In the last quarter – Q3 July-September 2018, the continued profitable exploitation of the worlds most lucrative route continued.
That’s how many seats were available and roughly 87% of them were used.
You would think that to supply so many seats it would take pretty much every airline under the sun, but the reality is different.
Just 2 groups serve the entire market. Delta and their in-effect-wholly-owned subsidiary Virgin-Atlantic and the British Airways/American Airlines immunised joint venture.
BA has the largest chunk with 40.61% of the market, Virgin Atlantic has 30.08% followed by American Airlines with 20.72% and Delta with just 8.60%.
However by the time you realise that these immunised Joint Ventures are in effect creating just two competing groups, it becomes a lot more one-sided.
BA/AA control nearly 62% of the market with the D/VA group holding the rest.
Immunised means that the alliances are free from legal oversight and can’t be investigated for being an effective duopoly, and that governments have accepted the loss of competition for survivability of the Airlines.
The only airline inside the 4 operators that has been under any threat is Virgin Atlantic – it’s size is barely 4% of American and Delta and barely 10% of BA, but it’s ownership is now effectively in Delta’s hands, so the real threat has gone.
These airlines in effect are just two, cross-selling convenience on what the airlines see as little more than a trans-Atlantic bus route. Their revenues are shared and they sell on their websites jointly.
JFK is the premium destination airport – it’s vastly more popular than Newark from where Virgin and United compete again to Heathrow, but United use the airport for regional destinations in Europe as much as Heathrow itself.
You can argue that trans-Atlantic prices are as competitive now as they ever have been, but check peak time flights and and it fast vanishes. The real competition is on the flights leaving either end with very late in the day arrivals.
Business and first class seats are also in very high demand on these routes and peak time rates can exceed £10,000 ($13,000) one way in First – and people pay it, BA’s First occupancy rate is over 80%.
Add that to pricey business class seats up to £6,000 or more return fares and this is where the profit lies.
Economy has changed with BA and Virgin introducing carry-on luggage only fares, to encourage short term trips of two or three days.
Yet while that reduces prices, the margins in those fares are minimal – they’re more about the airline not carrying weight and saving fuel at the same time filling – almost at any price – the 5-20% variation in seat utilisation that would have gone unused, especially on the less popular flights.
You can ask why not cut some of the less popular times then?
Except they can’t do that because if they do, they loose a slot at two highly constrained airports and the competition will simply fill the slot.
LHR-JFK is considered, more than any other mid-long-haul route, to be utterly dependent on convenience. Timing is everything, departure times, arrival times, all designed to allow connections inside the US or across Europe.
And this is the key part of BA’s and AA’s dominance. BA has a European network, and Delta/VA don’t on their own.
And that’s why the cash and shares swap that comes into full effect in 2019 between Delta buying shares in AF-KLM and they in turn, using the cash to buy a share of Virgin Atlantic, matters.
It gives AF-KLM a stake in the market and allows the D/VA joint venture to utilise the AF-KLM network fully without drawing Virgin Atlantic into Skyteam, which might just trigger a competition review nobody wants.