JetBlue taking Heat from all sides
 

JetBlue Taking Heat From All Sides
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TAMPA - JetBlue Airways enjoyed a stellar reputation as recently as six months ago.

The low-cost carrier earned a $2.7 million third-quarter profit despite record fuel costs and hurricane-related travel losses. Its customer service image remained high while its fares were perceived as low.

As chief executive David Neeleman predicted, however, JetBlue posted a fourth-quarter loss, its first red ink since just after starting up in 2000. Fares had to increase, he emphasized.

Since then, JetBlue executives have found themselves in an uncustomary position, amid a storm of still-rising fuel costs, teething problems with its growing fleet of regional jets, and competitors like Continental, Delta and US Airways that have taken direct aim on JetBlue's fortunes.

JetBlue is set to release its first-quarter results Tuesday. Regardless of whether it shows a profit that provides a boost in short-term confidence or a second consecutive report in the red, JetBlue clearly will face challenges over the next year or two, joining the rest of the airline industry.

Financial analysts have questioned JetBlue's prospects, with at least two suggesting the airline might be better off if it delayed deliveries of new aircraft. Moody's downgraded JetBlue's bond rating two steps to B2, which is four levels below investment grade, or junk bond status. Travelers spread the word on the Internet that low fares are tough to find beyond an occasional sale.

"We are not in the camp that has written JetBlue off just yet - but we must acknowledge that the current fuel price outlook will likely push out any meaningful earnings recovery beyond 2007," Raymond James & Associates financial analyst James D. Parker said in a report April 12.

Parker lowered JetBlue's outlook for 2006 from break-even to a loss of 25 cents a share. His forecast puts the airline back into the black in 2007 earnings, although his estimates for next year declined from a profit of 45 cents to 30 cents a share.

One problem is that JetBlue's passenger growth isn't keeping up with the airline's increased capacity, which is up because it is adding jets. In March, JetBlue's traffic increased 24 percent compared with the previous year, but capacity increased 29 percent. That resulted in a 3.5 percent decline to 86.5 percent of available seats filled, Parker noted.

Even competitors have chimed in.

US Airways chief executive Doug Parker wrote to his employees in response to Neeleman's cheeky comment announcing JetBlue's inaugural service this summer in North Carolina, where the two airlines will compete. Neeleman claimed the state was currently "overpaying for substandard service" in what Parker viewed as a jab at US Airways.

"First, I know David pretty well and I can assure you he is a genuinely good person," Doug Parker wrote. "That he chose to make such a remark is probably indicative of the stress that JetBlue is under and we should not take his remarks personally.

"It is probably very hard for them to hear that US Airways (who they'd counted on being gone by now) is expecting to be profitable in 2006 ... while they have disclosed that they expect to be unprofitable."

He outlined several factors he thinks are causing JetBlue's "serious and structural" problems, including:

•It will be more difficult for JetBlue to maintain its low-cost structure over time because this advantage is driven primarily by a low average age of employees and airplanes.

•JetBlue needs to grow but faces fewer chances to enter growth markets, a problem exacerbated by US Airways' survival.

Raymond James' report listed "fuel price head winds" and higher financing costs for new aircraft among JetBlue's challenges.

JetBlue could not respond to the analysts' comments because of the quiet period before Tuesday's earnings report, JetBlue manager of corporate communications Brandon Hamm said Thursday.

Hamm acknowledged JetBlue has raised Tampa fares by $10 since February, following other carriers.

Few are ready to count JetBlue out. Tampa International Airport director Louis Miller, a longtime friend of Neeleman's, says the airline is on the right track.

"His competition is vicious," Miller said. "And fuel is killing them all."

JB started the fare wars. Lets see how they handle it.