JetBlue Airlines 2008 Annual Report Download - page 14

service, routes served, flight schedules, types of aircraft, safety record and reputation, code-sharing
relationships, capacity, in-flight entertainment systems and frequent flyer programs.
Our competitors and potential competitors include traditional network airlines, low-cost airlines, regional
airlines and new entrant airlines, including a new business model known as the “ultra low cost” carrier. Six of
the other major U.S. airlines are generally larger, have greater financial resources and serve more routes than
we do. Our competitors also use some of the same advanced technologies that we do, such as ticketless travel,
laptop computers in the cockpit and website bookings. Since deregulation of the airline industry in 1978, there
has been consolidation in the domestic airline industry. In 2006 and 2007, the U.S. airline industry
experienced significant consolidation and several airlines filed for bankruptcy protection with further
consolidation and liquidation occurring in 2008, largely as a result of high fuel costs and continued strong
competition. At least eight airlines that operated from the U.S. ceased operations during 2008 and the merger
of Delta and Northwest became final, which created the world’s largest airline. Further industry consolidations
or restructurings could result in our competitors having a more rationalized route structure and lower operating
costs, which could enable them to compete more aggressively.
Price competition occurs through price discounting, fare matching, increased capacity, targeted sale
promotions and frequent flyer travel initiatives, all of which are usually matched by other airlines in order to
maintain their share of passenger traffic. A relatively small change in pricing or in passenger traffic could
have a disproportionate effect on an airline’s operating and financial results. Our ability to meet this price
competition depends on, among other things, our ability to operate at costs equal to or lower than our
competitors. All other factors being equal, we believe customers often prefer JetBlue and the JetBlue
Experience.
During 2008, most traditional network airlines continued to increase capacity on their international routes
while reducing domestic and Caribbean capacity. Virgin America continued to expand in routes that compete
directly with us, although other carriers substantially reduced capacity in a number of our markets. We are
encouraged by continued capacity discipline across the industry and expect it to continue through 2009, and
we believe the capacity cuts will help offset the impact of the recessionary environment.
Airlines also frequently participate in marketing alliances, which generally provide for code-sharing,
frequent flyer program reciprocity, coordinated flight schedules that provide for convenient connections and
other joint marketing activities. These alliances also permit an airline to market flights operated by other
alliance airlines as its own. The benefits of broad networks offered to customers could attract more customers
to these networks. We currently participate in marketing alliances with Cape Air, an airline that services
destinations out of Boston and San Juan, Puerto Rico, and with Aer Lingus, an airline based in Dublin,
Ireland. We plan to pursue other alliances with international airlines, including Deutsche Lufthansa AG, which
is a stockholder of JetBlue, to leverage our presence at JFK.
Route Network
Our operations primarily consist of transporting passengers on our aircraft, with domestic U.S. operations,
including Puerto Rico, accounting for 92.5% of our capacity in 2008. The historic distribution of our available
seat miles, or capacity, by region is as follows:
Capacity Distribution 2008 2007 2006
Year Ended December 31,
East Coast – Western U.S. ......................... 41.5% 47.4% 51.7%
Northeast – Florida ............................... 33.9 31.8 31.8
Medium – haul .................................. 3.0 2.8 1.3
Short – haul .................................... 7.6 7.4 6.6
Caribbean, including Puerto Rico .................... 14.0 10.6 8.6
Total . ........................................ 100.0% 100.0% 100.0%
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