Airline Weekly - October 19, 2015
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Airline Weekly - October 19, 2015

Blue Skies? JetBlue’s revenue trends are among the industry’s best. Can that last?

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Cover Story

Blue Skies? JetBlue’s revenue trends are among the industry’s best. Can that last?

During the first half of 2015, no U.S. airline enjoyed stronger y/y RASM trends than JetBlue. And sure enough again last week, the New York-based LCC reported a 1% rise in passenger unit revenue for the month of September despite 13% ASM capacity growth and even as rival carriers report rather sharp RASM declines on less capacity growth. Also last month, JetBlue said to expect PRASM for the full third quarter to be more or less flat y/y, a forecast even more bullish than that of Southwest, whose own expectation of a 1% Q3 RASM decline was itself rather cheerful—Delta last week reported a 5% Q3 PRASM decline.

Revenue trends in September were, to be clear, boosted by a later Labor Day holiday this year—some of last year’s busy holiday traffic came in August. But Labor Day was late for all airlines. And that doesn’t explain JetBlue’s outperformance all year, which stems from a host of more substantive tailwinds, some of its own making and some the consequence of good fortune.

JetBlue is certainly lucky to have less new competitive capacity in its home markets than most other carriers. As Wolfe Research (citing OAG data) recently noted, Delta—with which JetBlue overlaps most—is growing fairly quickly in JetBlue markets. But American isn’t growing at all and United is actually shrinking. Spirit, meanwhile, a major competitor in the Fort Lauderdale-to-Caribbean market, is refocusing away from those markets to seize domestic opportunities, mostly where JetBlue doesn’t fly. Delta itself dropped several overlapping Boston routes including Las Vegas, Jacksonville and Charleston, S.C. Overall industry capacity growth in JetBlue’s New York and Boston to Florida and the Caribbean markets has been modest all year, with American actually shrinking its presence. Caribbean and Latin American markets, indeed, propelled by strong demand as well as these benign competitive trends, were “extremely strong” for JetBlue this spring.

But strength in Florida and the Caribbean really isn’t all that new for JetBlue. What is new this year, and a key reason for rising unit revenues, is a turnaround in transcontinental fortunes. For much of its existence, routes between the east and west coasts were JetBlue’s Achilles heel, its major area of network weakness. But this year, transcon demand is strong, as Delta testified again last week, buoyed by economic strength in the U.S. northeast and California, most notably. But at least as importantly, JetBlue’s overall benign competitive capacity trends are most pronounced coast to coast, with American, United and Virgin America all downsizing significantly. In the peak third... (435 of 1,740 words)

Also Inside this Issue:

Never in the history of the world has an airline earned as much money in one quarter as Delta did from July through September. It earned a 21% operating margin, in fact, an almost unimaginable figure for an airline of its size. Thanks to collapsing fuel prices and a healthy U.S. economy, troubles abroad are largely an afterthought.

This week, most of Delta’s U.S. rivals will report. They include American, which approached the high hurdle of reservation system migration this weekend and jumped it with no apparent problems. (Whew.) United will report this week too—in the shadow of health concerns about its new CEO.

Alitalia is spending money again, lavishing Etihad’s wealth on service upgrades and two new routes to Latin America. It also reaffirmed expectations of returning to profit in 2017, a task made a whole lot easier by cheap fuel.

Cheap fuel or not, Singapore Airlines is determined to fly nonstop to the U.S. again, a goal it will realize with the help of Airbus. The manufacturer will build a longer-range version of the A350, enabling direct flights to New York, Los Angeles and perhaps other U.S. cities starting in 2018.

Taiwan’s EVA Air turned to Boeing for its aircraft needs, ordering the largest version of the Dreamliner—the B787-10. Eyes now turn to Gulf carriers and whether they’ll splurge for more planes at next month’s Dubai Airshow.

Aeroflot, for its part, has little appetite for new planes, including the B787s it ordered long before Russia’s current economic crisis. It would, however, like some of Transaero’s jets.

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