Ever since Motley Fool Stock Advisor pick JetBlue (NASDAQ:JBLU) launched in 1999, rivals have been aiming for it. The effort appears to have paid off. This morning, the carrier reported fourth-quarter net income that was 88% lower than the year prior. The decline is largely due to a 41% increase in operating costs, which dropped margins by nearly 10 points. No doubt most of that came from spiking fuel costs, but competition couldn't have helped, either.
Frankly, today's news makes me think JetBlue is vulnerable. Delta (NYSE:DAL) seems to agree. The legacy carrier, which only months ago barely avoided bankruptcy, yesterday told Reuters that Song, its low-cost airline within an airline, will grow its fleet by one-third during 2005. Specifically, Song will adopt 12 Delta-owned Boeing (NYSE:BA) 757s by May 1 and add 36 new flights through Sept. 2. What's most interesting is that many of the flights will be coast-to-coast nonstops, including New York to Los Angeles and San Francisco. Song will replace Delta's mainline service on those routes.
Though it wasn't clear from the Reuters interview, the move appears to be aimed squarely at taking share from JetBlue on its most profitable routes. Is that possible? Well, it doesn't hurt that Song shares with JetBlue the same reputation for upscale, trendy service in a low-cost package, including 24 channels of EchoStar's (NYSE:DISH) Dish Network satellite TV. Efficiency has also become a hallmark of Song. For example, its planes are in the air for three hours per day longer than Delta's. Song also takes an average of 50 minutes to turn its planes for the next flight versus 90 minutes for Delta. JetBlue is unlikely to simply price its way out of the threat from Song.
Still, it's worth noting that even with fuel prices at nosebleed levels, JetBlue continues to manage profits, and its low-cost structure ought to allow it to continue to do so. Conversely, Delta has been bleeding money, and Song is no panacea. Neither is Ted for UALCorp's United. But both are likely to make it increasingly difficult for JetBlue, Frontier (NASDAQ:FRNT), AirTran (NYSE:AAI), Southwest (NYSE:LUV), and every other so-called discount carrier to earn profits. If you're an investor in any of them, now's a good time to buckle your seat belt. There's likely to be more turbulence ahead.
For related Foolishness:
- What would JetBlue do with this whopper of a jet?
- If you're still scratching your head, check out what Bill Mann found when he examined Southwest's slow slide.
- Delta thankfully avoided a crash landing in November.
JetBlue is a Motley Fool Stock Advisor pick. Together, David and Tom Gardner's selections have been helping subscribers wallop the market by a wide margin. Want in on the action? No problem.
Fool contributor Tim Beyers doesn't own shares in any of the airlines mentioned, though he has family members who are retired from United. To find out what stocks are in Tim's portfolio, check his Fool profile, which is here. To find other Fools to offer your own take on Delta, JetBlue, or the airline industry in general, visit our discussion boards.
