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JetBlue Posts Loss

JetBlue posted its first quarterly loss since going public, putting it in the red for 2005.  The carrier also said that it expects to lose money in 2006 as well.  This is a stunning turnaround for an airline that for several years could do no wrong.  Unlike virtually every other airline that has announced a loss, JetBlue’s CEO placed the blame squarely on them (rather than on finding a million reasons why it wasn’t management’s fault), saying, "a lot of this is our own doing."  High fuel prices without fuel hedges and the difficulties of taking on additional aircraft and routes certainly contributed to the loss.  In addition, competitors have gotten smarter about competing with JetBlue. 

Average fares were about $109, but the airline says it needs to be up near $115-$120, a significant jump considering how difficiult it has been to increase fares in JetBlue’s highly competitive northeast-to-Florida markets. 

I’m not saying I saw this coming (because I didn’t), but looking back it certainly should have caused some alarm that JetBlue was starting to expand pretty quickly during a time when costs were increasingly rapidly.  Countless upstart airlines have hit a death spiral when expanding too fast while facing heavy competition and growing costs.  We’ve seen this many times before, and it generally doesn’t end well.  There’s a reason Southwest only serves about 60 cities after 35 years in business.  JetBlue’s strong product will only take them so far if they cannot manage the massive growth they have planned for the next 5 years.  This last quarter shows that they may have figured out the brand for a growing airline, but they have not figured out how to avoid the growth trap faced by every new airline.

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  1. Thursday Morning Quarterback

    If Woody had gone straight to the police, this would never have happened.

  2. So true.

    If only I knew all of that stuff before it all went to shit for JetBlue, I’d be running an airline rather than writing a blog :)

  3. In its relatively short but massively hyped existence, JBLU has always had one terrible statistic: unit revenue. Indeed, I believe they have always finished last in the industry in RASM. This would, of course, have been quite problematic, but for the fact that they had extraordinarily low unit cost. Many have speculated how they kept their costs so low. I didn’t understand it, but since it continued for so many years, it had to be genuine, right?

    Wrong. This quarter they posted an 8% increase in unit cost EX-fuel. A completely horrific number. So in that context, without the enormous cost advantage, it is hardly surprising that low-yielding JBLU has started to lose money.

    In recent years, as their costs remained low, I wondered whether I had judged JBLU too harshly. Indeed, some of their strategic decisions have been quite wise (moving into BOS, for example). What has always concerned me, though, was the remarkable rate at which insiders have been unloading their shares.

    http://finance.yahoo.com/q/it?s=JBLU

    Compare that to, say, the leadership of AWA (now LCC), which has never sold any of their many stock options. Who do you reasonably think believed the were going to build more shareholder value in the future?

    Hard to say what JBLU’s future holds. I think if they continue their over-aggressive expansion, they may go broke. If not, they’ll have to deal with even higher unit cost. It’s not an easy business. They have a good in-flight product, and they seem to have some capable management, so we’ll all just have to watch as this thing unfolds.

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