JetBlue will begin flying out of Boston's Logan Airport?and American Airlines was feeling the heat. JetBlue was growing eight times faster than Southwest Airlines, the longtime leader among low-cost carriers, and the rapidly expanding low-cost segment of the industry?30% of all U.S. flights, projected to rise to 40% by 2006?presented an increasing challenge to the "major" airlines. For American, JetBlue's entrance into Boston via Logan signaled a moment of reckoning. Should the airline opt for a standard competitive response, such as price reductions and frequent flyer programs? Should it take on JetBlue at Logan only, or across all the markets where it would compete with the low-cost challenger? American must weigh the importance of the Boston market in its overall economic picture and the potential responses of other airlines to whatever action it takes. This case reviews the economic conditions affecting the airline industry; the business models of three main types of airlines?major, low-cost, and regional?and their strengths and vulnerabilities in terms of recent competitive market conditions. The B case involves American's counter-attack and the C case the responses of other airlines and JetBlue, including an examination of the resulting financial and market costs and benefits.
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