New Concerns About JetBlue - Article

[Heavy Set]

The emergence of Skybus and Virgin America won't help JetBlue - especially with continued pressure from SWA, AirTran, Spirit (hurting East Coast margins) and a resurgent/lower-cost Delta. Add to that rising fuel costs for everyone...


From Forbes.com:

Market Scan
New Worries About JetBlue
Andrew Farrell, 04.25.07, 4:50 PM ET

Shares in JetBlue slid for the second straight day on Wednesday, reflecting concerns that rising costs for the airline could come as it faces tougher competition.
Shares of the low-cost carrier were down 4.0%, or 43 cents, to $10.28, after Bear Stearns analyst Frank Boroch downgraded JetBlue (nasdaq: JBLU - news - people ) to "peer perform" from "outperform." Boroch explained that tough competition waits ahead for JetBlue.
On Tuesday, JetBlue gave 2007 profit margin guidance lower than was lower than previously stated. The airline is being pressured by higher expenses, particularly from jet fuel. (See: "Margin Pressures For JetBlue".)
JetBlue guided investors to expect a pretax margin of 1% to 3% for 2007 on Tuesday. Based on that margin range and an average analyst estimate of $2.9 billion for 2007 revenues, JetBlue would have a pretax 2007 income of $29 million to $87 million. In 2006, JetBlue posted a pretax income of $9 million, when the margin was just 0.4% and sales were $2.2 billion.

The reduced margin outlook comes as JetBlue has to fight harder to win travelers. Boroch said JetBlue will face increased competition from existing carriers, low-cost startups like Skybus and Virgin America, and a Delta that is emerging from bankruptcy.

"While the carrier maintains its overall cost discipline, continued high crude prices and increased competitive threats," said Boroch in a client note, "should limit margin and earnings growth." The JetBlue concerns helped depress budget airlines stocks across the board. An index of low-cost U.S. passenger carriers compiled by Revere Data was down 1.1% Wednesday, despite a 1.0% rise in the Standard & Poor's 500.

Also pressuring airlines was United Airlines, which reported a first-quarter loss of $152 million, or $1.32 per share, narrower than its loss of $223 million, or $1.95 per share, a year ago. Analysts polled by Thomson Financial had been expecting a loss of only 47 cents per share. United's parent, UAL (nasdaq: UAUA - news - people ) was down 88 cents, or 2.3%, to $38.28.

 

[Truckdriver]

It's interesting to look at the CASM figures for JetBlue and Delta. JetBlue is now above 8 cents while Delta is now down to around 7 cents. I know the Delta number is a system-wide number that includes international routes, but back in 2001 the system wide number was something like 12 cents. JetBlue should probably worry more about Delta than Skybus. People will only fly Skybus about one time before they realize it would be better to walk. Delta on the other hand is going to be a problem out of the NY area for JetBlue.

 

[On Your Six]

It's interesting to look at the CASM figures for JetBlue and Delta. JetBlue is now above 8 cents while Delta is now down to around 7 cents. I know the Delta number is a system-wide number that includes international routes, but back in 2001 the system wide number was something like 12 cents. JetBlue should probably worry more about Delta than Skybus. People will only fly Skybus about one time before they realize it would be better to walk. Delta on the other hand is going to be a problem out of the NY area for JetBlue.

I agree. Delta can continue to expand the use of Shuttlecraft E170s out of JFK & LGA and compete directly with JetBlue on a lot of their routes. Add to that potential E190s, a much better frequent flyer program and international feed and the competitive problem grows for JetBlue. The East Coast is also far too competitive out of the NY area with Spirit, CAL and USAirways vigorously competing on the NY-Florida routes. You can't make as much money on those once-lucrative North-South routes.

 

[Heavy Set]

Interesting article. My question is where will the LCCs go to compete for new passengers? The aviation infrastructure is already over flowing. I guess Skybus flying to Bellingham and other far out airports is the only way they will expand.

 

[BLUE BAYOU]

It's all about yields. As Delta exits bankruptcy, their pressure to show a profit and make their estimated $816 million pre-tax profit will actually require them to charge fares that won't be what a bankrupt carrier is allowed to, since making a profit has been moot for 19 months. If they do, it will allow carriers who have been competing against this obstacle to maybe charge higher fares (that is, unless Delta decides to "protect" their market share again and risk losing money).

 

[Draginass]

I don't think JB has too much to worry about. The days of euphoria are over, however, and now it's going to have the worries and problems of a maturing airline. Needleman's pretty smart. I think they'll adapt.

