USA320Pilot
Veteran
- May 18, 2003
- 8,175
- 1,539
Key Points from Bear Sterns JetBlue EMB-190 Report
NEW AIRCRAFT ORDER - In a surprise move, JetBlue breaks with its single aircraft type fleet and orders 100 Embraer 190s with options for 100 more. Deliveries begin in 2005. Lease financing has been arranged for the first 30 planes.
COST PRESSURE - Our primary concern is that the addition of the new plane will cause unit costs to increase. Unit costs will be about one penny higher (15%) on the Embraer 190 than the A320. In addition to add-ons for pilot training and maintenance, we believe the economics of a smaller plane servicing shorter routes will drive overall unit costs up by 0.5 cents (8%) by 2009 from current levels.
BUT ADVANTAGE REMAINS - The good news is that even with this change, we project that JetBlue will still have a 25-35% unit cost advantage to the majors over the long term.
A PROBLEM OF PERCEPTIONS - Near term, we believe this will be a tough pill for investors given the attraction to the single aircraft type, point-to-point model. The key is arguing that the move will propel rapid growth into the second half of the decade. On the roadshow, management's challenge will be breaking down the perception that the single aircraft type is the only road to success.
KEEPING AN OPEN MIND - We believe it would be a mistake to fuel the knee jerk reactions which immediately dismiss any departure from the existing business model. While we are concerned about the unit cost pressure, we believe that markets exist that can be served by the EMB 190 at fares that will stimulate demand and propel continued growth at JetBlue. We maintain our YE target range of $33-$37.
Best regards,
Chip