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At its Investor Day meeting a week ago, JetBlue Airways (NASDAQ: JBLU) unveiled a handful of strategies designed to nearly double earnings per share by 2020 or 2021.
Aggressively reallocating capacity from underperforming routes to more promising markets was one of the key strategies announced by JetBlue. While this process had begun in a small way prior to JetBlue's Investor Day meeting, the carrier announced comprehensive changes to its route network this week.
Too many low-margin routes
Many of JetBlue's routes are extremely profitable. Nevertheless, unit revenue growth has been slow this year, suggesting that the company has experienced weak demand in parts of its route network. Indeed, on Wednesday, JetBlue reported that revenue per available seat mile probably inched up just 1.7% in the third quarter -- below the midpoint of its previous forecast range.
JetBlue began to address this issue back in April, when it announced substantial reductions to its short-haul flying in Long Beach, California. These cuts went into effect last month. The capacity was reallocated primarily to additional transcontinental service connecting New York and Boston to Southern California.
JetBlue is starting to make aggressive cuts in underperforming markets. Image source: JetBlue Airways.
While the Long Beach focus city was an obvious target for capacity cuts, it wasn't the only part of JetBlue's route network that was struggling. At the recent Investor Day, JetBlue indicated that it would continue to reduce flying on short-haul routes and in markets without strategic relevance for the carrier. Meanwhile, JetBlue will add more flights on its most profitable routes, operate more daytime transcontinental trips, and continue expanding in its top three markets of Boston, New York, and Fort Lauderdale.
Huge changes are coming
On Tuesday, JetBlue announced a slew of route network changes that will go into effect in early 2019, as it looks to translate its network reallocation plan into reality.
JetBlue will continue its expansion in Fort Lauderdale with new routes to Phoenix, St. Maarten, and Guayaquil, Ecuador. It will also add new daily service from Boston to Rochester, New York, and from Providence to West Palm Beach. Finally, JetBlue will "increase flights on nearly two dozen of its most popular and profitable existing nonstop routes in the Northeast, Florida and the Caribbean," with a strong focus on growth in Boston and Fort Lauderdale.
While JetBlue does plan to keep increasing capacity in 2019, many of these new routes will be "funded" by cuts elsewhere in its route network. It will slash its flying from Mexico City to Fort Lauderdale and Orlando by half, and reduce service on underperforming routes to Baltimore, Detroit, Pittsburgh, and Santiago, Dominican Republic.