Quote:
Originally Posted by Macjet
Can jetBlue? If we add LUV to the graph, which is twice the size of B6, then JBLU and LUV are on par until Q4 2017 and then JBLU underperforms considerably. When you get to LUV size then your CASM will increase, as you stated, and JBLU margins will be even worse. I'm not confident that JBLU can deploy the assets for an optimized return.
https://www.macrotrends.net/stocks/s...=JBLU:SAVE:LUV
There have been some things weighing on JB margins the last several years. I could go into detail, I have before, but just don't feel like doing it complete justice right now. Some of them are being addressed, some will improve with the NEA and scale from NK. Just a few notable ones, the E190s are the US mainline highest CASM fleet, they are being parked. JB was under heavy assault by DL (which started in earnest around 2017), intentionally, and the NEA will help considerably with that. DL is also running out of room to grow in BOS, JB is not, and JB hasn't been trying to regrow BOS, yet, post pandemic, but will start to regrow BOS to 200+ flights a day. The E190s are being replaced with the lowest CASM mainline small narrow-body fleet (A220). The majority of JB's network is in the northeast, where COVID lockdowns started first, ended last, and where culturally people reduced their travel the most and the longest. In other words, COVID likely harmed JB more than any other airline financially. And to be honest, JB wasn't run well between 2017 and now. Their lack of focus on operational reliability had turned off a lot of customers and led them to reduce fares to fill the seats. They are saying the right things now to make us think they've learned their lesson, time will tell if that's the case. The ongoing damage from COVID is more or less over now, and northeast travel is finally recovering, and even the last several quarters JB wasn't profitable, they have paid down considerable debt. They went into COVID with the second best balance sheet in the industry, which should help give you more confidence in the model.
There's so much more I can say about what's gone wrong, and what they are doing to right the ship financially, but I'm tired.
On the question of whether JB should change it's model to ULCC, the airline would be negligent to not evaluate the marketplace and it's business model, especially when they are acquiring an airline that has a different model.
The ULCC market is really only substantial to MCO, LAS and cheap Florida. Yes, there are dozens or more point to point flights around the country that support ULCC service, but many of those don't have enough demand to operate daily, much less multiple times daily. The service to MCO, LAS and cheap Florida is at least close to being saturated, which is one of the reasons F9 and NK wanted to merge, as they are already cannibalizing each other's demand on those routes. One of your guys said it recently, there's only so many trailer parks to empty out. But the whole business model is predicated on having the lowest costs. SWA used to have the lowest costs, not anymore. Today it's F9 and NK, but after so many years the growth opportunities run drier, and the average longevity of the staff goes up, and your costs aren't the lowest anymore. Then ULCC 2.0, 3.0 and 4.0 come along with start-up costs, everyone on year 1-2-3 pay, new gen aircraft and you have a hard time competing. When your only competitive advantage is cheap, it's not sustainable over long periods of time. You guys rightly want full legacy level pay rates. All 4 of the Big 4 just reported substantial profits. F9 squeaked out a tiny profit and NK will be in the hole. That isn't a ringing endorsement of the ULCC model. And consider the big 4 reported large profits with full legacy pay rates, while the ULCCs were barely profitable or lost money with pilot pay way behind. Again, doesn't really look like the winning business model. Of course JB was also in the red, but as we talked about, they were harmed the most by COVID due to the northeast, and will right the ship.
JB operates nearly 300 flights a day in NYC. Will be building back to 200+ flights a day in BOS and has the gate commitments to do it. They've built a loyal customer base in those large metros and have historically been profitable there, outside of COVID. What do you think will happen to that customer base if JB were to go ULCC? Can you point me to a large metro other than MCO/LAS that has shown any kind of chance of supporting 200-300 ULCC flights per day? The closest I can think of is DEN for F9, which is a small fraction of that 200-300 flights per day, is shrinking (F9 is shrinking DEN pilot base, again) and they are having to move to a new parking location without jetways (will be all air-stair parking) because they can't take market share from high-fare United and Southwest, can't make margins while still paying for jetways. There literally is no example of a ULCC having very high levels of flying in any large metro outside of MCO/LAS. It's just my opinion, but I think JB would lose much of it's customer base in BOS/NYC and have to shrink dramatically in those metros, if they changed models. Look at some of Spirit's long standing bases, like DTW. 30 flights per day? After all these years? Most other non-Florida, non-LAS bases are the same. It doesn't scale up to large operations nearly anywhere.
JB can't be an everywhere to everywhere legacy with only 450 combined airplanes. It can't really be a 450 plane ULCC without abandoning the large markets it's built, and even then I think it wouldn't be successful, even if it tried. It's best course in my opinion is to do what it's trying to do, which is to nationalize it's brand with it's core product, continue to focus on premium transcontinental flying which every conference call they say it's exceeding expectations, and continue to build out a European network. There is NO perfect model, but from where we are, the current JB plan looks best to me.
05-03-2024
