http://www.nytimes.com/2002/10/10/business/10AIR.html
New York Times 10/10/2002
Airline Showdown at the California Corral
By EDWARD WONG
After warily circling each other, Jetblue and Southwest Airlines are finally stepping into the ring, the veteran prizefighter vs. his eager protégé.
Hip JetBlue, just two and a half years old, is starting service today on two new routes from the sleepy airport in Long Beach, Calif., that will compete just about head-on with Southwest, the inspiration for JetBlue and an entire generation of low-cost carriers.
In flying those routes — five daily flights to Las Vegas and one to Salt Lake City — JetBlue is ramping up its challenge in a California market that Southwest has grown to dominate in the last two decades.
The carriers say that their low fares draw new customers to air travel, and so one''s gain may not be the other''s loss. Moreover, because Southwest flies not out of Long Beach, but out of the four other airports in the Los Angeles area, JetBlue represents a distinct choice for fliers.
Still, if the face-off turns into a battle above this land of strip malls and stucco houses for the same pool of passengers, experts say, it poses sharp risks for both Southwest and JetBlue, which have emerged during the industry''s steep downturn as the country''s two most profitable airlines.
JetBlue, they say, faces the greater danger of a knockout — like Shuttle by United and others that have taken on Southwest in California — because it does not have a large enough national operation to cover the losses from a vicious fare war in the West.
If JetBlue has any sense, they''ll try to avoid Southwest on many of their flights, said Robert Lamb, a professor of management at the Stern School of Business at New York University who has studied the business strategies of airlines.
At some point, it''s a losing battle to compete on price against a discounter, he said. When you look at Kmart or Wal-Mart or any discounter, where they don''t compete, their prices are invariably 5 to 10 percent higher. Where they compete, their prices are identical and have almost no profit margin.
Southwest, though, could end up ceding not just some of its precious West Coast revenue to JetBlue, but some of its image as the trendy alternative airline to fly.
I think in this particular arena, there is a positive `new kid on the block'' effect that JetBlue will enjoy some advantage from, said John A. Quelch, a professor of marketing at Harvard Business School who sits on the board of EasyJet, a British clone of Southwest.
The potentially bruising West Coast rivalry started when JetBlue, based in Kew Gardens, Queens, began flying nine daily flights from Long Beach to Oakland on Sept. 6. It is counting on its fleet of new Airbus A320''s with their leather seats and live satellite television to offer a distinct alternative to Southwest''s aging, utilitarian Boeing 737''s and no-frills service.
As the two airlines continue to expand, it is inevitable that they begin to compete, experts say, because both need to aim at population-dense areas to support their point-to-point style of flying.
The opportunity was too ripe, Alex Wilcox, JetBlue''s director at Long Beach International Airport, said of the move into Southern California. We''re a contrarian airline, and we''re an opportunistic airline.
David Barger, chief operating officer of JetBlue, said the airline''s strategy is to balance out short-haul routes with transcontinental routes. Starting short-hop operations in California seemed natural after the carrier had already established itself on the East Coast, he said.
Till-now-invincible Southwest — which operates from the Los Angeles International, Burbank, Ontario and Orange County airports — refuses to acknowledge that JetBlue poses a potential threat, or that the two carriers might be drawn into a bloody bout.
But its press officers often half-jokingly drop lines like, Don''t even mention that other airline. And in July, when JetBlue announced its plans to offer $19 restricted one-way fares on its Long Beach-Las Vegas route, $29 on Long Beach-Oakland and $49 on Long Beach-Salt Lake City, Southwest immediately matched those prices at its own Southern California airports and cut fares on other California routes.
Last quarter, revenue from Southwest''s California operations accounted for 24 percent of the carrier''s $1.34 billion in total revenue, the most of any region.
We''ve got a very, very strong brand that we''ve built up over the years, said Richard Sweet, senior director of marketing and sales for Southwest. We''ve got tremendous loyalty. We provide frequent service, on-time service. There''s not a lot of need to differentiate our product from JetBlue or anything else.
There is no need, that is, as long as there are enough budget-conscious travelers to support two major low-cost airlines in the state. It is too soon to tell if JetBlue will cannibalize Southwest''s customer base; some industry experts say that Long Beach, a city of about 462,000, might represent a distinct enough market that the two carriers end up serving different customers.
