Summary
The first quarter results from jetBlue and the carrier's announced response are more indications that the skies are not unlimited for low-cost carriers. In fact, the planned fleet growth at the largest low-cost airlines (Southwest, AirTran, jetBlue) are not likely to be sustainable in an envirionment where jet fuel remains over $2 per gallon.
Analysis
The rising cost of fuel was noted as a primary reason for the losses reported at jetBlue. The carrier responded aggressively with a plan to defer deliveries of A-320s, and to sell off in the near term 2 to 5 of its existing fleet of these aircaft. In addition, it has announced it will reduce trans continental flying and will refocus on markets closer to its main operations at JFK International.
Even with these moves, however, the airline still intends to add ten or more new cities to its routemap in the year ahead, ostensibly to be operated mostly with 100-seat Embraer 190s. While smaller than the airline's A-320s, these are still significant units of capacity.
In the meantime, Southwest, which reported 1Q profits based entirely on the benefits of fuel hedges, is pushing forward with massive expansion. It has shifted options on 79 more 737s to firm orders, and has signaled an intent to add significant flying, including adding up to 60 additional departures at Denver - a market that's neither over-priced nor under-served.
The open issue to watch in the second and third quarters will be whether this increased capacity can generate sufficient new traffic to cover costs. With fuel going up, the ability to stimulate net-new passengers with low fares will be very difficult.
