Less than two years ago, JetBlue Airways (NASDAQ:JBLU) announced major cutbacks in Long Beach, California, its smallest focus city. At the time, the carrier was operating up to 35 daily departures in Long Beach. However, it slashed that number by a third after Labor Day in 2018.

JetBlue's decision to shrink in Long Beach enabled other airlines to expand at the slot-constrained airport, particularly Southwest Airlines (NYSE:LUV). In fact, Southwest has grown in several markets that JetBlue serves from Long Beach, putting further pressure on JetBlue's results there. Not surprisingly, JetBlue announced earlier this week that it plans to make further cutbacks in Long Beach a few months from now.

A JetBlue plane preparing to land

JetBlue is downsizing its Long Beach focus city again. Image source: JetBlue Airways.

Long Beach: an unusual market

Long Beach Airport is one of several smaller airports surrounding Los Angeles International Airport (LAX). Local noise ordinances place strict limits on commercial flights in Long Beach. For many years, the limit was 41 daily departures, but that number has increased in recent years as improved jet engine technology has reduced noise levels. In 2019, the limit was 50 daily departures, and the limit is set to rise to 53 in 2020.

Back in 2001, very few of the slots were in use. That enabled JetBlue, then a young airline start-up, to enter the market and quickly build up a fortress hub that was immune to competition. Its low fares for flights to various cities on both coasts and premium amenities helped it quickly attract a following in Long Beach.

However, high fuel prices eventually made many of JetBlue's transcontinental routes unprofitable. Meanwhile, increased competition at LAX led to lower fares there, eroding JetBlue's price advantage. As a result, it stopped fully utilizing its nearly three dozen Long Beach slot pairs. That allowed other airlines to expand -- at first with temporary slot allocations, and later with permanent slots that JetBlue was forced to relinquish.

Southwest has come for JetBlue's customers

Before 2016, Long Beach was the only one of the five Los Angeles-area commercial airports Southwest Airlines didn't serve. Considering Southwest's strong brand and leading position in the California market, it was something of an anomaly that the low-cost airline giant didn't offer any flights in Long Beach.

A Southwest Airlines plane preparing to land, with mountains in the background

Image source: Southwest Airlines.

In early 2016, Southwest announced that it would finally enter the Long Beach market, using new slots that became available in that year. It launched service in Long Beach on June 5, 2016, with four daily flights to Oakland, one of its largest focus cities. The carrier subsequently added nonstop flights to Sacramento in 2017. And after JetBlue's 2018 cutbacks, it was able to gain even more slots in Long Beach. That allowed it to add service to San Jose, California and Las Vegas.

Oakland, Sacramento, San Jose, and Las Vegas are four of the cities that JetBlue currently serves from Long Beach. However, Southwest Airlines is the dominant carrier at all four airports. Not surprisingly, Southwest has been winning this competitive battle.

As a result, JetBlue announced on Wednesday that it will exit the Oakland market in late April, ending its flights to New York and Boston as well as to Long Beach. The airline also said it would reduce or eliminate service on half a dozen routes from Long Beach around the same time. That includes dropping its flights to Sacramento and San Jose and cutting back from three to two daily flights to Las Vegas.

This isn't the end

After this round of cutbacks, JetBlue will be down to 10 destinations served nonstop from Long Beach, one of which is served only seasonally. Those destinations are Boston, Las Vegas, New York City, Salt Lake City, San Francisco, and Seattle, along with Austin, Texas; Bozeman, Montana; Portland, Oregon; and Reno, Nevada. Meanwhile, at least 10 more slot pairs will be up for grabs in Long Beach.

Southwest is likely to get the lion's share. It could use some of those to add service to Austin, another market where it's dominant, and one or more of the major West Coast markets that it doesn't serve from Long Beach yet. Delta Air Lines is also interested and could bolster service to its Salt Lake City hub and/or add flights to its growing Seattle hub.

The bottom line is that the more JetBlue shrinks in Long Beach, the more slots will be available to support other airlines' growth there. Perhaps there are a handful of markets where nobody will be interested in challenging JetBlue. However, the only markets from Long Beach where JetBlue has a clear competitive advantage are the flights to New York and Boston, its two biggest focus cities.

Shrinking in Long Beach is the right move for JetBlue. The carrier recently confirmed that its unit revenue declined last quarter, which highlights its need to jettison underperforming flights. However, it might have been better to rip off the bandage and eliminate everything other than the New York and Boston routes in Long Beach. The slots it will have to surrender because of its latest cuts will just allow rivals, especially Southwest, to grow further in Long Beach, putting more pressure on JetBlue's operation there and forcing further cuts in the years ahead.

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