Still, it will be hard for Southwest to ignore JetBlue, which has grown to serve 20 cities since it began operating from 3 cities in February 2000.
JetBlue''s founder and chief executive, David Neeleman, started the airline on the premise of one-upsmanship over Southwest. Why not offer travelers the same low fares, he mused, but throw in amenities like assigned seating? Mr. Neeleman worked for the Dallas-based Southwest for five months after it bought Morris Air, a discount airline he co-founded, in 1993.
He has demonstrated the same acumen for marketing as Herb Kelleher, Southwest''s former chief executive. Few companies during the recent economic gloom have created the kind of word-of-mouth that has pumped up JetBlue''s market valuation to the second highest in the industry — $1.27 billion versus Southwest''s $8.97 billion. Yesterday, shares of JetBlue dropped 16 percent, to $30.15, and Southwest shares dropped 5 percent, to $11.60.
JetBlue''s advertising messages try to be hip and knowing, if occasionally obscure. A billboard at Oakland International Airport proclaims Eight Is Not Enough, a reference to a popular 1970''s television sit-com, in promoting the airline''s nine daily flights between Oakland and Long Beach.
Those flights serve two purposes, Mr. Wilcox said. One, they have allowed JetBlue to quickly use a third of its 27 slots at Long Beach, staving off demands from American Airlines and Alaska Airlines that the city free up the slots. Two, the flights help generate buzz about JetBlue, which hopes that Californians will eventually fly the airline''s more profitable long-haul routes, like Long Beach to John F. Kennedy Airport; a fifth flight is being added to that route today.
You can look at this as marketing for our transcontinental flights, Mr. Wilcox said.
Of course, JetBlue has to weigh the potential benefits of achieving those goals versus the costs of running the flights.
Mr. Wilcox declined to say whether the Long Beach-Oakland flights were profitable yet, but said the company needed to sell about 65 percent of the seats to break even. On a recent Tuesday morning flight to Long Beach, about a quarter of the 162 seats were filled; a return flight during the evening rush was equally sparse.
This was very rapid growth for us, Mr. Wilcox said of the recent expansion in California.
On Monday, JetBlue announced that the percentage of seats filled systemwide last month was 75.8 percent, better than Southwest''s 56.8 percent or the average 67.6 percent for traditional full-service carriers. Over the last year, the airline has more than doubled its capacity, while most of the full-service carriers have cut back.
Before last month, the closest that the two had come to competing on a nonstop route was the Baltimore-Fort Lauderdale, Fla., flight of Southwest and the Dulles International-Fort Lauderdale run of JetBlue. But those two Washington-area airports are too far apart to serve as weather vanes for what might happen in California. On Sept. 15, Southwest started its first transcontinental route — Baltimore-Los Angeles — which could vie with JetBlue''s Dulles-Long Beach run.
Youth has its advantages, at least in the airline industry. JetBlue''s new planes can be flown often and have relatively low maintenance costs. Its employees have not been unionized, a development that would inevitably drive up the cost of labor. One of its biggest challenges will be maintaining a healthy balance sheet as it ages.
In the meantime, Professor Lamb said, it''s going to give Southwest a run for its money because it has a different demographic, it has a different range, and that differentiation is vital to its potential success.
He added that JetBlue could carve out its own niche by working to woo the many business travelers who are disenchanted with the astronomical fares of the full-service carriers but hesitate to dive into the perceived cattle car experience of Southwest.
Eric Henderson, vice president for supplier relations at Rosenbluth International, the country''s third-largest corporate travel management company, said more and more clients ask about JetBlue. But fewer than 10 of Rosenbluth''s 1,500 clients regularly book seats on the airline through corporate accounts, he said.
For now, at least, fliers tend to be more like Sarah Josephson, a 30-year-old film editor from Berkeley, Calif., who often flies JetBlue out of Oakland.
JetBlue is consistently cheap, so that''s the main pull, Ms. Josephson said. Having said that, I find that their service is much better than anyone else''s. It''s clean and it''s very efficient and dependable, as opposed to other airlines where you sometimes don''t know if your luggage is going to come.
