A Song for JetBlue
By Tim Beyers (TMFMileHigh)
January 27, 2005
Ever since Motley Fool Stock Advisor pick JetBlue (Nasdaq: JBLU)
launched in 1999, rivals have been aiming for it. The effort appears
to have paid off. This morning, the carrier reported fourth-quarter
net income that was 88% lower than the year prior. The decline is
largely due to a 41% increase in operating costs, which dropped
margins by nearly 10 points. No doubt most of that came from spiking
fuel costs, but competition couldn't have helped, either.
Frankly, today's news makes me think JetBlue is vulnerable. Delta
(NYSE: DAL) seems to agree. The legacy carrier, which only months
ago barely avoided bankruptcy, yesterday told Reuters that Song, its
low-cost airline within an airline, will grow its fleet by one-third
during 2005. Specifically, Song will adopt 12 Delta-owned Boeing
(NYSE: BA) 757s by May 1 and add 36 new flights through Sept. 2.
What's most interesting is that many of the flights will be coast-to-
coast nonstops, including New York to Los Angeles and San Francisco.
Song will replace Delta's mainline service on those routes.
Though it wasn't clear from the Reuters interview, the move appears
to be aimed squarely at taking share from JetBlue on its most
profitable routes. Is that possible? Well, it doesn't hurt that Song
shares with JetBlue the same reputation for upscale, trendy service
in a low-cost package, including 24 channels of EchoStar's (NYSE:
DISH) Dish Network satellite TV. Efficiency has also become a
hallmark of Song. For example, its planes are in the air for three
hours per day longer than Delta's. Song also takes an average of 50
minutes to turn its planes for the next flight versus 90 minutes for
Delta. JetBlue is unlikely to simply price its way out of the threat
from Song.
Still, it's worth noting that even with fuel prices at nosebleed
levels, JetBlue continues to manage profits, and its low-cost
structure ought to allow it to continue to do so. Conversely, Delta
has been bleeding money, and Song is no panacea. Neither is Ted for
UAL Corp's United. But both are likely to make it increasingly
difficult for JetBlue, Frontier (Nasdaq: FRNT), AirTran (NYSE: AAI),
Southwest (NYSE: LUV), and every other so-called discount carrier to
earn profits. If you're an investor in any of them, now's a good
time to buckle your seat belt. There's likely to be more turbulence
ahead.
For related Foolishness:
What would JetBlue do with this whopper of a jet?
If you're still scratching your head, check out what Bill Mann found
when he examined Southwest's slow slide.
Delta thankfully avoided a crash landing in November.
JetBlue is a Motley Fool Stock Advisor pick. Together, David and Tom
Gardner's selections have been helping subscribers wallop the market
by a wide margin. Want in on the action? No problem.
Fool contributor Tim Beyers doesn't own shares in any of the
airlines mentioned, though he has family members who are retired
from United. To find out what stocks are in Tim's portfolio, check
his Fool profile, which is here. To find other Fools to offer your
own take on Delta, JetBlue, or the airline industry in general,
visit our discussion boards.
By Tim Beyers (TMFMileHigh)
January 27, 2005
Ever since Motley Fool Stock Advisor pick JetBlue (Nasdaq: JBLU)
launched in 1999, rivals have been aiming for it. The effort appears
to have paid off. This morning, the carrier reported fourth-quarter
net income that was 88% lower than the year prior. The decline is
largely due to a 41% increase in operating costs, which dropped
margins by nearly 10 points. No doubt most of that came from spiking
fuel costs, but competition couldn't have helped, either.
Frankly, today's news makes me think JetBlue is vulnerable. Delta
(NYSE: DAL) seems to agree. The legacy carrier, which only months
ago barely avoided bankruptcy, yesterday told Reuters that Song, its
low-cost airline within an airline, will grow its fleet by one-third
during 2005. Specifically, Song will adopt 12 Delta-owned Boeing
(NYSE: BA) 757s by May 1 and add 36 new flights through Sept. 2.
What's most interesting is that many of the flights will be coast-to-
coast nonstops, including New York to Los Angeles and San Francisco.
Song will replace Delta's mainline service on those routes.
Though it wasn't clear from the Reuters interview, the move appears
to be aimed squarely at taking share from JetBlue on its most
profitable routes. Is that possible? Well, it doesn't hurt that Song
shares with JetBlue the same reputation for upscale, trendy service
in a low-cost package, including 24 channels of EchoStar's (NYSE:
DISH) Dish Network satellite TV. Efficiency has also become a
hallmark of Song. For example, its planes are in the air for three
hours per day longer than Delta's. Song also takes an average of 50
minutes to turn its planes for the next flight versus 90 minutes for
Delta. JetBlue is unlikely to simply price its way out of the threat
from Song.
Still, it's worth noting that even with fuel prices at nosebleed
levels, JetBlue continues to manage profits, and its low-cost
structure ought to allow it to continue to do so. Conversely, Delta
has been bleeding money, and Song is no panacea. Neither is Ted for
UAL Corp's United. But both are likely to make it increasingly
difficult for JetBlue, Frontier (Nasdaq: FRNT), AirTran (NYSE: AAI),
Southwest (NYSE: LUV), and every other so-called discount carrier to
earn profits. If you're an investor in any of them, now's a good
time to buckle your seat belt. There's likely to be more turbulence
ahead.
For related Foolishness:
What would JetBlue do with this whopper of a jet?
If you're still scratching your head, check out what Bill Mann found
when he examined Southwest's slow slide.
Delta thankfully avoided a crash landing in November.
JetBlue is a Motley Fool Stock Advisor pick. Together, David and Tom
Gardner's selections have been helping subscribers wallop the market
by a wide margin. Want in on the action? No problem.
Fool contributor Tim Beyers doesn't own shares in any of the
airlines mentioned, though he has family members who are retired
from United. To find out what stocks are in Tim's portfolio, check
his Fool profile, which is here. To find other Fools to offer your
own take on Delta, JetBlue, or the airline industry in general,
visit our discussion boards.