A couple months after huge fanfare announcement of new service from LAX, JetBlue has postponed the launch of the service from LAX indefinitely, citing high fuel costs as the reason. To date, JetBlue has served the Los Angeles region from Long Beach, a much smaller and more accessible airport. JetBlue operates to 10 cities, with another two planned, but the announcement of those new cities came at the same time as the LAX service was announced, so that may change, too. The LAX service was going to compete against a bunch of carriers (United, America, Virgin America and Delta) on the non-stop service to JFK and Boston, and chances of the industry needing a few hundred more seats on those routes every day are pretty low. Plus, transcons cost a lot of money to operate, meaning that JetBlue would need to realize pretty high yields (fares) for the route to be profitable. Ultimately, I think this is what did in the service.
At ~2,500 miles, the flights cost ~$35,000 each to operate. Assuming a 100% load factor (all 150 seats selling out) the break-even price is an average one-way fare of $233 and change. While that isn’t terribly high (~$467 round trip fare on a transcon isn’t completely unreasonable, though to generate $467 in revenue for the airline the passenger would pay closer to $525, after all the taxes are added),(See below for updated numbers) taking into account the fact that load factors are going to be lower, and that the costs to operate the flights seem to be more likely to go up than down, it makes a fair amount of sense that the flights seem somewhat unlikely to be profitable initially, so I’m not all that surprised that they are being postponed.
I have a theory that the sweet spot for a US-based airline is flights of 1,000 miles or less. Using the same cost structure you can sell seats for ~$100 each way and make money. And most folks looking at fares seem willing to buy a seat if it is less than $100 each way. I have no evidence or other stats to back up said theory, but it seems to work out that way. When the flight length goes up, the fare has to as well, and there isn’t as much discretionary travel at those prices, making the flights less likely to be profitable
Anyways, I think that this was a smart choice by JetBlue; we’ll see how the rest of the world feels about it over the coming days.
Edit (5.6.08 11:00a EDT): I got called out a bit for the $35K number I used in the pricing. I based the number of the Cost per Available Seat Mile (CASM) from JetBlue’s most recent 10-Q filing with the SEC, which is basically their way of expressing the average cost per flight mile for their entire route system. Longer flights are cheaper than shorter flights on a per mile basis, so my number was probably high. But even with fuel burn being slightly more efficient on longer flights than shorter ones, JetBlue is probably looking at a minimum of ~$15-18K in fuel costs, depending on how much they are paying to tank up. Add in gate fees, flight crews and ground crews, and the number can get over $20K per flight real easily. Assuming $20K/flight and 150 seats, JetBlue would need to sell the seats at an average of $133 each and sell all of them to break even. Taking their ~80% load factor into account and the number is more like $167. And that doesn’t include taxes/fees that go to the government or airports, so the average fare would still need to be close to $200 on average for the flights to make money. Based on the numbers it still seems reasonable to me that they are not going forward with the service, especially given the competition that they would face on the routes.
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