Oh, and she does not mind the free bags of blue potato chips, either.
New York Times 10/10/2002
Airline Showdown at the California Corral
By EDWARD WONG
After warily circling each other, Jetblue and Southwest Airlines are finally stepping into the ring, the veteran prizefighter vs. his eager protégé.
Hip JetBlue, just two and a half years old, is starting service today on two new routes from the sleepy airport in Long Beach, Calif., that will compete just about head-on with Southwest, the inspiration for JetBlue and an entire generation of low-cost carriers.
In flying those routes — five daily flights to Las Vegas and one to Salt Lake City — JetBlue is ramping up its challenge in a California market that Southwest has grown to dominate in the last two decades.
The carriers say that their low fares draw new customers to air travel, and so one''s gain may not be the other''s loss. Moreover, because Southwest flies not out of Long Beach, but out of the four other airports in the Los Angeles area, JetBlue represents a distinct choice for fliers.
Still, if the face-off turns into a battle above this land of strip malls and stucco houses for the same pool of passengers, experts say, it poses sharp risks for both Southwest and JetBlue, which have emerged during the industry''s steep downturn as the country''s two most profitable airlines.
JetBlue, they say, faces the greater danger of a knockout — like Shuttle by United and others that have taken on Southwest in California — because it does not have a large enough national operation to cover the losses from a vicious fare war in the West.
If JetBlue has any sense, they''ll try to avoid Southwest on many of their flights, said Robert Lamb, a professor of management at the Stern School of Business at New York University who has studied the business strategies of airlines.
At some point, it''s a losing battle to compete on price against a discounter, he said. When you look at Kmart or Wal-Mart or any discounter, where they don''t compete, their prices are invariably 5 to 10 percent higher. Where they compete, their prices are identical and have almost no profit margin.
Southwest, though, could end up ceding not just some of its precious West Coast revenue to JetBlue, but some of its image as the trendy alternative airline to fly.
I think in this particular arena, there is a positive `new kid on the block'' effect that JetBlue will enjoy some advantage from, said John A. Quelch, a professor of marketing at Harvard Business School who sits on the board of EasyJet, a British clone of Southwest.
The potentially bruising West Coast rivalry started when JetBlue, based in Kew Gardens, Queens, began flying nine daily flights from Long Beach to Oakland on Sept. 6. It is counting on its fleet of new Airbus A320''s with their leather seats and live satellite television to offer a distinct alternative to Southwest''s aging, utilitarian Boeing 737''s and no-frills service.
As the two airlines continue to expand, it is inevitable that they begin to compete, experts say, because both need to aim at population-dense areas to support their point-to-point style of flying.
The opportunity was too ripe, Alex Wilcox, JetBlue''s director at Long Beach International Airport, said of the move into Southern California. We''re a contrarian airline, and we''re an opportunistic airline.
David Barger, chief operating officer of JetBlue, said the airline''s strategy is to balance out short-haul routes with transcontinental routes. Starting short-hop operations in California seemed natural after the carrier had already established itself on the East Coast, he said.
Till-now-invincible Southwest — which operates from the Los Angeles International, Burbank, Ontario and Orange County airports — refuses to acknowledge that JetBlue poses a potential threat, or that the two carriers might be drawn into a bloody bout.
But its press officers often half-jokingly drop lines like, Don''t even mention that other airline. And in July, when JetBlue announced its plans to offer $19 restricted one-way fares on its Long Beach-Las Vegas route, $29 on Long Beach-Oakland and $49 on Long Beach-Salt Lake City, Southwest immediately matched those prices at its own Southern California airports and cut fares on other California routes.
Last quarter, revenue from Southwest''s California operations accounted for 24 percent of the carrier''s $1.34 billion in total revenue, the most of any region.
We''ve got a very, very strong brand that we''ve built up over the years, said Richard Sweet, senior director of marketing and sales for Southwest. We''ve got tremendous loyalty. We provide frequent service, on-time service. There''s not a lot of need to differentiate our product from JetBlue or anything else.
There is no need, that is, as long as there are enough budget-conscious travelers to support two major low-cost airlines in the state. It is too soon to tell if JetBlue will cannibalize Southwest''s customer base; some industry experts say that Long Beach, a city of about 462,000, might represent a distinct enough market that the two carriers end up serving different customers.
