JetBlue Airways (JBLU), the 6th largest passenger carrier in the U.S. based on revenue passenger miles, recently announced an interline partnership with TAM Airlines (TAM), the largest airline in Brazil under which it will be able to connect its travelers to 45 cities across Brazil and other international destinations covered by TAM in South America. JetBlue competes with major US passenger airlines including Delta Air Lines (DAL), Southwest Airlines (LUV), American Airlines (AMR) and US Airways (LCC). The low-cost carrier which currently enjoys a market share about 1% globally, expects to boost this percentage with the new partnership, which promises increased global reach and enhanced customer benefits.
We have a $6.50 price estimate for JetBlue Airways, which is about 70% ahead of the current market price.
Nature of the partnership
The partnership with TAM Airlines entails entering into an interline agreement, wherein the parties typically agree to handle passengers traveling on itineraries that require multiple airlines. These differ from code-sharing agreements which involve numbering a flight with the airline’s code even though the flight is operated by another airline. However, no reward points will be accumulated through flying with the other company in an interline agreement.
Benefits of the partnership for JetBlue
1) Higher International Market Share
Through the partnership, JetBlue customers have new access to TAM destinations including Asuncion, Paraguay; Buenos Aires, Argentina; Montevideo, Uruguay; Santiago, Chile; plus 45 cities across Brazil.
The partnership would help JetBlue expand its international reach by increasing the number of destinations served in Brazil and other countries in South America. This should boost its international market share from current 1%, as it captures an increased portion of the growing US-Brazil traffic by leveraging TAM’s strong network. Additionally, its traffic would also improve due to increased customer base from TAM flyers who would now use JeBlue’s services in form of connecting flights where TAM does not provide its service.
Under the Trefis model, we currently forecast JetBlue’s international market share to increase to 2.33% by the end of Trefis forecast period on back of the advantages it continues to draw from its point-to-point service and low cost structure.
(Chart created by using Trefis' app)
2) Enhanced Customer Experience
Owing to the partnership with TAM, JetBlue customers will be able to purchase a single e-ticket itinerary, combining flights on both carriers’ networks giving them the ease of one-stop ticketing and baggage check-in along with an enhanced flying experience through TAM‘s modern airplanes and high quality services.
JetBlue currently derives ~20% of its value from the international passenger operations. The company has an opportunity to increase its international market share as a result of the TAM partnership, which promises a higher overall valuation as the contribution of JetBlue’s international operations to the total value increases.
Disclosure: No position