Should JetBlue Airways Fear Delta's Growth in Boston?

By Markets

Boston is a unique market for JetBlue Airways (NASDAQ: JBLU). In most of its U.S. focus cities, JetBlue is a relative upstart, providing much-needed competition against the market leaders. By contrast, in Boston, JetBlue is the market leader, due to severe flight cutbacks by a variety of legacy carriers over the past decade.

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JetBlue plans to solidify and exploit its market-leading position in Boston in the coming years by continuing to add service there. However, Delta Air Lines (NYSE: DAL) has also been growing aggressively in Boston recently. Will Delta spoil JetBlue's plans in this important market?

JetBlue announces new growth targets

In recent years, JetBlue has talked about growing its presence in Boston to at least 150 daily departures. Last month, it publicly revised that goal, announcing that it now plans to grow by more than 40% in Boston, to 200 peak day departures. (The company didn't specify a time frame for reaching that milestone.)

JetBlue plans to operate 200 peak day departures in Boston eventually. Image source: JetBlue Airways.

For the past few years, JetBlue's expansion in Boston has focused primarily on small and midsize cities, such as Savannah, Georgia; Cleveland, Ohio; and Nashville, Tennessee. It has also added more flights to leisure destinations in the Caribbean.

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In 2016, JetBlue's focus started to turn toward larger cities. As a result, JetBlue is facing off against Delta in some of the latter's core markets.

Later this month, JetBlue will begin operating six daily round-trips between Boston and New York's LaGuardia Airport, competing with the lucrative Delta Shuttle (along with its rival, the American Airlines shuttle). In an even greater challenge to Delta, JetBlue will start flying five times a day from Boston to Atlanta -- Delta's largest hub -- beginning in late March.

Delta answers

While Boston certainly isn't a hub for Delta Air Lines, it is still an important city for the carrier. First, it's a major destination for business travelers. Second, the Boston regional economy has been performing well recently, boosting local travel demand. Third, no airline dominates Boston, so it's a sensible place to grow without triggering a vicious competitive response.

Earlier this year, Delta announced a handful of new Boston flights, including daily service to Nashville, twice-daily flights to San Francisco, and weekly flights to several Caribbean destinations. All of these routes will compete with existing JetBlue service.

Delta is steadily adding new routes in Boston. Image source: The Motley Fool.

Just last week, Delta said it plans to launch seasonal service to Dublin next May. That would be its fourth nonstop route from Boston to Europe. In total, Delta will offer 22% more seat capacity in Boston by June 2017 relative to June 2014.

What's next for JetBlue?

While Delta Air Lines clearly wants to grab a bigger chunk of the Boston market, it's unlikely to build a full-blown hub there, as it has done recently in Seattle. Delta needed a hub in Seattle to become more competitive on routes to Asia. By contrast, it already has a large footprint in New York -- just 200 miles from Boston -- covering both domestic and international routes.

Delta is expanding in Boston primarily because it sees opportunities in underserved markets there. JetBlue's best response is to continue on its own growth trajectory in Boston. The more that JetBlue can satisfy demand on its own, the less reason Delta will have to expand.

Ultimately, international expansion could be the way for JetBlue to make its position in Boston unassailable. JetBlue is actively investigating ordering Airbus' A321LR long-range planes, which would allow it to fly from Boston to much of Europe. Delta would be unlikely to match a move like that, as it would cannibalize Delta's existing (and highly profitable) transatlantic service.

Flights to Europe would also allow JetBlue to provide better connecting opportunities in Boston than it can today. (Right now, JetBlue relies on a variety of codeshare and interline partners to bring customers to Europe.) This could enable a corresponding domestic expansion in Boston.

Boston is on its way to overtaking New York as JetBlue's most important market. Delta's growth there is inconvenient for JetBlue, but it won't stand in the way of JetBlue's long-term expansion plans.

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Adam Levine-Weinbergowns shares of JetBlue Airways and is long January 2017 $17 calls on JetBlue Airways, long January 2017 $30 calls on American Airlines Group, and long January 2017 $40 calls on Delta Air Lines. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.