Still, it will be hard for Southwest to ignore JetBlue, which has grown to serve 20 cities since it began operating from 3 cities in February 2000.
JetBlue''s founder and chief executive, David Neeleman, started the airline on the premise of one-upsmanship over Southwest. Why not offer travelers the same low fares, he mused, but throw in amenities like assigned seating? Mr. Neeleman worked for the Dallas-based Southwest for five months after it bought Morris Air, a discount airline he co-founded, in 1993.
He has demonstrated the same acumen for marketing as Herb Kelleher, Southwest''s former chief executive. Few companies during the recent economic gloom have created the kind of word-of-mouth that has pumped up JetBlue''s market valuation to the second highest in the industry — $1.27 billion versus Southwest''s $8.97 billion. Yesterday, shares of JetBlue dropped 16 percent, to $30.15, and Southwest shares dropped 5 percent, to $11.60.
JetBlue''s advertising messages try to be hip and knowing, if occasionally obscure. A billboard at Oakland International Airport proclaims Eight Is Not Enough, a reference to a popular 1970''s television sit-com, in promoting the airline''s nine daily flights between Oakland and Long Beach.
Those flights serve two purposes, Mr. Wilcox said. One, they have allowed JetBlue to quickly use a third of its 27 slots at Long Beach, staving off demands from American Airlines and Alaska Airlines that the city free up the slots. Two, the flights help generate buzz about JetBlue, which hopes that Californians will eventually fly the airline''s more profitable long-haul routes, like Long Beach to John F. Kennedy Airport; a fifth flight is being added to that route today.
You can look at this as marketing for our transcontinental flights, Mr. Wilcox said.
Of course, JetBlue has to weigh the potential benefits of achieving those goals versus the costs of running the flights.
Mr. Wilcox declined to say whether the Long Beach-Oakland flights were profitable yet, but said the company needed to sell about 65 percent of the seats to break even. On a recent Tuesday morning flight to Long Beach, about a quarter of the 162 seats were filled; a return flight during the evening rush was equally sparse.
This was very rapid growth for us, Mr. Wilcox said of the recent expansion in California.
On Monday, JetBlue announced that the percentage of seats filled systemwide last month was 75.8 percent, better than Southwest''s 56.8 percent or the average 67.6 percent for traditional full-service carriers. Over the last year, the airline has more than doubled its capacity, while most of the full-service carriers have cut back.
Before last month, the closest that the two had come to competing on a nonstop route was the Baltimore-Fort Lauderdale, Fla., flight of Southwest and the Dulles International-Fort Lauderdale run of JetBlue. But those two Washington-area airports are too far apart to serve as weather vanes for what might happen in California. On Sept. 15, Southwest started its first transcontinental route — Baltimore-Los Angeles — which could vie with JetBlue''s Dulles-Long Beach run.
Youth has its advantages, at least in the airline industry. JetBlue''s new planes can be flown often and have relatively low maintenance costs. Its employees have not been unionized, a development that would inevitably drive up the cost of labor. One of its biggest challenges will be maintaining a healthy balance sheet as it ages.
In the meantime, Professor Lamb said, it''s going to give Southwest a run for its money because it has a different demographic, it has a different range, and that differentiation is vital to its potential success.
He added that JetBlue could carve out its own niche by working to woo the many business travelers who are disenchanted with the astronomical fares of the full-service carriers but hesitate to dive into the perceived cattle car experience of Southwest.
Eric Henderson, vice president for supplier relations at Rosenbluth International, the country''s third-largest corporate travel management company, said more and more clients ask about JetBlue. But fewer than 10 of Rosenbluth''s 1,500 clients regularly book seats on the airline through corporate accounts, he said.
For now, at least, fliers tend to be more like Sarah Josephson, a 30-year-old film editor from Berkeley, Calif., who often flies JetBlue out of Oakland.
JetBlue is consistently cheap, so that''s the main pull, Ms. Josephson said. Having said that, I find that their service is much better than anyone else''s. It''s clean and it''s very efficient and dependable, as opposed to other airlines where you sometimes don''t know if your luggage is going to come.
Oh, and she does not mind the free bags of blue potato chips, either.