Potential 2008 Merger: United and JetBlue

First of all, let's start out with a reality check. This merger is not very likely. It's possible, but less likely than other merger scenarios, such as a potential United/Continental merger. However, this may be the most likely merger scenario involving a legacy carrier and a low-cost carrier. A United/JetBlue merger would deliver high levels of service to business and leisure travelers across the country, and create a company focused on higher-yield passengers.

The combined company would have tremendous synergies at several key airports. United has a substantial operation at JFK, and a combined JetBlue/United could use its synergies to create a more efficient and more comprehensive operation at the airport. A combined United/JetBlue could offer a third clear alternative in the New York market to Delta and Continental, by allowing customers to connect from JetBlue domestic flights to United international flights. Currently, both Delta and Continental have sizable hub operations, that connect traffic flows from routes all across the US to European flights, and United and JetBlue, both of which have very high customer service standards and huge legions of loyal passengers, could sift business away from Delta and Continental. Moreover, JetBlue has operations at four of United's five hubs (San Francisco, Denver, Chicago O'Hare, and Washington Dulles), albeit much smaller ones than at JFK. These could be easily absorbed into United's operations, reducing cost and increasing synergies by allowing customers to more easily connect flights and allowing JetBlue to trim its airport staff at these airports. The biggest loser in this case could be Frontier, because JetBlue, which offers a superior product to Frontier's, could add additional flights in Denver post-merger, squeezing Frontier even more as it tries to stay afloat in an increasingly saturated market.

The merger would offer tremendous benefits to JetBlue passengers, who love the carrier for domestic flights, but are unable to use it to easily connect to international flights. By teaming with United, passengers from upstate New York and elsewhere could easily fly JetBlue to New York city, and then connect to a United flight to take them to Europe and elsewhere. Moreover, now that Lufthansa, one of United's close Star Alliance partners, owns 19% of JetBlue, this could facilitate additional alliance-building on routes to Europe, and also make the potential merger easier to execute, if it ever were to occur.

Fleetwise, JetBlue only operates two aircraft types, the A320 and the Embraer E-190. United already has a large fleet of A320s, and the combined carrier could see reduced training and maintenance costs from having a larger fleet. The E-190 would be a new aircraft type to United, but one that would likely be well-received, as United needs an aircraft that is able to serve smaller and medium-size cities once or twice a day. JetBlue plans on receiving dozens more E-190s, and many of these could be put to work supplementing United's regional service in Chicago and Denver. However, with an increasing fleet of narrowbody aircraft, United may try to reduce some of its older 737 variants, though it may be challenging for the carrier to eliminate these entirely for several years.

A big question would be the issue of branding and this may be resolved in part by how the two carriers are structured post-merger. If JetBlue essentially remains a separate entity, but under the United umbrella, then United will feel less pressure to integrate JetBlue's amenities onto their mainline aircraft. But if the carriers completely interchange aircraft between the two fleets, then business customers may be put off by the differential in service standards between JetBlue and United planes. United's aircraft lack many of JetBlue's amenities (such as leather seats, televisions at every seat, hip snacks) but offers some amenities that JetBlue lacks (such as three-class seating on many domestic flights, with first, Economy Plus, and economy seats). One idea is to keep JetBlue as essentially a separate entity under the United umbrella, with a merger allowing the merged company to combine maintenance, training, and management activities. They would be two separate brands under one roof. There would be some problems with this, as it would make it more difficult for the combined company to interchange aircraft between the two fleets, and it would run the risk of alienating some premium travelers, who, for instance, may book on first class on a United aircraft, but then could be forced into coach on a JetBlue plane if a United plane is unavailable due to scheduling constraints.

Therefore, the best solution seems to be to already use the separate "airline-within-an-airline" that United already operates, Ted, and integrate that into JetBlue, by adopting the JetBlue brand and amenities. United's Ted, which is flies primarily leisure routes, and which operates A320 aircraft in a configuration very similar to JetBlue's, could be the best way to integrate JetBlue into United. JetBlue would adopt Ted's aircraft and operate the routes that Ted currently operates. When JetBlue received delivery of new planes, those planes would likely be used for shorter leisure routes and augment or even replace United mainline service. This would bring some sense of continuity to United's operations by maintaining a separate brand for leisure-oriented, lower-yield routes, one that would not offer premium class service, but one that would offer superior service to competitors.

However, while Ted would adopt JetBlue's product and amenities, JetBlue would likely adopt United's frequent flyer program, Mileage Plus. This program, which has many millions more members than JetBlue's TrueBlue, is also more consumer-friendly and better for business travelers, since it offers elite status and other incentives for very frequent flyers. In this sense, JetBlue would become part of the United family.

While employees at both companies could face staffing cuts, the effects of such a merger are likely less toxic than at other carriers. Because JetBlue is an expanding company, many redundancies (with some airport staffing and management exceptions) could be alleviated when JetBlue receives delivery of new planes. Flight crews, pilots, and maintenance staff will all be needed to operate these planes, and so their jobs are relatively safe, with some possible sporadic cuts depending on how capacity is realigned at the two carriers. Therefore, the layoffs from such a deal would likely be rather minimal, at least in comparison to most legacy carrier mergers. While a United/JetBlue is unlikely, it is possible, and would create long-term benefits for customers and shareholders.