Competitors Try to Steal Back Some of JetBlue's Color

By DAVID GREENBERG
Staff Reporter

JetBlue Airways Corp. shook up the airline industry with its low-cost fares and rapid expansion, and now its larger competitors are shaking back.

Nowhere is that more apparent than at Long Beach Municipal Airport, the airline's West Coast hub, which has become a focal point in attempts by American Airlines and others to take back market share.

The AMR Corp. unit is offering customers one free round-trip ticket for every two round-trip flights purchased between Long Beach or Oakland and either Boston or New York. (Travel between Florida and the two Northeast hubs are also subject to the offer.)

America West Holdings Corp., which operates low-cost carrier America West Airlines, also began transcontinental flights from Boston and New York in October.

"It's a very challenging and competitive environment," said a JetBlue executive who requested anonymity. "Some of the fare sales and promotional activities we've seen from competitors are unprecedented."

As a result, the numbers at JetBlue, one of the industry's most profitable airlines, have suffered.

JetBlue expects operating margins to fall to between 9 and 11 percent of sales in the first quarter ending March 31, compared with 15.9 percent for the like period a year ago, the company said. For all of 2004, operating margins are expected to decline to between 13 and 15 percent, from 17 percent in 2003.

In October, JP Morgan downgraded the airline's stock to "sell" from "neutral," citing increased competition. Since then, the stock has fallen to $23.24 as of Feb. 5 from the $45 range, a decline of nearly 50 percent.

Flight path obstruction

JetBlue is encountering other obstacles to growth.

Several months ago, the New York-based carrier was forced to scrap service between the West Coast and Atlanta, where it initiated flights last year for $79 each way. The route became a money loser after low-cost carrier AirTran Holdings Inc. and Delta Air Lines Inc. flooded it with low-cost flights.

Long Beach Municipal Airport, where passenger counts grew to 2 million last year from 800,000 in 2002, can no longer provide the same growth burst. The airline is already flying its maximum-allowed 22 flights per day at Long Beach while its planes are consistently more than 80 percent full, with some flights at 90 percent or more.

"The increase in passenger loads will level off at JetBlue," said Sharon Diggs-Jackson, spokeswoman for the Long Beach airport.

Even with the added competition, JetBlue maintains some advantages.

It has capitalized on Long Beach's airport, where landing fees and ticket counter space are less expensive than at Los Angeles International Airport a boon for money-conscious travelers, particularly those in the South Bay and Orange County, where easy accessibility is also a factor.

Furthermore, those passengers enjoy shorter lines and other security hassles at Long Beach. And some have gotten used to the leather seats that they consider more comfortable than on other airlines. There's also the DirecTV service.

"The people who book through us will say, 'What about JetBlue?'" said Bill McLeod, co-owner of Palos Verdes-based Argo World Travel Inc. "We haven't heard anything negative about JetBlue."

And JetBlue's prices remain lower on key routes.

Passengers booking an advance round-trip flight between Long Beach and New York's John F. Kennedy International Airport, departing July 10 with a Saturday night stay would pay $308 on JetBlue, versus $362 on Delta and $462 on other major carriers, McLeod said.

"One of the reasons why people like them is they don't have this confusion about 40 or 50 rates," he said. "That is their rate. With JetBlue, you just go."

In Long Beach, JetBlue's 22 flights compare with seven for American, four for America West and three for Alaska Airlines. A 1995 settlement with local residents restricts the airport from adding any more to its current total of 41 commercial flights. However, if the planes are made less noisy, there is some flexibility to increase flights.

"Through technology, planes are flying quieter today than they were 10 years ago," said Diggs-Jackson "The potential does exist for the airlines to add additional flights if they are under our allowable noise budget."



Bloomberg News contributed to this report.

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