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jetBlue - Is the Honeymoon Over?

Written by Courtney Miller
Monday, 06 February 2006
Page 1 of 2 Several years ago, an innovative airline executive decided to try out his long thought-out ideas on designing an airline with an emphasis on its company culture. The idea was to create a pleasant environment to work, which would in turn keep employees happier without having to pay them more, and fit well within the low cost business model put together. An underutilized New York airport was chosen, and the new low fare carrier was born. Quickly touted as the new darling of the industry, this airline performed very well: both operationally and financially. Growth was the order of the day, and aircraft couldn't arrive quickly enough. Accolades were plenty from both customers and business magazines, and the CEO was considered to be the future of the industry with an uncanny insight to grow his company as quickly as he had. Profits were consistent, customer satisfaction was high, and growth was explosive. Peoples Express failed within a year of becoming the fifth largest carrier in the US. The similarities between jetBlue and Peoples Express are too glaring to dismiss, but there's one factor that stands out above the rest: explosive growth. This early blessing for Peoples Express turned quickly into their strongest curse, growth. The idea: by maintaining constant growth, new, lower paid employees can be brought in constantly, aircraft warranties can be taken advantage of, and cheap financing can be easily found. Growth brings its own benefits, and its true that by increasing growth, the cost benefits increase as well, but it also puts a heavier burden on marketing to find markets from which to pull more revenue. Costs can consistently be kept low with growth, but eventually the revenues, diluted by their own capacity as well as competition, will not be able to keep up. jetBlue continues to increase ASM's (Available Seat Miles) while Revenue Passenger Miles continues to lag This is the problem jetBlue finds itself in today. 2005 was the first year jetBlue's increase in capacity exceeded its increase in passengers. The airline is showing the first signs of not being able to keep itself up with its recent growth, and what's worse, with 100 new Embraer 190's and another 100 A320's on order, jetBlue plans to further increase its capacity by over 100% within two years. The blame can be put on jetBlue’s marketing department for not keeping up with the increase in capacity, but there comes a point when its impossible regardless of how good your marketing department is. Sometimes you’re just growing too fast, and jetBlue has aready reached that point, with 200 aircraft to go. Is the 190 to blame? I don’t think the EMB-190 itself is the problem. Much like how Independence’s failure was blamed on CRJ’s, I think jetBlue’s issues are going to be blamed on the new Embraers, but the problem isn’t the airframe, it’s the number of airframes they’re getting. Doubling your fleet within two years is an enormous gamble, but doing so with an aircraft you are the launch customer of is almost reckless. I’m entirely convinced that jetBlue could be very successful flying 100 EMB-190’s on point-to-point markets across the US, but I’m in no way convinced it can happen within a year and a half. It all boils down to marketing. Can they find enough passengers to pay enough for a ticket to keep this airline profitable? I just don’t see it happening. Remember, that at the same time the 100 EMB-190’s are coming on line, there is still an order for 100 A320’s being filled. In a U.S. domestic airline industry routinely being hammered for over capacity, there aren’t nearly enough new markets to fill this kind of aircraft order. So are the executives at jetBlue really off their rocker, or do they have some sort of plan? They understand there aren’t enough markets for the new aircraft they’re bringing on. It only takes a trip to the airport to understand that. What they seem to be counting on is being able to take customers away from other airlines by the masses. The reasoning? David Neeleman honestly thinks jetBlue is the better airline and that it deserves more passengers and higher fares. To some extent, he may be correct, yet perhaps David needs to meet with Don Burr about the better New York airline vanishing. A downward trending yield and an upward trending CASM spell bad news for an expanding airline << Start < Previous 1 2 Next > End >>