Earlier this year, JetBlue Airways (NASDAQ:JBLU) announced plans to shrink its footprint in its smallest focus city: Long Beach, California. The airline -- which operated up to 35 daily departures there just two years ago -- had already retrenched in the fall of 2018, cutting a third of its schedule. Following the latest round of cutbacks, JetBlue was down to about 15 daily departures to 10 destinations from Long Beach (or would have been but for the COVID-19 pandemic).
Back in January, when JetBlue announced its most recent plan to shrink its struggling Long Beach operation, I speculated that "it might have been better to rip off the bandage and eliminate everything" aside from routes to the airline's New York and Boston focus cities.
At last, JetBlue has come to its senses. In fact -- perhaps because of the impact of the COVID-19 pandemic on demand -- it's going even further than I had suggested, pulling out of Long Beach entirely.
The end of an era
Prior to the Great Recession, JetBlue was very successful in Long Beach, operating a mix of short-haul and transcontinental flights. Customers warmly embraced its service, as it offered lower fares and a more convenient experience compared to airlines flying from the much larger Los Angeles International Airport (LAX), 17 miles to the northwest.
However, over the past decade or so, JetBlue has struggled to make money in Long Beach. Lower fares at LAX because of changes in the competitive environment were the biggest headwind, along with increases in JetBlue's unit costs as the carrier has matured. For many years, JetBlue hoped to revive its prospects in Long Beach by launching international service to markets in Latin America. That plan fell apart in early 2017 when the city council voted against building a customs facility at the airport.
In recent years, Southwest Airlines' growth in Long Beach has added to JetBlue's troubles, Bowing to the inevitable, JetBlue announced on Thursday that it plans to stop serving Long Beach at the end of the day on Oct. 6: a little less than two decades after making Long Beach Airport its second focus city.
Moving to Los Angeles
JetBlue's ambitions in Southern California won't die along with its Long Beach focus city. Rather than closing its Long Beach crew and maintenance bases, the carrier is moving them to Los Angeles International Airport. It also plans to shift most of its remaining Long Beach routes to LAX as of Oct. 7. (Long Beach-Portland is the only route that will be canceled rather than shifted to LAX.)
This move follows JetBlue's decision to launch a slew of new routes in the coming months, including up to three daily flights between Los Angeles and Newark on planes equipped with its "Mint" premium cabin. This fall, JetBlue plans to operate up to 32 daily departures to 13 destinations from Los Angeles.
JetBlue hopes to build on this foundation over the next five years, more than doubling its Los Angeles operation to 70 daily departures by 2025. "This will include multiple new markets, both domestic and international, some of which have never had nonstop service to and from LAX," according to the airline. Management noted that the ability to operate 24/7 and to launch international routes were key considerations in moving to LAX. (In addition to the lack of customs facilities in Long Beach, airlines are not allowed to schedule arrivals or departures between 10 p.m. and 7 a.m.)
JetBlue's attempt to grow significantly at LAX is hardly without risk. Competition is brutal at the airport, because of the market's strategic importance. Even if JetBlue gets to 70 daily departures by 2025, that would still probably leave it as the No. 6 carrier at LAX, fighting a multifront war against five larger airlines.
That said, JetBlue's above-average balance sheet gives it the flexibility to be aggressive right now. It can test new routes -- recognizing that some will fail -- while other airlines with shaker finances are forced to make tough decisions about which markets to protect and which to abandon.
JetBlue also may be expanding at LAX now to grab scarce gate space while it is available. As the airline builds up a fleet of ultra-efficient Airbus A220-300s over the next few years, it may be able to support numerous routes from Los Angeles that wouldn't make sense with the planes in its fleet today.
Exiting the Long Beach market was clearly the right move for JetBlue. However, it remains to be seen whether it has made another blunder by attempting to grow at LAX rather than refocusing on its core East Coast markets.