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MarketScreener Homepage  >  Equities  >  Nyse  >  American Express Company    AXP

AMERICAN EXPRESS COMPANY

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JetBlue Is Betting New London Routes Will Boost Credit Card Revenue

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04/25/2019 | 08:58am EDT

As major U.S. airlines continue to win enormous contracts from big banks that covet their customers, do smaller carriers like JetBlue Airways have a disadvantage? And will newly announced routes to London matter for the New York-based airline in terms of revenues from credit card deals?

This is a big issue. Historically airlines have made the bulk of their revenues by selling tickets. But in recent years, banks have rewarded airlines with rich multi-year contracts that may be worth as much or more than ticket revenue.

The banks, including American Express, JPMorgan Chase, and Barclays, pay airlines for frequent flyer miles and award them to customers as incentives. The airline and bank also share customer information, so Delta Air Lines has access to insights about all American Express customers.

Delta showed earlier this month how lucrative these deals can be, when it announced an 11-year extension with American Express. By 2023, Delta expects to generate as much as $7 billion from its relationship with the bank. United Airlines seeks similar terms from Chase, executives said on the airlines recent earnings call.

Smaller airlines like JetBlue have bank contracts, but theyre not as lucrative. JetBlue doesnt share much about its arrangement with Barclays the airlines disclosures leave a lot to be desired one analyst said last year in a research note but the airline probably makes hundreds of millions of dollars per year from it, not billions.

JetBlue will never close the gap, because as the sixth-largest U.S. airline, its considerably smaller than its peers. But Jamie Baker, an analyst with JPMorgan, questioned Tuesday on the airlines first quarter earnings call whether JetBlue can come close to United Airlines, American Airlines, and Delta.

When I think about the value drivers for the issuing banks card member wealth and spend, the breadth of the underlying airline network, the sheer volume of card member transactions this seems like a competitive area where the Big Three thrive at the expense of smaller operators like JetBlue, he said.

Baker has a point. Banks like the three major airlines because of the breadth of their operations. Each has hubs in several of the largest U.S. market, where prospective card-holders tend to have the most money. In addition, they all fly long-haul international routes, and they have large premium cabins that attract big spenders.

JetBlue doesnt have the same utility. Yes, it has a transcontinental business class. And yes, it has hubs in three big markets Boston, New York, and Fort Lauderdale. But beyond those markets its a tiny player, so its of little use to a bank that wants to attract West Coast cardholders.

Still, Marty St. George, JetBlues chief commercial officer, said low-cost-carriers like JetBlue still can compete for bank business.

He said JetBlues decision three years ago to move its business from American Express to Barclays has improved earnings, noting the deal has pushed ancillary revenues higher.

In the first quarter, JetBlues ancillary revenue increased 12 percent, year-over-year, and the loyalty contribution of that was well above 12 percent, St. George said.

He added that JetBlues program, which is fewer than 20 years old, may have more upside than established loyalty schemes from larger competitors.

Its worth remembering that TrueBlue is still a relatively young program compared to others, St. George told analysts. And I think its honestly why weve had [a] more than doubling portfolio since we transitioned.

St. George also argued smaller airlines can make programs more enticing for banks by securing marketing relationships with other carriers.

JetBlue has a reciprocal frequent flyer partnership with Hawaiian Airlines, which means JetBlue customers in New York and Boston can fly nonstop to Honolulu using points. That arrangement may sway more customers in both cities to apply for JetBlues credit card, St. George said.

Then theres Europe. Once it flies there in 2021, first to London, and then elsewhere, JetBlues card may be more enticing for customers, St. George said.

Those two things are significant helps in trying to improve the value proposition of JetBlue, St. George said.

St. George also knocked JetBlues larger competitors, saying their frequent flyer programs have become too complicated, making it impossible for customers to know how many points theyll need for a free ticket.

If you look at the value proposition of a redeemed point at JetBlue, versus certainly one of our biggest competitors, we give a lot of utility to customers and thats why customers apply for the credit card, St. George said.

(c) 2019 Saudi Voters Center Provided by SyndiGate Media Inc. (Syndigate.info)., source Middle East & North African Newspapers

Stocks mentioned in the article
ChangeLast1st jan.
AMERICAN EXPRESS COMPANY 1.63% 115.88 Delayed Quote.19.62%
DELTA AIR LINES INC. -1.97% 56.71 Delayed Quote.13.65%
JETBLUE AIRWAYS CORPORATION -0.88% 18.03 Delayed Quote.12.27%
UNITED CONTINENTAL HOLDINGS INC -1.33% 86.86 Delayed Quote.3.74%
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Financials ($)
Sales 2019 43 631 M
EBIT 2019 12 741 M
Net income 2019 6 674 M
Debt 2019 -
Yield 2019 1,39%
P/E ratio 2019 14,52
P/E ratio 2020 12,85
Capi. / Sales 2019 2,22x
Capi. / Sales 2020 2,06x
Capitalization 96 769 M
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Mean consensus OUTPERFORM
Number of Analysts 28
Average target price 119 $
Spread / Average Target 2,8%
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Managers
NameTitle
Stephen J. Squeri Chairman & Chief Executive Officer
Jeffrey C. Campbell Chief Financial Officer & Executive Vice President
Marc D. Gordon Chief Information Officer & Executive VP
Charlene Barshefsky Independent Director
Peter F. Chernin Independent Director
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