This comes from Airplanenut's post on the Delta board, but it is worth posting here for comments. It is an excerpt from the Street.Com discussing the strength of the LCC's in the current quarterly earnings season:
"Of all the earnings reports, JetBlue's was the strongest," said William Alderman, president of Alderman & Co., a boutique aerospace investment firm. JetBlue managed to boost profit, load factors and margins, while flying more flights. "JetBlue was the biggest surprise. I really thought they would see margin erosion as they grew and was truly surprised they could scale up that fast without any erosion to margins," Alderman said.
The New York-based carrier is a good example of how low-cost carriers plan to gnaw away at the network carriers' business. Because JetBlue can charge less for fares and still post a profit, a rival like Delta, which just launched its low-cost Song Airlines unit, is forced to lose money by matching JetBlue's cheap fares out of John F. Kennedy Airport in New York in an attempt to keep market share.
Using the low-cost model to outperform older stalwarts is nothing new -- Southwest has been doing it for three decades -- but the success and scope of the model's success has picked up steam recently. JetBlue boosted capacity by nearly 70% over year-ago levels in the second quarter, while load factor, or the percentage of seats filled, came in at an industry high of 85%. The end result: JetBlue's revenue was $245 million, up 64% over last year and beating Wall Street's lofty expectations.
In comparison, Delta widened its loss and said its new Song unit, which debuted on April 15, filled only about 70% of seats in the second quarter.
"Why is Delta, which has a good reputation for customer service as a business carrier's airline, competing head-to-head with JetBlue?" said Alderman. "The issue with Song isn't even load factor, it's the cost per available seat mile." Citing data from industry tracker The Airline Monitor, Alderman pointed out that the cost per available seat mile for JetBlue is 2.86 cents, compared with 4.31 cents per available seat mile for Delta's Boeing 757 fleet. Ultimately, the strong second-quarter results from low-cost carriers make experts wonder how long network carriers can compete if business travelers don't return to the skies.
"That's a 51% premium. Who cares about load factors?" Alderman said. "How are you going to get from here to compete with JetBlue, which Delta has said explicitly was the point of Song?"