 

[coogebeachhotel]

just another airline now.

 

[roadrunnerblue]

It's all about yields. As Delta exits bankruptcy, their pressure to show a profit and make their estimated $816 million pre-tax profit will actually require them to charge fares that won't be what a bankrupt carrier is allowed to, since making a profit has been moot for 19 months. If they do, it will allow carriers who have been competing against this obstacle to maybe charge higher fares (that is, unless Delta decides to "protect" their market share again and risk losing money).

JetBlue never even started charging fares that would get them the 200-300 million profit for 2007, that Neeleman offered the investment community back in Q4 '06. Not surprisingly they had to revise downward their estimates for 2007!

Even if one was to subtract the 30 million from the V-day massacre they still would never have made the 170-270 million forecast by Neeleman.

If the investment community has not wised up by now about Neeleman's forecasts they never will.

 

[Truckdriver]

JetBlue never even started charging fares that would get them the 200-300 million profit for 2007, that Neeleman offered the investment community back in Q4 '06. Not surprisingly they had to revise downward their estimates for 2007!

Even if one was to subtract the 30 million from the V-day massacre they still would never have made the 170-270 million forecast by Neeleman.

If the investment community has not wised up by now about Neeleman's forecasts they never will.

I think everyone is revising their 07 forecasts due to weakening demand. Nobody can forecast weakening demand until they see it in the forward bookings. Forward booking during the 4Q 06 didn't look too bad although they were weaker than the prior year. Delta was the only airline to say that demand was up over the prior year, but you have to remember that last year at this time Delta wasn't exactly the best airline to be buying a ticket on. I'm sure that has something to do with their forward booking this year compared to last year. The last time we had a drop in domestic demand that looked this bad was spring 2001. Let's all hope this isn't the start of the next economic downturn for this industry. I think Neeleman was giving the best guidance he could at that time based on all information that was available. The one crazy thing that he did say was he thought the drop in demand might be due to people taking a couple months off of flying to pay down their credit cards. After they pay off their cards, he expects them to start flying again. I think him and Glenn Beck are spending too much time together!

 

[rayford steele]

It's interesting to look at the CASM figures for JetBlue and Delta. JetBlue is now above 8 cents while Delta is now down to around 7 cents. I know the Delta number is a system-wide number that includes international routes, but back in 2001 the system wide number was something like 12 cents. JetBlue should probably worry more about Delta than Skybus. People will only fly Skybus about one time before they realize it would be better to walk. Delta on the other hand is going to be a problem out of the NY area for JetBlue.

The Delta 7 cent number is CASM minus fuel. According to http://media.delta.com/article_display.cfm?article_id=10659 Delta's CASM is 10.39 which is the best of the legacy carriers. JetBlue's CASM is 8.43 including fuel.

 

[Dizel8]

Mainline CASM excluding special items 10.03

 

[FDJ2]

Jetblue 1Q:

*Operating loss for the quarter was $13 million, resulting in a
negative 2.2% operating margin

*Pre-tax loss for the quarter was $45 million, resulting in a negative 7.3% pre-tax margin


Delta 1Q:

*Delta's operating profit for the March 2007 quarter was $155 million, the company's fourth consecutive quarterly operating profit.

*Operating margin 3.7%

 

[tailhookah]

We'll readdress this issue after DAL operates for a few quarters when they are required to pay their bills and not get a liberal judge to let them write it off to BK... a level playing field for both sides. Then you can brag about DAL's profits/losses. Until then you are comparing apples to road apples....

Tail

 

[FDJ2]

We'll readdress this issue after DAL operates for a few quarters when they are required to pay their bills and not get a liberal judge to let them write it off to BK...
Tail

Which bills are not getting paid this quarter that will be paid next quarter when DAL is out of BK?

 

[tailhookah]

BK is all about slashing your debts and not having to pay what you owe... just look at UAL... they aren't making money like DAL is now... I'll believe it when they are out of BK protection for a few quarters and still making dough. Welcome back to the real world where you can't have a judge slash your debt while screwing the people who were owed the money... if you think BK works differently then pass on the hookah pal.

Tail

 

[737 Pylt]

We'll readdress this issue after DAL operates for a few quarters when they are required to pay their bills and not get a liberal judge to let them write it off to BK... a level playing field for both sides. Then you can brag about DAL's profits/losses. Until then you are comparing apples to road apples....

Tail

I'm curious....Which bills are not getting paid? Oh you mean like not paying for Airbus airplanes for the first 5 years with free maint.
Enquiring minds and all that.....

