Generally speaking, the biggest U.S. metropolitan areas are dominated by the top four airlines, which have a combined domestic market share of about 80%. Among the top 15 metro areas, there are only two exceptions to this rule: Seattle and Boston.
Hometown carrier Alaska Air (NYSE: ALK) has historically dominated the Seattle market, operating a sizable hub there. Meanwhile, JetBlue Airways (NASDAQ: JBLU) took advantage of its rivals' capacity cuts during the Great Recession to grab the No. 1 market-share position in Boston.
However, Delta Air Lines (NYSE: DAL) made a big growth push in Seattle starting five years ago. More recently, it has targeted Boston for expansion, as well. Delta plans additional growth in both cities during 2018.
Delta continues building its newest hub
Five years ago, Delta Air Lines and Alaska Air had a cooperative relationship in Seattle. Alaska had a broad domestic network, but no overseas flights, while Delta operated several international routes from Seattle -- and wanted to add more -- but had just a few dozen daily flights there, mainly to its hubs. This made them natural partners.
Since 2013, Delta and Alaska Air have gone from being partners to being rivals. Image source: Delta Air Lines.
However, Delta decided fairly quickly that it needed to control its destiny in Seattle by supplying its own connecting traffic. It began to add flights at a frenetic pace and eventually terminated its partnership with Alaska Air. Delta now considers Seattle a full-fledged hub.
Earlier this week, Delta Air Lines announced that it will expand its flight schedule in Seattle this year. It will introduce three new nonstop destinations in June: Indianapolis, Kansas City, and Washington, D.C. Delta also plans to add frequencies on several routes this summer, while using larger aircraft on others.
In total, Delta will have 174 peak-day departures in Seattle this summer, with peak-day seats up 10% year over year. The carrier may have wanted to expand even faster, but severe gate constraints in Seattle are limiting its growth there.
JetBlue has left an opening in Boston
For Delta, building a hub in Seattle was critical to its growth strategy for Asia. By contrast, its expansion in Boston -- which Delta now considers a "focus city" -- has more to do with opportunity than strategic necessity.
To get a sense of that opportunity, consider that the Boston metropolitan area is significantly more populous than the Seattle metropolitan area. Nevertheless, passenger traffic was 26% higher at Seattle-Tacoma International Airport compared to Boston's Logan International Airport in 2016. Furthermore, market leader Alaska Airlines operates nearly 300 daily departures in Seattle, whereas JetBlue leads the Boston market with just 160 daily departures.
JetBlue Airways is the No. 1 airline in Boston today. Image source: JetBlue Airways.
Thus, Boston is an underserved market. Furthermore, JetBlue still doesn't fly to a number of midsize U.S. cities, particularly in the Midwest. This gives Delta Air Lines an advantage in competing for lucrative business travelers, as it can offer nonstop or one-stop service to most of the world from Boston.
Delta already expanded in Boston last fall, and it plans to add another new route -- to Charleston, South Carolina -- and additional flights to several other cities in June. All told, it will operate 113 peak-day departures in Boston this summer, up from 93 a year earlier.
Alaska and JetBlue can fend off the threat
Delta Air Lines' growth in Seattle and Boston is certainly putting pressure on Alaska Airlines and JetBlue Airways -- but it's nothing they can't handle.
Delta's 2018 growth plans for Seattle pale in comparison to its growth rate there between 2013 and 2016. Alaska posted strong profit growth throughout that earlier period by becoming more efficient, while boosting non-ticket revenue. Similar strategies should allow it to cope with Delta Air Lines' relatively modest growth in Seattle this year. Indeed, while Alaska Air's unit revenue has been declining recently, management stated, back in October, that virtually all of this pressure is coming from the carrier's California routes.
In Boston, staying ahead of Delta will be the key to success for JetBlue. Even after Delta's recent growth spurt, JetBlue operates the most nonstop routes from Logan Airport, by far. That has helped it gain a loyal following there -- making Boston its most profitable focus city.
Last year, JetBlue began Boston-Atlanta flights, addressing one of the biggest gaps in its route network. In May, it will begin flying to Minneapolis/St. Paul -- like Atlanta, a major Delta Air Lines hub -- filling in another major hole in its route network. To solidify its leading position in Boston, JetBlue should continue adding business-oriented routes there, enabling it to take its most lucrative customers wherever they want to go.
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Adam Levine-Weinberg owns shares of Alaska Air Group, Delta Air Lines, and JetBlue Airways and is long January 2019 $10 calls on JetBlue Airways. The Motley Fool recommends JetBlue Airways. The Motley Fool has a disclosure policy.