‘Right sizing’. ‘Path to rebound’. ‘Return to profitability’. That’s the kind of phrase heard when another big airline starts the twists and turns that all too often end up in the steps of bankruptcy court as it parks planes, slashes routes and trims wages. It’s all part of the same sad legacy of woes that legacy carriers know well.
Now, though, it’s a low-cost carrier, and a darling one at that, that’s begun the walz triste. JetBlue Airways, the six-year-old low-fares high flier said it will postpone some new aircraft deliveries, sell off some of its fleet and end a number of its transcon routes.
On the bright side, JetBlue’s new Embraer 190s are a major profit tool, Neeleman says, since revenues on routes they’re on has risen steeply – as much as 24% on one route. The 100-seat Brazilian planes collect full-size airliner fares because they offer a full-size airplane flight.
After posting its second consecutive quarterly loss, this one a deficit of $32 million in the first quarter (compared with a profit of $6.97 million in the same period last year), both driven by the higher cost of fuel, founder David Neeleman has a ‘Return to Profitability’ plan. This includes delaying deliveries of 12 Airbus A320 aircraft, originally scheduled for delivery between 2007 and 2009 to the 2011-2012 timeframe. JetBlue also plans to sell at least two, and perhaps as many as five, of the 88 Airbus A320s that are now in service “but depreciated enough that we can sell ‘em”.
Key goals: a return to JetBlue’s route roots as a short- to medium-haul airline and a focus on revenue that stresses fewer of the lowest bucket fares and more of those in the middle. “I’d rather sell a lot more $89 fares to Florida and fewer $69 fares. In a word, we’re trading load factor for yields” by squeezing capacity, said Neeleman. This isn’t a fare increase; “we just want to sell a better mix of fares”.
Overall, Neeleman said, JetBlue capacity should increase this year by 20% to 22%, rather than the 28% previously projected. Summer capacity in the New York to Florida markets will be down about 15%, while New York-Los Angeles will decline around 8%, he said. Through a mix of higher average fares (up from $105 in the quarter) and efficiencies such as faster aircraft turns, Neeleman thinks JetBlue will enjoy a $70 million benefit by year end, half in savings, half in revenue. JP Morgan analyst Jamie Baker was sceptical, saying that now “suspect revenue optimism” is added to the mix of high fuel costs and rising competition.
Mike Linenberg of Merrill Lynch said that JetBlue underperformed the industry’s passenger unit-revenue increase of 14.3% for the quarter and that its operating margin at a negative 5.1% is “so far, is the worst margin performance of airlines reporting”.
Ending on a confessional tone, Neeleman said, this crisis “has a silver lining. It forces us to sharpen our sword”.