JetBlue has confirmed that big regional jets are indeed the future with its announcement that it would become the launch customer for up to 200 Embraer 190s in a deal valued at as much as $6 billion.

The move, however, raises questions about the future strategy of the nation's most successful start-up low-fares carrier. JetBlue founder and chairman David Neeleman considers the 100-seat Embraers as a complement to mainline service and a way to stimulate enough traffic to justify larger planes.

With a range of 4,260km (2,300nm), the aircraft will not be limited to short-haul routes, says Neeleman. "The possibilities are endless when you talk about taking this plane to the Caribbean at certain times of the year, to Mexico, to markets in Canada." Analyst Jamie Baker of Morgan Stanley says: "The Embraer would let JetBlue tap markets from New York City that now require a change of planes such as Melbourne - a Delta stronghold on Florida's east coast, or Albuquerque, New Mexico - a Southwest stronghold."

Baker adds that a confrontation between JetBlue and Southwest is "inevitable", but would not come before 2005, when the 190 deliveries start. But Neeleman says: "When you look at Southwest, they haven't really gone into a lot of small cities. The markets we've looked at, we don't see Southwest anywhere near those markets. We're not going into markets that have already been stimulated."

JetBlue chief financial officer, John Owen, says the carrier firmly rejected contracting the Embraer 190 operation to a regional feeder as maintaining the "JetBlue experience and product is important". The new aircraft will feature LiveTV at each of its leather seats, as do its Airbuses. Owen says: "Too many airlines have watered down their product with regional jets. The 190 isn't a regional jet in the traditional sense. It's merely a smaller aircraft for smaller markets."

Neeleman says: "This is not a departure from our business plan. We're not running out of markets for the Airbus A320 - that's not why we did this. We're not pulling down the growth rate on A320s." JetBlue's fleet is currently made up of 42 A320s. It also has another 65 aircraft on order from Airbus, plus 50 options. The A320 fleet could grow to 290 aircraft by 2011. Financing for the first 30 JetBlue Embraer 190s is coming from GE Capital Aviation Services.

Raymond James and Associates analyst Jim Parker says that adding a second aircraft type would increase JetBlue's operating costs by perhaps a cent per seat kilometre. Owen says the slightly higher costs of the smaller aircraft would lead to fares that would be $5-8 each way higher than A320 fares. But margins would be "the same or better than on the A320". JetBlue's fleet, at 51 A320s by year-end, would grow to 160 aircraft (113 A320s) by the end of 2007, which Parker sees as manageable growth.

Doug Abbey, director of the Regional Air Service Initiative association, says this order, with a May US Airways order for large Embraer and Bombardier jets, represents "the natural evolution of air service on routes of 1,500 miles or less".


Source: Airline Business