HEARD ON THE STREET:' Legacy' Airlines May Outfly Discount Rivals [Wall Street Journal]
Summary: Discount airlines, already faced with increasing competition from one another, are now faced with a threat from bigger, older airlines. These "legacy" airlines have a dual advantage: lower costs and premium overseas traffic. Discount airline JetBlue has reported a Q3 net loss and plans to reduce its fleet, while the parent of discounter AirTran Airways also reported a quarterly loss. Frontier Airlines took a sharp hit to profits and Southwest, though showing a profit, came in shy of expectations. While the discounters have furiously added seats, the legacy airlines have been reining in their growth -- a strategy that appears to have paid off; their stocks have mostly gone up thanks to higher profits or narrowed losses. They are also better equipped to survive an economic downturn than their discount competitors: they can press older aircraft back into service and drop "feeder flights" that operate through regional affiliates. The discounters' planes are too new and expensive to retire, and their geographic coverage must keep growing to keep costs down. The discounters are now busily searching out new domestic destinations in an effort to spread out their overhead. The difference between the two business models is well illustrated by AMR and JetBlue: AMR shrank Q3 capacity on nonregional routes by 2.4% from a year earlier and returned to a profit as it filled more seats; while JetBlue, which increased its Q3 capacity by 19%, showed a loss as it filled fewer seats. All the airlines, regardless of size, were stung by high fuel prices and by the FAA's ban on liquids in carry-ons this quarter, but the discounters, which operate more short-haul flights, suffered disproportionately from the latter problem.
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Potentially impacted stocks and ETFs: JetBlue Airways Corp. (JBLU), Southwest Airlines Co. (LUV), Frontier Airlines Holdings Inc. (FRNT), AirTran Holdings Inc. (AAI), AMR Corp. (AMR)
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