 3 “popularity points” per year between 2011 and 2019.

Turning to more anecdotal evidence, it seems that the difficulty of getting to Seattle or Vancouver for a cruise is well-understood by those on the east coast. Here are some of my favourite excerpts from forums that explain the appeal of Vancouver and Alaska for cruises as well as the difficulty in reaching them – all from the perspective of those living in New York:

As stated, the Vancouver round trips are preferable to those out of Seattle since the route is somewhat different... airfares into Vancouver are typically a little more than into Seattle; however coming from NYC you have an excellent option with Cathay Pacific's nonstop flights from JFK to YVR. It's a very classy airline with superb service. The flights' timing is less than ideal (red-eye returning) but at least it will give you time to explore Vancouver, a wonderful city on its own.

… I would take a round trip out of Vancouver, because the Vancouver route is more scenic than the Seattle route... It is recommended[ed] though, that you fly in a day early to allow for flight delays, bad weather etc. If you flew out on a Saturday and took a cruise departing on Sunday, you would return Sunday morning and hopefully could make your way back to NYC… Makes for a very tired day at work though on Monday. Any way you can get an extra day of work off?

What I'd suggest for a first timer would be to fly to Vancouver (Cathay Pacific's nonstop 777s from JFK are priced reasonably and it's one of the world's best airlines) and book a round-trip cruise from Vancouver… If you want to spend an extra week, then Vancouver itself is a fabulous city, or you can head up to Whistler for more mountain scenery, or head south to Seattle or southwest to Olympic National Park for some amazing scenery… and have a terrific combination vacation, Alaska plus the best of the Northwest. You could do this before or after the cruise.

We LOVED LOVED LOVED Vancouver. We spent only 2 nights there before our cruise departed. I would go back to Vancouver for a vacation. We stayed in a hotel along the seawall and rode bikes through Stanley Park and it was fabulous. If you add time on your trip, I'd recommend Vancouver.

A direct connection between New York and Vancouver would place any airline in an extremely attractive position to capture this latent demand for cruise travel. The fact that jetBlue is already well-connected to the cruise industry is an added synergy - their heavy activity in Florida means that the carrier has existing partnerships with cruise operator heavyweights like Royal Caribbean International, Celebrity Cruises and Carnival Cruise Line, a trio responsible for an estimated 70% of the global cruise market.

Not only do these relationships make it easier to build potential cruise partnerships in Vancouver, but it also means that jetBlue has existing cruise packages and travel products to offer to customers through jetBlue Vacations. They don’t need to invest as much into building that expertise, lessening their costs and creating a better experience for passengers.

Apart from the appeal of skiing and cruises, it’s worth touching on the small portion of business travellers that Vancouver gets from the US – the 12% compared to 75% of leisure passengers. With a world-class convention centre and proximity to western Canada industry like logging and oil sands (which is controversial), the contributions of American business can be substantial.

Take it with a grain of salt, but Tourism Vancouver CEO Royce Chwin had this to say about pandemic lockdowns in 2020:

“That’s 46% of our visitor economy gone, right there – $14 billion – because of no U.S. and international visitors.”

Recap of the route

We just covered the upside that jetBlue can capture by simply linking New York and Vancouver, but it’s almost a study in what any half-decent airline could stand to gain by running this route.

To be fair, that was the point – we examined the route itself in isolation, looking at very few jetBlue-specific ideas. The concept of a supply gap and latent demand for leisure doesn’t necessarily favour jetBlue over another replacement-level airline when you think about it. I’m basically saying a 0-WAR airline could reap these benefits – an explanation you’d understand if you follow baseball. If you don’t follow baseball, well – why aren’t you?

That being said, I think that there’s immense value in the Vancouver-New York route to jetBlue specifically. We’ll explore this next.

jetBlue themselves

We left off by wondering what benefits could only accrue to JetBlue. In short, I feel that jetBlue is better positioned to create – and therefore capture – more incremental value on this route than any other airline. When I say create and capture incremental value, I mean the additional traffic and revenue that jetBlue can drive compared to others. 

There are therefore 2 things that I'll cover here: the jetBlue effect, and the element of disruption built into jetBlue’s culture.

