JetBlue as the subject of the recent and notorious “Parker letter†inspired me to do a little bit of analysis using the most recent DOT / BTS traffic numbers from Q3/2005.
I wanted to look at the numbers in a slightly different way and see if it reflected what was going on in the industry as a whole.
Before I launch into the numbers, though, I’d like to discuss my methodology. We can all agree that it is good (for an airline) to be the largest carrier of passengers in the largest domestic market. However, you are no better off carrying 30% of a 10,000 passenger per day market than you would be carrying 100% of a 3,000 passenger per day market.
An airline’s presence in large markets does not mean they will be profitable, nor does an airline’s absence in large markets mean they will sustain losses. However, there is a correlation. If nothing else, view it as competitive health of a carrier to have carved out the largest market share in markets.
There are 379 markets in the United States where a single carrier generates in excess of 400 passengers per day. I selected 400 passengers per day as the baseline because that represents a 73% load factor on 2 737 round trips.
AIRLINE # of city pairs – market share leader + > 400 psgrs per day
AA 47
AS 21
B6 19
CO 16
DL 54
F9 2
FL 3
HP 4
NK 2
NW 28
UA 30
US 20
WN 131
YX 2
TOTAL 379
I looked also at the average length of haul and the average yield (per RPM).
AIRLINE (# MARKETS) AVG PAX/DAY AVG L.O.H. YIELD
AA(47) 887 1303 16.4 cents
AS (21) 826 789 17.2 cents
B6 (19) 1182 1572 8.94 cents
CO (16) 740 1245 15.3 cents
DL (54) 897 902 16.7 cents
F9 (2) 479 702 23.8 cents
FL (3) 658 359 26.6 cents
HP (4) 680 1287 12.8 cents
NK (2) 441 713 18.3 cents
NW (28) 796 993 17.2 cents
UA (30) 798 1206 17.0 cents
US (20) 660 863 17.3 cents
WN (131) 930 521 18.4 cents
YX (2) 641 1103 13.5 cents
PLEASE NOTE: The above numbers reflect carriers performance only in those markets where they are the leading carrier AND they enplane >400 psgrs per day.
FINDINGS:
Southwest is still king of the short haul markets, as the market share leader in 131 of the 379 markets studied. They have the shortest average length of haul which contributes to their healthy (18.4 cents) yield. This yield premium is probably not as large as it could be, considering the length of haul…..but is still plenty to ensure profitability with CASM in the 8 to 9 cent range.
The legacy carriers are poised for some recovery; yields are solid and average length of haul is what one would expect for carriers heavily involved in the transcon markets. Delta would be of the greatest concern with a lower CASM than most other legacies despite a considerable shorter length of haul.\
The USAirways + America West merged carrier “owns†24 markets – with average length of hauls about what one would expect based upon their geographical focus. (USAirways heavy in the East). The lagging yield of HP is of some concern, as is HP’s historic inability to capture any sizeable market share against Southwest in the western U.S. short haul arena.
JetBlue has every reason to worry. They have recently begun to experience losses. A yield of less than 9 cents systemwide will do that to you every time when your costs are above 8 cents. Neeleman’s JetBlue did the exact opposite of how Southwest was built – and the history of his airline closely parallels that of People Express. Short hauls have higher CASMs than long hauls. That’s one of those laws of physics that cannot be overturned. Rather than reach profitability on short hauls, and begin to expand into longer hauls at the same time as maintenance and personnel costs begin to increase (thus keeping CASM flat over time) Neeleman has constructed an airline which has seen the lowest possible CASM during its youth. His challenge will be to get that 8.9 cent yield up, quickly enough to overcome CASMs pressured by: a second fleet type that (by their own admission) will be more costly to operate, an aging fleet of airbuses whose parts tend to be ‘pricier’ than their Boeing counterparts, a maturing work force domiciled in an expensive part of the country who have seen their back-channel (stocks and stock options) wages rendered nearly valueless…lots of issues there.
The hit JetBlue’s stock took coupled with the salary levels imposed on JetBlue employees suggests to me that it will not be long before ALPA, Teamsters, IAM, AMFA, TWU etc etc start hanging around their premises. One of the things a company can do to stave off unionization is to pay pretty good (competitive within the industry) wages without collective bargaining. JetBlue’s pay scales do not meet that test. Thus it is only a matter of time before the employees try to force their hand.
Bottom Line: JetBlue is still a vigorous competitive force but they are not invincible. Their CASM is going up and may go up in a pretty big way. U/HP had best not pat themselves on the back and take them lightly.....the battle is still won in Y and not in the FF club or the F compartment. Battles are still won by giving value - that means junk the GoFares AND the BloFares.
I hope that the length of this post has not bored everyone. Things were slow today, and I had the chance to play with the numbers a bit.
Nobody loves you…or your money….more than Southwest Airlines --- even if Art does view them as the airline for the dispossessed.
Best Regards & Good Luck vs JetBlue
ELP