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JetBlue Changes Planes

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By Jeff Fischer (TMF Jeff)
June 10, 2003

Shares of JetBlue Airways (Nasdaq: JBLU), the low-cost carrier launched in 2000, took a dip today on news that it placed an order for at least 100 new planes and up to 200. The $3 billion-$6 billion order with Brazil's Embraer (NYSE: ERJ) marks an early departure for JetBlue's one-plane-fits-all strategy, which Southwest Airlines (NYSE: LUV) used loyally to keep costs down.

JetBlue's current fleet consists solely of 162-seat Airbus A320s. The Embraer 190 jets it will begin to receive in 2005 have 100 seats and will primarily be used for shorter, regional flights with less daily traffic -- another departure from the airline's longer-distance, major-city strategy. Investors, fasten your seatbelts: There's risk in any venture that departs from normal operations.

Management says not to worry. It believes it can enter small markets and compete cost-effectively against the commuter carriers that represent costly operations for the major airlines. It said the "math" on these routes didn't make sense until the introduction of the new Embraer 190. With the new planes, costs per seat should be close to those associated with its current fleet of A320s.

JetBlue isn't throttling down its Airbus A320 flights, either. It placed an order for as many as 115 in April. The company operates from New York and Washington, D.C., but has service to both coasts and points in between, as well as frog-filled Puerto Rico. Sales in 2002 doubled to $635 million, and net income rose 41% to $55 million. The $33 stock is at 30 times 2003 earnings-per-share estimates, with 30% growth in earnings expected.

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