737

 

[Dizel8]

Oh you mean like not paying for Airbus airplanes for The first 5 years with free maint.

737

Actually, Airbus likes us so much, it is now 10 years of free maintenance. Figured you wanted to know!

 

[ATR-DRIVR]

I agree. Delta can continue to expand the use of Shuttlecraft E170s out of JFK & LGA and compete directly with JetBlue on a lot of their routes. Add to that potential E190s, a much better frequent flyer program and international feed and the competitive problem grows for JetBlue. The East Coast is also far too competitive out of the NY area with Spirit, CAL and USAirways vigorously competing on the NY-Florida routes. You can't make as much money on those once-lucrative North-South routes.

Where are they going to 'expand' in JFK? I commuted up on wed and we, along with 3 other 767's waited almost 45 minutes for a gate due to 'congestion' in the alley. Unless they send some of the Dash -8's and RJ's away there is NO asphalt for them.

 

[elag777]

I'm curious....Which bills are not getting paid? Oh you mean like not paying for Airbus airplanes for the first 5 years with free maint.
Enquiring minds and all that.....

737

:laugh: :laugh: :laugh: Did you hear ? the 190's are free too!

 

[vixin]

If thats the deal they received so be it. Its not like making a contract then have those contracts thrown out or for cents on the dollar. Heck if I or you could get a new car free for 5 years and free maint. would you do it?... heck yes. Pay back the creditors you owe and see how much profit you have. But hey thats what BK is for? Then you can get more new planes. Kind of asenine to me.

 

[FDJ2]

BK is all about slashing your debts and not having to pay what you owe... just look at UAL...

No doubt about it, BK is about slashing debt and renegotiating contracts, but you still haven't answered which bills are not being paid today which have to be paid when DAL exits.

 

[tailhookah]

I wanted to work at DAL... in fact I was in Plato's special stack and waiting for an interview. NWA, AAL and 9/11 beat Plato to it. So I could be a DAL guy right now. It's a good company but you guys have to stop blamming B6 for your downfall. You were screwed by years of mismanagement and the landscape changing on you. B6 did nothing but start up a company from scratch in a market that was in dire need of lower fares. Now at 7 years old we are paying industry standard wages on the airbus but have a ways to go on the 190... our retirement is better but has a way to go. But we are only 7 and have lots of growing issues to deal with... if you truely believe we didn't pay a dime for our airbuses for the first 5 years then you probably believe Rosie O'D's 9/11 conspiracy theory also... sure when you buy a new airplane a maintenace contract comes w/ it and that's what we get w/ every 320 we buy.... it's called good business. So it's always been in the business plan to get rid of 320's after about 5-6 years if the market is paying well for them and replace some of our older 320's w/ new ones w/ warrenties... good business. We aren't perfect but you guys at DAL did it all to yourselves. You've done some great international expansion but don't beat your chests too soon, because w/ open skies you may be right back in BK within a few years when your international meal ticket expires due to the new agreement.

Tail

 

[737 Pylt]

Actually, Airbus likes us so much, it is now 10 years of free maintenance. Figured you wanted to know!

I guess you didn't get the sarcasm in that? It was a joke!

737

Tail:
You still didn't answer the question, which bills are we not paying in BK??

737

 

[FlyingSig]

Actually, the humor I'm finding is that JetBlue guys are blaming Delta for keeping revenue down. Talk about the pot calling the kettle black. Although Neelman did say he'd be the only airline profitable with $80/barrell oil. At least you got that going for you...once oil gets up to $80 you guys are good to go.

 

[ualdriver]

It's a good company but you guys have to stop blamming B6 for your downfall. You were screwed by years of mismanagement and the landscape changing on you.

I don't think the DAL guys (or other legacy guys for that matter) should blame B6 solely either. It was all the LCC's who partially subsidized their profits with cheap labor. B6 (and others) paid their pilots less than 50% of the going rate for Airbus pilots in the early 2000's, and it's kind of hard for anyone to compete with any airline with labor costs like that. Further, we all had better hope that Allegiant, Skybus, Virgin, etc., aren't successful or we're all going to get a taste of another round of cuts just like the legacies did when the original LCC's started to succeed and reach "critical mass."


B6 did nothing but start up a company from scratch in a market that was in dire need of lower fares. Now at 7 years old we are paying industry standard wages on the airbus but have a ways to go on the 190...

