JetBlue has a West Coast problem. While in general the consensus is that JetBlue needs to find a better way to serve the West, I’m not so sure about that. The best option may be to just focus elsewhere. If things were that simple, however, then this wouldn’t be worth writing about. It’s much more complex than it may appear on the surface.
In general, JetBlue’s strategy on the West Coast is simple. Fly from as many airports as possible to the airline’s East Coast focus cities of Boston, New York/JFK, Ft Lauderdale, and on rare occasion, Orlando. The West Coast is full of spokes that best serve the JetBlue loyalists in the East. The one exception to that, however, is Long Beach, just south of Los Angeles.
In the beginning, Ontario and Oakland were going to be JetBlue’s western outposts. When Ontario couldn’t bring costs down, JetBlue moved over to Long Beach. With competition from Southwest as well as the start of Virgin America in San Francisco, Oakland folded early as a focus. But Long Beach soldiered on with shifting strategies every couple of years to try to make it work. The early days of rapid growth at JetBlue ended once David Neeleman was ousted nearly 10 years ago. But the growth that did follow really focused on the East Coast, with Long Beach more of an afterthought thanks to both slot restrictions and probably, a recognition that there wasn’t great opportunity anyway.
When industry observers look at a route map, they don’t like to see holes. US Airways and America West merged, and the hole in the middle of the country gave analysts pause. That worked out nicely, but as the big guys have gotten bigger, the need to serve all masters has become more apparent. For that reason, the American and US Airways merger was so attractive. That argument served as a central argument in favor of the merger.
As you all know, when analysts looked at both the JetBlue and Virgin America route maps, they started salivating. Here was an opportunity to create one premium airline that could serve both coasts. It undoubtedly would have meant the end of Long Beach, but JetBlue would finally have a West Coast strategy that many felt was needed. Alaska had other plans, however, and bid it up so much that JetBlue had no choice to walk away. This left JetBlue to go back and do some soul-searching to figure out what to do next. There are a lot of options but none of them are good.
Continue the Long Beach Focus
Continuing to push on Long Beach is like returning to a spouse that keeps beating you. For most airports, the arrival of a JetBlue focus city would be like manna from heaven. It’s a dream come true. But Long Beach has been generally terrible to JetBlue since the day it arrived in 2001. First, it forced JetBlue to serve its customers in trailers for 10 years despite early promises that it would construct a new concourse. (Only after JetBlue threatened to leave here on the blog did the fantastic new concourse get built.) The anti-airport folks have consistently (and wrongly) targeted JetBlue as being a terrible neighbor, and the fight recently culminated with the city council refusing to even entertain JetBlue’s request for a customs facility to fly to Latin America. With the recent news that the airport is looking to pull slots away from late night violators, JetBlue is going to be faced with rising costs while Southwest tries to ramp up and push the airline out.
If Long Beach were a good revenue generator, then it would be worth putting up with all this insanity, but it isn’t. And it wasn’t good even before Southwest started in the market. Look at Long Beach to Oakland for the full year 2015. I like this market, because even when comparing to LA, you have airlines dominating with all coach seating (unlike San Francisco). The average fare was about $107 one way. From LAX? It was about $125. Even Ontario was up around $130 with even more seats than JetBlue had from Long Beach. This is one market, but the results are the same elsewhere. And with Southwest coming in, things are only going to get worse for JetBlue.
I love flying JetBlue, and I hope they stay for selfish reasons. But it’s hard to see why the airline would stay in Long Beach unless it felt it needed to have some kind of West Coast presence. What are the other alternatives if that’s the case?
The easiest option would be for JetBlue to merge, but with whom? The only one that’s feasible that would give the airline a real presence would be the newly-hefty Alaska. But Alaska is still in the throes of the Virgin America merger, and I can’t imagine it would be able to take that on. This could be a long term strategy, but it’s not something to count on now. And all those smaller carriers that have been rumored, like Hawaiian? Those are all useless to expanding the West Coast presence.
Another Focus City
Earlier this year, CEO Robin Hayes said JetBlue wasn’t looking for another focus city in the West, but should it be? No. Because where would the airline go? A couple years ago, the argument could have been made for San Jose. The airline’s vibe would have been a great fit, and there were more opportunities available. But for whatever reason (maybe waiting on a Virgin America merger), JetBlue hesitated. Now Alaska and Southwest have really started adding service there. The same goes for San Diego. There’s no other obvious place to go.
Some have suggested a return to Ontario. Under new airport management, costs would be much lower, but the revenue base just isn’t there. If JetBlue could pull people from LA as it did down to Long Beach in its early days before low cost carriers went to LAX, then it would be more compelling. But that ship has sailed, and the bigger opportunity in Ontario is for the ultra low cost airlines. There just isn’t an airport that’s an obvious option for JetBlue to use.
When JetBlue invested in JetSuite, the thought was that this would somehow help JetBlue’s West Coast presence by flying little private jets around to smaller airports. This will never provide blanket coverage to people in LA or elsewhere. It might be a niche, but it’s not one that’s going to give JetBlue any kind of measurable presence.
With these options exhausted, the next best option appears to be… walk away. Just shut the Long Beach focus city and keep serving the West Coast as a bunch of spokes from the eastern focus cities. Despite the fact that analysts love seeing maximum coverage, this is a strategy that can work. Keep growing from the East Coast, surge into Latin America and Europe with new aircraft types, and just worry about the West Coast some other day. Maybe that Alaska merger will eventually come to fruition.
I don’t think anyone outside the airline would blame it for walking away from Long Beach after the treatment it’s received. But it’s not the people outside the airline that are the problem. It’s the people on the inside.
Long ago, JetBlue opened a crew base in Long Beach, and it’s a popular place to be. If JetBlue were to shut Long Beach, it wouldn’t need a crew base anymore. The cultural impact could be significant. JetBlue took great pride in not being unionized for years. Its pilots eventually voted in a union, and negotiations have dragged on (as expected). Mediation begins this week. A closure of the Long Beach base probably wouldn’t sit well with the front line. For an airline that has put culture first since the beginning, this might be too much to stomach.
In the end, there is no good option for JetBlue on the West Coast. In normal circumstances, that may not really be an issue. Just focus on doing it right on the East Coast and don’t worry about the West. But when the culture component gets added in, the decision becomes tougher. Still, it seems like walking away from the West Coast may be the best option out there.