Airline Weekly - February 21, 2011

Cover Story

I Guess That’s Why They Call it Jet…: Can JetBlue rediscover its glory years?

Will this finally be it?

“This” is the latest round of JetBlue initiatives: network moves, partnerships and product tweaks. “It” is what JetBlue has been seeking for much of the past decade: something new to recapture the trailblazing success of its early years.

It was in those early years that JetBlue managed to generate some of the U.S. airline industry’s highest profit margins by—more than anything else—flying people from New York to Florida with a unique product that was low-cost, yes, but also high-quality. The product was so good, in fact, that travelers actually paid revenue premiums to fly it. That’s something virtually no low-cost carrier in the world had ever achieved, and why JetBlue’s influence on the global industry is so important.

Those revenue premiums, courtesy of generous legroom on new A320s equipped with personal satellite televisions, combined with a friendly but all-junior (i.e., low-wage) workforce to produce something else that was almost unheard of: solid profits (8% operating margin and 6% net) in its first full year of operations, 2001. Yes, that 2001—complete with a recession and terrorist attacks in its home city, New York.

By 2002, with the U.S. still mired in recession, JetBlue was leading the industry with a 17% operating margin, a feat it repeated in 2003, and one that compared very favorably with even Southwest’s 8% operating margins both years. Early investors looking for return on capital were pleased, too, with impressive net margins of 9% and 8% in 2002 and 2003.

But by 2003, JetBlue realized that for all its uniqueness, it—like all LCCs—needed to find new ways to grow to keep its cost base down. Even New York-Florida, by some measures the world’s busiest airline market, doesn’t have unlimited demand, and JetBlue was already flying more than a dozen times a day on routes like New York JFK-Fort Lauderdale, while also flying from JFK to places in upstate New York like Buffalo, which supported Florida routes with feeder traffic. To diversify, JetBlue opened a base in Long Beach, Calif., near Los Angeles, and tried its hand at transcontinental flying, not to mention some shorthaul west coast flying. It tried, for the first time, to capture some corporate traffic by launching Atlanta service (to Long Beach and Oakland)—an initiative that lasted only seven months. It also announced its first foray into international markets with JFK flights to the Dominican Republic. Those lasted nine months. For good measure, JetBlue also began a slow build-up at Boston, a huge market with minimal low-cost service, other than indirectly by Southwest at surrounding cities.

But... (446 of 1782 words)

Also Inside this Issue:

It may not dazzle the world with its margins, but give Qantas credit for always making money. Once again in the latter half of 2010, the flying kangaroo hopped it way to profitability, driven by strong domestic demand and margins that were indeed dazzling for Jetstar and its frequent flier program. It’s not content with long-term trends at its Qantas-branded longhaul unit, however, and work is under way to revive it.

Like many LCCs, Norwegian sailed through the recession. In fact, 2009 was its best year ever. But 2010 was barely profitable, and not merely because of volcanic disruptions. Nevertheless, it’s one of the world’s fastest growing major airlines in ASK terms, with more bullish growth planned for 2011.

In Japan, All Nippon chose A320s packed with 180 seats for its new low-fare unit. And Skymark firmed up orders for giant A380s—all of this as Delta, American and British Airways launched new international flights to Tokyo Haneda.

In the U.S., aviation policy is a hot topic on Capitol Hill these days, with a new FAA reauthorization bill nearing passage. At stake is funding for NextGen air traffic control and new transcon flights from Washington Reagan airport, among other things.

As U.S. airlines await the policy outcome from Washington, many are changing and updating their own policies covering frequent flier programs and seating configurations. Delta, for its part, eliminated mileage expiration while United announced economy plus seating for its entire post-merger fleet.

More earnings this week, headlined by BA/Iberia.

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