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 The Brancatelli File

joe DÉJÀ VU ALL OVER
AGAIN AT NEWARK


BY JOE BRANCATELLI

July 14, 2005 -- The looming battle at Newark Airport between Continental Airlines and JetBlue Airways would be riveting and entertaining--if we hadn't seen it all before and if we didn't already know how it will all turn out.

Continental, for the first time in years, will have to defend one of its high-priced hubs from a low-fare, well-managed interloper with an appealing alternative travel product. Continental will huff, puff, bully, bellow, slash prices, flood the market with seats, shoot itself in both corporate feet and, in the end, lose money, lose face and lose the battle.

JetBlue, leaping across the emotional and physical divide to New Jersey from its home at New York/Kennedy Airport, will claim that the Florida markets it will enter will grow and Continental has nothing to fear. Then it will kick the tar out of Continental on those leisure routes and use Florida as a springboard to transcontinental and other routes from Newark.

I don't mean to be bored or blasé. What's coming at Newark is important. But as Yogi Berra once said in another context, it's déjà vu all over again. We've seen this script every time Southwest attacks a US Airways hub. For that matter, we've even seen this script when American decided it would "stop" JetBlue at their shared hub at Kennedy airport. American ended up bloody, beaten and driven out of all the markets where it chose to fight JetBlue.

You can read about the run-up to that last battle in a column I wrote 39 months ago. That column even has a bonus: the then-chief executive of Continental, Gordon Bethune, claiming "the odds of JetBlue having long-term success are remote."

Yeah, well, that was then and this is now. Gordo is gone, JetBlue is the profitable behemoth that many of us expected it to become and Continental is just another arrogant, overstuffed, overpriced, serial money-loser that won't be able to defend its own hub when challenged by a well-managed alternate airline.

So now that we know how this is all going to turn out, let's back up and recap this week's announcements and do analysis on how things are going to go.

At 7 a.m. on Tuesday, JetBlue announced it would begin flying from Newark on October 5. It will serve five Florida cities--Fort Lauderdale, Orlando, West Palm Beach, Tampa and Fort Myers--and then add Newark-San Juan service on November 17. By the end of November, JetBlue will offer 16 daily flights from Newark, the biggest and fastest launch in its amazing five-and-a-half-year history.

JetBlue's Newark prices are equally amazing: introductory fares of $69 one-way to Florida and $99 to San Juan, available for purchase through July 26 for travel through December 14. Standard fares will range from $89 to $259 each way to Florida and $124 to $299 one-way to San Juan.

Continental's competitive response came 12 hours and six minutes later and it was right out of the discredited Big Six scorched-earth playbook. It will not only match JetBlue's Florida introductory fares, it will also adopt wholesale JetBlue's regular prices and fare structure, including the one-way purchases, the $259 cap and the $25 change fee. It even expanded the fares to three Florida markets (Daytona Beach, Miami and Sarasota) that JetBlue will not serve from Newark. Moreover, on October 1, Continental will add a total of eight daily flights on the five Florida routes that JetBlue will serve.

Once upon a time, matching fares and flooding the market with seats actually worked for the Big Six when they competed with alternate airlines. (It even worked once against JetBlue when it tried to enter Atlanta with just one route and Delta went berserk with a fare war and capacity increases.) But it almost never works anymore because Big Six carriers can't sustain the losses and don't have the product to compete against low-fare interlopers.

Continental at Newark is no different. Even with (or perhaps because of) its inflated fares at its Newark, Houston/Intercontinental and Cleveland hubs, Continental has lost more than a billion dollars since the fourth quarter of 2001. It was predicting another large loss in 2005 and that prediction came before it was forced to slash fares on its Newark-Florida routes this week. (Continental's unrestricted walk-up fares to Florida on Tuesday were $507 one-way and most of the lowest-price seats available on Continental flights to Florida tomorrow cost more than JetBlue's $259 one-way cap.)

Even worse for Continental, JetBlue's attack at Newark is incredibly canny and the battle will be waged on routes where JetBlue's advantages are maximized and Continental's few advantages are minimized. This tactical advantage shouldn't surprise anyone. The president and chief operating officer of JetBlue is Dave Barger, the man who fixed Continental's Newark hub in the mid-1990s.

Continental's OnePass plan, for example, is a paragon of frequent-flying virtue compared to JetBlue's truly laughable TrueBlue program. But since the Newark routes that JetBlue has chosen are almost totally leisure oriented, most travelers buying a ticket will be driven by price and service, not loyalty to a frequency program. Sure, Continental will retain the OnePass customers who are claiming free seats to Florida, but it's hard to make money flying planes full of travelers using award tickets. Continental is sure to keep the loyalty of elite OnePass flyers who want to upgrade to the first-class cabin, a perk JetBlue's all-coach fleet doesn't offer. But ask any elite OnePass customer how hard it is to get one upgraded seat from Newark. Then multiply that difficulty by his or her entire family that is tagging along on the Florida trip.

Continental's in-flight service is generally better than its Big Six brothers. But Continental's oft-repeated claim that it still offers free meals to coach passengers isn't true on the Florida routes. I checked all eight routes where it has chosen to compete with JetBlue. Not one flight offers a breakfast, lunch or dinner. That includes 6:45 and 8:45 a.m. "breakfast" flights, 12:55 p.m. "lunch" flights and 6:15 p.m. "dinner" flights on a route like Newark-Orlando. So if travelers are making a gustatory decision, Continental offers no more than JetBlue offers. It's snacks all around.

Want to talk seat room? Continental flies a panoply of planes between Newark and Florida. Its best coach seats, on the Boeing 757-300s, offer 32 inches of legroom and the chairs are 17.2 inches wide. All the others (including some isolated RJs that Continental uses on the routes) offer 31 inches of seat pitch. And since Continental is adding first-class seats on the 300-series Boeing 757s, the legroom on those planes will shrink to 31 inches, too. By contrast, JetBlue flies just one plane, the Airbus A320. All the seats are 18 inches wide. Seat pitch is 32 inches in the first 10 rows and 34 inches at every other seat. Bottom line: Continental just can't compete if travelers are making decisions based on in-flight comfort.

And then there is the great secret weapon: in-flight TV. JetBlue has it, 36 channels of free, at-seat DirecTV. Continental has nothing like it. As one New York-based executive of an international airline told me recently when he took his kids from Kennedy to Florida for a holiday: "I think [JetBlue chief executive David] Neeleman should be nominated for sainthood. My kids didn't utter a peep for three hours." Lest you think in-flight TV only narcotizes kids, test it yourself: Hop on a JetBlue flight and watch folks glued to the tube. Free TV is the greatest tool for in-cabin serenity and happiness ever invented, especially on leisure routes.

Everywhere else you look, any possible Continental advantage is offset by JetBlue, too. For example, Continental's gigantic Terminal C at Newark has several wonderful Presidents Clubs, including at least one with a well-equipped "children's room." JetBlue has foolishly decided not to build a club network, but it will be flying from Terminal A. Terminal A is quiet and easy to maneuver, has no parking problems and no huddled masses in the terminal or tripled-parked at the pick-up or drop-off doors. Terminal C is a prisoner of Continental's success: crowded, chaotic with too-little nearby parking and not enough curb space at rush hours.

Like I said, there's nothing new here. JetBlue is coming and there's nothing Continental can do about it. It's what Yogi, who doesn't live far from Newark, said: déjà vu all over again.

This column originally appeared at JoeSentMe.com.

Copyright © 1993-2005 by Joe Brancatelli. All rights reserved.