Tail, that is laughable. B6 is paying industry standard wages as if you guys had anything to do with it? Funny. The only reason B6 is paying anything even resembling "industry standard" wages is because "industry standard" was lowered down to B6 level wages so that other airlines could compete with you guys. And the only way E190 rates will become "industry standard" is if we are all forced to lower our 737/MD80 rates down to your level so that we can compete. Then, in the future, you can brag about those industry standard E190 rates! Like I said, funny.

We aren't perfect but you guys at DAL did it all to yourselves.

Actually, not really. DAL was forced, like many legacies, to change their business model because of the rapid growth of LCC's. LCC's grew rapidly because they were using discount airline pilot labor (and other discount labor as well) to partially subsidize their profits. So I wouldn't say DAL did it all to themselves.


You've done some great international expansion but don't beat your chests too soon, because w/ open skies you may be right back in BK within a few years when your international meal ticket expires due to the new agreement.


I'd be careful there too, Tail. Did you happen to catch the "hook" part of the little Heathrow deal we all got a while back? 2 years from now, there could be guys flying JFK-BUF or JFK-MCO at wages that would make your E190 pilots blush.

Now go get those E190 rates up so I don't have to fly my 737 around for 90 bucks an hour next year, OK?

 

[Dizel8]

I guess you didn't get the sarcasm in that? It was a joke!
737

Ehhh, Beavis!!

 

[tailhookah]

First off... when you reduce your overall debt in BK by 6 or 7 billion then you are scaping out on tons of debt you were supposed to pay to the people you borrowed it from... then w/ the reduction in debt your interest is far lower than it was which in turn screws the banks that you were paying interest to. Then your BK judge lets you slash leases, contracts (read labor... you), pensions... etc. BK allows you to set up new and "favorable" leases, contracts and return or cancel agreements w/ people that you had guaranteed payment to. Now if these people or businesses are lucky they get pennies on the dollar to either agree to the BK judges new rules or lose all of their money. So it's better to get .30 cents on the dollar than no money at all.... did you think that BK just lets you go to the money farm and get a bunch of free money w/o screwing the people (read labor... you again) that were contractually promised those wages, leases and mortgages????? So by doing this you get to reset your expenses while others out there are living and conducting business according to the rules of paying bills and leases and honoring contracts on time.... while others lives are ruined due to less money or losing contracts w/ you... like yourself. If this is new to you then you should be schleping drinks behind the armoured door and not flying the bus.

B6 is a LCC... was a start up when the intial low wages were being paid. When we had 20 jets you can't even begin to tell me that we were even considered more than a gnat on DAL's radar... it's your fault to have ignored B6 until it was too late and the market share out of jfk had shifted to B6 over DAL over the same routes. Shame on your leadership for letting that happen. Now, you guys are correct... wages have been lowered but isn't that ALPA's fault and your mec's fault for not standing strong (fraternally yours brother.... something like that, right alpa stooges?) and holding the line. B6 is not the reason why all of your wages came down. It's was due to alpa's ineptitude for not standing strong and holding the line... oh yeah i know... i am furloughed for 5.5 yrs now from nwa and am on bypass b/c i can't afford to go back to a crappy contract and 1st yr pay of 29.55 and hour... and get no credit for any time i've been out. So don't sit behind your computer and credit B6 for the erosion of your benefits. Stare at your face in the mirror and repeat the following.... I let my MEC and Alpa drive down my wages and I did nothing about it.... because that's what happend.

We are getting close to an Alpa vote at B6 and quite frankly I think it will fall far short... the majority of us from other alpa carriers have all seen the light and think there's no way alpa can do anything right anymore. I'm all for Prater "taking it back" but it's just more hollow alpa rhetoric that has fallen far short over the last 7 years. Everyone wants to be like SWA... the laughing stock of the industry in the mid 90's. It was the second or third choice for many after the legacies and then cargo... but you know what??? SWA did it right and left alpa out... alpa is an inept organization that represents the very companies that other alpa mec's had scope clauses to protect themselves from... funny. ALPA is a business.... and they only want 1.95% of your money to screw you over.

Tail

 

[Eagle757shark]

First off... when you reduce your overall debt in BK by 6 or 7 billion then you are scaping out on tons of debt you were supposed to pay to the people you borrowed it from... then w/ the reduction in debt your interest is far lower than it was which in turn screws the banks that you were paying interest to. Then your BK judge lets you slash leases, contracts (read labor... you), pensions... etc. BK allows you to set up new and "favorable" leases, contracts and return or cancel agreements w/ people that you had guaranteed payment to. Now if these people or businesses are lucky they get pennies on the dollar to either agree to the BK judges new rules or lose all of their money. So it's better to get .30 cents on the dollar than no money at all.... did you think that BK just lets you go to the money farm and get a bunch of free money w/o screwing the people (read labor... you again) that were contractually promised those wages, leases and mortgages????? So by doing this you get to reset your expenses while others out there are living and conducting business according to the rules of paying bills and leases and honoring contracts on time.... while others lives are ruined due to less money or losing contracts w/ you... like yourself. If this is new to you then you should be schleping drinks behind the armoured door and not flying the bus.

