Years ago when JetBlue launched Florida and transcon service out of JFK, I remember hearing someone ask some Continental execs whether they would have to lower fares on routes where they competed with JetBlue. The response from the Continental exec was that Newark is a separate market from JFK, and they won’t match pricing from airlines flying out of JFK.
“Ha ha,” I thought to myself. I might have also thought, “yeah right.” Of course they’ll have to match pricing – JFK and EWR are the same market.
Fast forward 10 years. I was wrong, they were right. Continental has built a great situation for themselves at Newark: they’ve got more than 50% market share, yes; but their competition is fragmented between a whole bunch of airlines. Continental has no nonstop competition on some major routes (LAX, SFO, IAH come to mind) is currently competing with them, and on flights to FLL, where there’s always been some up-and-coming discounter running flights to Florida, they face competition only from JetBlue.
What fare strategy does Continental use to take advantage of this? Basically, they will try to attract leisure travelers who are booking far in advance by matching or undercutting airlines out of JFK. A quick look at fares from Newark to Los Angeles in a few weeks shows that Continental is cheaper ($339 r/t) than the airlines flying out of JFK (Delta, American, Virgin America, and JetBlue. They match United). On flights to San Francisco, they are more expensive than Virgin America, but cheaper than Delta, American and JetBlue.
It looks like they’re trying to grab price-conscious leisure travelers who are willing to drive the extra miles to save money on a fare.
But look what happens close-in: for flights with little advance purchase, Continental takes advantage of their monopoly situation in Newark and takes what they can. EWR-LAX is $1685 r/t while most competition out of JFK is around $900. EWR-SFO is $1779 while competitors are at $1050. (These are nonstop fares – connections are cheaper). Continental is (depending on your point of view) either sticking it to business travelers who have no choice, or taking advantage of the market and charging what they can. Either way, it’s a brilliant strategy. While every other carrier is fighting it out at JFK, offering lower fares (even for business travel) while upgrading their service to 3-class (AA, UA) or international level (DL), Continental is content to charge 70% more while offering regular 737 first class service. Yes, 70% more for a definitively worse product.
I don’t begrudge them any of this. Why bother reconfiguring premium class if you don’t have to and you’re already getting a premium? Any Continental Elite flyer will tell you that free upgrades are basically unavailable on transcon routes. Continental has found itself with no competition out of Newark, and they’re making the most of it. Bravo for them.