New JetBlue Worcester To Florida Service: A Burden To Investors?

Apr. 4.13 | About: JetBlue Airways (JBLU)

Introduction:

Over the years, JetBlue Airways (NASDAQ:JBLU) has worked to establish itself as one of the premier low cost airlines within the United States. By experimenting with routes and destinations, JetBlue has shown signs of success in a highly competitive, low cost market that includes major players, including Southwest Airlines (NYSE:LUV) and Spirit Airlines (NASDAQ:SAVE). However share performance for Spirit Airlines has suggested that JetBlue is somehow "missing the boat." JetBlue's recently announced Worcester (NYSE:MA) to Ft. Lauderdale and Orlando should be cause for concern in the eyes of investors.

Company Logic:

Recent outreach by the City of Worcester and Massport officials have provided some favorable conditions for a JetBlue entry into the Worcester Airport.

  • Massport, the agency that operates the airport is providing incentive for JetBlue by eliminating $275,000 in airport fees. Similar favorable arrangements were also made with other carriers that have required incentive in order to start service to Worcester. Massport is also providing $150,000 in free marketing.
  • Speculators believe incentive will exist for customers to utilize JetBlue services because parking costs are 25% percent of that at Logan International Airport.

  • As JetBlue looks to expand services within New England, it makes sense for the company to open up operations near Boston, where the company already controls the majority of flights at the airport.

  • The State of Massachusetts has spent over $9 million dollars since purchasing the airport from the City of Worcester. The city itself has been courting JetBlue over the last year. It is reasonable to expect that conditions would be favorable for the surrounding municipalities to appease to JetBlue requests and needs in order to establish and maintain commercial passenger service.

  • JetBlue already serves Austin and San Juan from airports within Florida. Connecting service could be offered by the airline to appeal to more passengers.

Reasons for Concern:

While discounts on airport fees and free publicity are certainly appealing to any company's bottom line, the cost savings and favorable publicity JetBlue has received regarding expansion plans into Worcester are not reason enough to overlook the causes of other airline's failure at the airport.

  • Worcester Regional Airport (ORH) lacks a direct connection to a major transportation line or interstate highway. The closest thing the airport has is a bus that connects to Worcester Union station, which has been reported as being a close to an hour ride. In comparison, Boston Logan International Airport has major connections to I-90, I-93 and the local subway. Furthermore, airports in Manchester, NH, Providence, and Hartford all have the direct interstate access that Worcester lacks.

  • Airlines have been leaving the Worcester market for years. US Airways was the last legacy carrier to serve Worcester, departing in 2003. Allegiant Airlines (NASDAQ:ALGT) left in 2006 citing a lack of optimal passenger capacity and fuel costs that were too high for the company's fleet of MD-80 aircraft. It was reported that even at capacities of 80% to 90%, that Allegiant was still not happy with the bottom line. Additionally Allegiant cited the lack of fuel efficiency for flights on the Worcester to Florida routes. Direct Air, a charter based air carrier with weekly Florida flights, abruptly ended flights in late 2012 after financial losses and a weakened customer interest.

  • Worcester Regional Airport lacks modern navigational equipment needed by modern aircraft and required as part of safety regulations. The airport is perched upon higher elevations. A cliff at the end of the runway can cause foggy conditions on occasion and navigational equipment would be needed to avoid delays in these conditions.

  • It has been suggested that Massport, the owners of Logan International Airport in Boston, has considered "mothballing" Worcester regional airport to support the higher landing fees, higher parking rates, and higher revenues generated by the airport in Boston.

  • Worcester is on the FAA list of airports to be affected by a tower closure due to federal budget cuts. While not required for safe landing or operations, having a controller present drastically reduces safety risks for passenger air carriers.

Conclusion:

JetBlue is attempting to establish route service from an airport that has failed to produce positive results for other airlines over the past twenty years. While operating costs may be lower that major airports, the saturation of major airports within New England and the ease of access to all other New England airports, may prove Jetblue's efforts to be futile. Allegiant Air received similar favorable financial treatment from both the city and state, only to terminate their contract to serve the airport well before the five year term had expired.

The overall costs to customers including parking tend to be lower when utilizing the Worcester Airport. However the inconvenience of no direct transportation connections and no direct access road have provided travelers with more reasons to utilize other airports. While the company many claim to serve 80 destinations, one is left to wonder if all of those destinations are of positive benefit to the airline if recent share performance is a result of industry consolidation and hype and not company performance. Shares of JBLU are trading about 80 cents below the 52 week high of $7.01.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I terminated my last position in JLBU around 11 months ago. One should perform their own due diligence before making investment decisions..