B6 is a LCC... was a start up when the intial low wages were being paid. When we had 20 jets you can't even begin to tell me that we were even considered more than a gnat on DAL's radar... it's your fault to have ignored B6 until it was too late and the market share out of jfk had shifted to B6 over DAL over the same routes. Shame on your leadership for letting that happen. Now, you guys are correct... wages have been lowered but isn't that ALPA's fault and your mec's fault for not standing strong (fraternally yours brother.... something like that, right alpa stooges?) and holding the line. B6 is not the reason why all of your wages came down. It's was due to alpa's ineptitude for not standing strong and holding the line... oh yeah i know... i am furloughed for 5.5 yrs now from nwa and am on bypass b/c i can't afford to go back to a crappy contract and 1st yr pay of 29.55 and hour... and get no credit for any time i've been out. So don't sit behind your computer and credit B6 for the erosion of your benefits. Stare at your face in the mirror and repeat the following.... I let my MEC and Alpa drive down my wages and I did nothing about it.... because that's what happend.

We are getting close to an Alpa vote at B6 and quite frankly I think it will fall far short... the majority of us from other alpa carriers have all seen the light and think there's no way alpa can do anything right anymore. I'm all for Prater "taking it back" but it's just more hollow alpa rhetoric that has fallen far short over the last 7 years. Everyone wants to be like SWA... the laughing stock of the industry in the mid 90's. It was the second or third choice for many after the legacies and then cargo... but you know what??? SWA did it right and left alpa out... alpa is an inept organization that represents the very companies that other alpa mec's had scope clauses to protect themselves from... funny. ALPA is a business.... and they only want 1.95% of your money to screw you over.

Tail

Tail, I have to give you props on that one! I have been in this industry 10 years and have been furloughed twice. It amazes me that pilots will tell others they have to take a stand and be the fall guy, but when asked themselves....you get all the damn excuses about how they have to save THEIR jobs. Everyone of us has to look in the mirror and ask what stand are we willing to take when the time comes at our airline. US Air, Delta, United, ATA, Northwest all had an opportunity to make a stand and just say no to concessions...but it was THEIR jobs and they chose not to make that drastic stand. In Detroit last summer when the teachers union went out on strike the judge ordered them back to work or face stiff fines! The teachers told the judge where to go and paid the fine and got the contract they sought. When will the airline unions get it. Until you really believe in self help and are willing to seek self help at any cost, management knows our mentality and will play the book all the way to the bank. Jetblue, AirTran, Southwest, Spirit, Frontier aren't to blame for the legacy problems. When Comair started flying CRJs for Delta over 10 years ago, the Delta MEC could have taken a stand right then and said HELL NO! Jets will be flown on the Delta property and flown at affordable pay rates. PERIOD! Folks lets stop blaming each other and start standing united to fight for the wages and benefits we deserve as pilots industry wide.

 

[waterski]

Folks lets stop blaming each other and start standing united to fight for the wages and benefits we deserve as pilots industry wide.

AMEN.....

 

[Eagle757shark]

Oh folks one more thing. Back in 2004 when US Airways was on the verge of closing the doors, how many of us said man I have a friend over there,too bad hate to see them go away...but the next thought that came to mind was if they go away my company will grow and that will mean upgrades and more money for me! Lets all raise our hands! Most airlines business plans in 2003 and 2004 were to wait for US Airways to go out of business and the industry will be great again and we will all expand and grow. We all bought into this and hoped it would happen for our own selfish reasons! Now when US Airways was faced with the test of accepting managements concessions, had every airline union in the land said US Air we are with you in unity for our industry and had stood with them (and that means walking the picket lines together) maybe we'd be looking at a different industry today! Maybe the path for Delta, United, ATA, and Northwest may have been different had we all taken a stand with US Airways back then. (Perhaps all those carriers would still have their pilot pensions) To me the last straw was the termination of the pensions and that should have united every airline pilot in this country. But we lost a perfect opportunity to save our industry from the corporate boss'. Alpa, APA, SWAPA, NPA have to unite all the pilots and act as one voice if we really want to get managements attention!