JetBlue's Growth Plans Take a Nap

Editor's note: This story has been changed to clarify that the FAA specifies eight-hour flight times for pilots, not shifts.

JetBlue (Nasdaq: JBLU  ) shareholders could not be blamed if, after Tuesday's results and all the recent stressful headaches, a nap seemed like a good idea. After all, a weekend Wall Street Journal article detailed how the low-cost carrier had run a novel experiment in which its pilots worked for 10 to 11 hours a day, up from the standard eight hours a day, in an effort to test pilot fatigue. Then, in the earnings release Tuesday, management throttled back heady future growth plans a notch further for the next few years -- aiming at 14% to 17% growth in capacity in 2007.

That being said, the third-quarter earnings report was somewhat disappointing, even considering the difficult industry environment. The company reported a net loss of $500,000 versus a $2.7 million profit in the same period last year, mostly due to ongoing fuel cost pressures. The disappointment arises when the industry as a whole, with standout performers like Southwest (NYSE: LUV  ) and Continental (NYSE: CAL  ) , is expected to report a profit for the second straight quarter, something not seen since 2000.

The one bit of positive news, though, was that JetBlue is scaling back its growth plans as it seeks to better manage deployment of its current fleet for stronger profitability. Analyst reports have remarked that many of the routes the airline has introduced in the past few years have been unprofitable. Obviously, the company is now seeking to address this concern by focusing on carefully choosing new routes and better revenue management.

The weekend Journal article on pilot fatigue testing has caused a bit of a black eye for the company. It collected data on pilot alertness levels during extra-long shifts from more than 50 passenger flights during May 2005. While the company received approval from the local New York FAA office, which usually handles such local matters, it did not obtain approval from national FAA headquarters. This caused problems when critics of the controversial testing pointed this out to headquarters, which then reprimanded JetBlue management for not seeking approval on what is known to be a contentious industry issue.

Ultimately, though, the issue boils down to union politics. JetBlue, being non-unionized, only has to deal with FAA regulations which specify eight-hour flight times for pilots, while many union contracts for competitors like American Airlines (NYSE: AMR  ) and United (Nasdaq: UAUA  ) specify tougher rules. Therefore, JetBlue would be economically advantaged to push for longer flight times. It is no small surprise that union officials brought the testing to senior FAA officials' attention, because if the experiment proves a success, unions will be forced to loosen their restrictive contracts with little economic benefits in return. For JetBlue investors, it might be wise to look beyond the rhetoric and offer a small grin as management continues to do what it has since inception -- break many of the airline industry's traditional rules, in many cases with great success.

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Fool contributorStephen Ellis does not own shares in any companies mentioned. You can see his holdings foryourself. The Motley Fool has an ironcladdisclosure policy.


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