Majestic Research

Financial Times

Fuel Costs Force JetBlue To Cut Growth Plans

By Doug Cameron
Published: April 25, 2006

JetBlue on Tuesday said it had scaled back its growth plans as rising fuel costs dragged the low-fare US airline to its second consecutive quarterly loss.

The airline plans to sell some aircraft and defer deliveries as it shifts more capacity to short-haul flying from longer transcontinental markets, and will introduce new efforts to cut costs as crude oil pushes above $75 a barrel.

The New York-based carrier has captured market share from established rivals with a mix of low costs and high service levels, but has deviated from the industry’s standard business model by introducing 90-seat Embraer 190s alongside its fleet of larger Airbus A320s.

Analysts were concerned that the split fleet would push up costs, and the airline’s rapid expansion stumbled at the end of 2005 when admitted teething troubles in the introduction of the new aircraft, while soaring fuel prices led it to forecast a full-year loss for 2006.

“They have had the advantage of being a low-cost carrier, but there is concern that the gap is waning,” said Matt Jacob, analyst at Majestic Research.  Mr Jacob pointed to intensifying competition with Continental Airlines at Newark, though fare levels have benefited from cutbacks at Delta Air Lines, which overlapped with 70 per cent of JetBlue’s network.

JetBlue grew by almost 25 per cent last year, but said that it would cut planned capacity expansion in 2006 from 28-30 per cent to 20-22 per cent, and aims to sell between two and five of its A320s.  It will also defer 12 of the A320s due to arrive in 2007-09 until 2010-12.  It has 82 Airbus aircraft on order, and will keep its E-190 deliveries unchanged.

Capacity cuts by airlines including Delta, Northwest and US Airways have helped carriers push up fares across the US industry, though only Southwest–which has accelerated its own growth plans–and Alaska Airlines managed to record a profit in the first quarter.  AirTran, another of the fast-growing low-fare carriers, reports on Thursday.

JetBlue forecast a profit in the second quarter but would still record a full-year loss.  The airline reported a net loss of $32m for the quarter to March 31 compared with a profit of $6m in the same period last year.  The loss per share of 18 cents was slightly better than analysts’ forecasts, as a 4 per cent rise in passenger yields lifted revenues by 31 per cent to 490m.  JetBlue ended the quarter with $419m in cash and investment securities.