On April 4th 2013 I authored an article highlighting a few potential weaknesses within JetBlue's (NASDAQ:JBLU) new route offerings between Worcester Regional Airport in Massachusetts and both Orlando and Ft. Lauderdale Florida. Among the key points of the article were that JetBlue would lack success on routes operated from Worcester as the airport lacked navigational upgrades to combat poor weather conditions, that the airport lacked funding for substantial upgrades from relevant entities, and that the presence of the Worcester Regional Airport on the FAA list of airports to be subject to tower closures. Following supportive reader commentary, I would like to take the time to revisit and reexamine a key comment that was made regarding JetBlue's involvement in the FAA Next Generation Navigation Program.
JetBlue and FAA Next Generation Navigation:
Back in 2011 JetBlue partnered with the FAA in testing a modern, satellite navigation system known as Next Generation or Nextgen. The Nexgten system has the potential to offer JetBlue significant advantages over traditional ground based approaches at many airports. Nextgen performance based navigation utilizes more precise flight paths and curved final approaches into landings. These features are a direct result of Nextgen systems guiding flights on more direct routes, with more concise descents.
At the time, about one third of the JetBlue Airbus fleet was supposed to be fitted with the navigational equipment over the course of 2012. The initial testing was to occur within routes originating at JetBlue's hubs in Boston and New York. In June 2012 JetBlue announced that its entire fleet of airbus aircraft operating out of New York's Kennedy Airport had it fact been certified to operate within the realm of the program.
Value for Investors:
Investors should note that JetBlue's involvement in the navigation program creates value in areas where other airlines may not be able to succeed.
There will be substantial fuel savings. The entire Nextgen program is expected to lead to around $23 billion in fuel cost savings for all airlines nationwide.
The Nextgen function of performance based navigation has been touted as promoting shorter, more direct routes. As a result, flights will be shorter for passengers and airlines operating the flights.
Weather conditions at Worcester Regional Airport make it such that operators under traditional ground based navigation are subject to weather based delays on a frequent basis. Nextgen has the potential to eliminate or mitigate this risk.
Putting it All Together:
Investors should see value in JetBlue becoming part of the Nextgen navigation program. JetBlue will save substantial amounts with regards to fuel costs. As investors well know, fuel price increases can make or break the success of an airlines summer season. Flight times will be reduced by utilizing shorter, more direct routes. This means that passengers will be point to point in less time and that the Airline will have lower carbon emissions as a result of shorter operating times. This certainly bodes well for a company that values customer care and a growing client base that cares about social responsibility.
Nextgen may allow JetBlue to fly into lower visibility airports such as Worcester with ease and at lower cost. However these systems are only fully in place for JetBlue in Boston and New York, and are in the process of being installed at some of JetBlue's Florida airports. What does this mean? It means that the presence of systems in major airports first, indicates that Worcester, the 80th JetBlue city, might not be next in line for the upgrade. However the presence of the system on Florida routes suggests that JetBlue might be more inclined to install the system in Worcester sooner as planes from Florida routes would be flying there daily.
Finally, Nextgen system benefits are not unique to JetBlue. Competitors such as Alaska Airlines (NYSE:ALK) and Southwest Airlines (NYSE:LUV) have been using and have seen performance related improvements from the system. This indicates that while JetBlue may benefit from the system, other airlines will benefit from the system as well, thus diminishing the significance of JetBlue's participation in the program. In summary the potential for improved navigational systems now make the Worcester routes seem more feasible, so long as these improvements can counteract the airport's other weaknesses.
Additional disclosure: Investors should conduct their own due diligence before making investment decisions.