The jetBlue effect

This jetBlue effect describes how the airline typically drives down prices when they enter a market, largely thanks to their low-cost-carrier roots. If this sounds like the Southwest Effect, it almost is, but there’s a twist – jetBlue seems to have figured out how to lower premium prices too. 

Virgin America CEO David Cush infamously said in 2015 that the presence of jetBlue on certain routes forced premium prices down by 50% across all carriers, something that the airline themselves acknowledge to have happened during their west coast expansion in 2014. These claims might sound extreme, but even conservative estimates have credited the airline with driving price reductions of around 25%.

The route between Vancouver and New York seems to fit this premium profile. Think about the key demand-driving activities that we mentioned earlier – skiing, winter sports, cruises, business travel – these aren’t exactly cheap. 

I’ll take a bit of time to explain how jetBlue drives down premium prices - it involves Mint, their premium product. Mint spearheaded jetBlue’s transition away from being a strictly low cost carrier, offering an experience built around a fresh take on amenities and food – and the fact that their cabins were newly designed. Most US carriers’ business class products were simply old.

However, what initially separated Mint from the competition wasn’t food or modern cabins – it was the price. Tickets started at $599 one way for a transcontinental route at a time when most legacy carriers were charging well over $1000. Part of the reason was the higher cost structures of legacy carriers, but also the concept of bid price.

Take the example of Seattle to JFK. Airlines like Delta typically operate this segment as part of a longer flight on to Europe, meaning that the SEA-JFK segment is priced as part of the entire transatlantic flight. This allows the individual segment to be priced higher, as well as discourages passengers who are ending in JFK from taking premium seats away from higher-value long-haul passengers.

But Mint wasn’t just a cheaper premium product – it was arguably the best premium product out there regardless of price, forcing legacy carriers to drop prices in retaliation and upgrade their own products. Take that same SEA-JFK one-way in business class today: JetBlue offers the flight for $498, and Delta for $548. Still a little pricier, but not by much anymore.

So what does this mean for value to jetBlue? This downward pressure on prices and subsequent stimulation of premium markets increases demand that the carrier can then capture for itself, something that the superiority of Mint helps with. There might not currently be a large market for the route between New York and Vancouver, but jetBlue has to be confident in their ability to grow it - and reap the rewards.

Disruptor DNA

Finally, jetBlue has never shied away from an opportunity to uproot the status quo. Their very existence was intended to disrupt the complacency of legacy carriers by “offering the best coach product in the US”. Led by the near-mythical David Neeleman, who managed to start WestJet during the 5 years of downtime from his Southwest non-compete clause (who does this?), the carrier did things their own way from day 1. 

They brought together amenities unheard of on LCCs, like satellite TV and leather seats, and focused intently on building an almost counter-cultural culture, leaning heavily into the idea of being the scrappy yet lovable underdog. This spirit naturally became harder to maintain as jetBlue grew, but they never stopped innovating. From paperless cockpits, to having all crewmembers clean cabins after flights, to being the launch customer for the E190, they kept pushing the envelope. Their west coast expansion in 2014 was aggressive, and their new transatlantic routes to London are even bolder. 

So where other airlines may see little upside in Vancouver, you bet that jetBlue thinks differently. Their head of revenue says they “can’t wait to shake up the status quo in these markets”, and I’m inclined to believe them. If anyone can do it, it’s probably jetBlue.

Conclusion

It’s a little surprising that Vancouver and New York are connected by so few airlines. Both are major cities - in their respective regions - with healthy demand for leisure travel between them. JetBlue’s decision to launch into Canada through Vancouver therefore isn’t so surprising, especially when factoring in their Northeast Alliance with AA and their own track record of disrupting premium markets. 

This certainly isn’t a risk-free move. The volatility of leisure travel may make the  Vancouver-New York pairing more suited to seasonal operations - similar to how Delta and United currently handle the route. The NEA may not actually require feeder traffic from Vancouver, lessening the importance of its connection to JFK. 

Either way, I’m personally very excited that jetBlue and Mint are finally coming to Canada. It’s long overdue, and if this works, we could see future jetBlue connections from the east coast - probably to Calgary next :^)