JetBlue Airlines 2009 Annual Report Download - page 13

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New York’s LaGuardia Airport, Newburgh, New York’s Stewart International Airport and White Plains,
New York’s Westchester County Airport. JFK is New York’s largest airport, with an infrastructure that
includes four runways, large facilities and a convenient direct light-rail connection to the New York City
subway system and the Long Island Rail Road. Operating out of the nation’s largest travel market does make
us susceptible to certain operational constraints.
In October 2008, after three years of construction, we commenced operations at our new 26-gate terminal
at JFK’s Terminal 5. Terminal 5 has an optimal location with convenient access to active runways which we
believe has helped increase the efficiency of our operations. We believe this new terminal with its modern
amenities, concession offerings and passenger convenience has also improved the overall efficiency of our
operation and, more importantly, has significantly enhanced the ground experience of our customers and has
become an integral part of the JetBlue Experience. Terminal 5 has received several award accolades after just
over one year of operations, including being recognized in November 2009 by the Airports Council
International — North America as the Richard A. Griesbach Award of Excellence winner in the 2009 Airports
Concessions Contest, which judged Terminal 5’s overall concession program as best of nominees.
Our Industry
The passenger airline industry in the United States has traditionally been dominated by the major
U.S. airlines, the largest of which are Delta/Northwest Air Lines, American Airlines, United Air Lines,
Continental Airlines, Southwest Airlines and US Airways. The U.S. Department of Transportation, or DOT,
defines the major U.S. airlines as those airlines with annual revenues of at least $1 billion; there are currently
15 passenger airlines meeting this standard. These airlines offer scheduled flights to most large cities within
the United States and abroad and also serve numerous smaller cities. Seven of the largest major U.S. airlines
have adopted the traditional “hub and spoke” network route system, or traditional network. This type of
system concentrates most of an airline’s operations at a limited number of hub cities, serving the majority of
other destinations in the system by providing one-stop or connecting service through one of its hubs.
Regional airlines, such as SkyWest Airlines and Comair, typically operate smaller aircraft on lower
volume routes than do traditional network airlines. Regional airlines typically enter into relationships with one
or more traditional network airlines under which the regional airline agrees to use its smaller aircraft to carry
passengers booked and ticketed by the traditional network airline between their hubs and a smaller outlying
city. There are currently four regional U.S. airlines within the “major” designation.
Low-cost airlines largely developed in the wake of deregulation of the U.S. airline industry in 1978 which
permitted competition on many routes for the first time. Southwest Airlines pioneered the low-cost model
which enabled it to offer fares that were significantly lower than those charged by traditional network airlines.
Excluding JetBlue, there are currently three low-cost major U.S. airlines.
Following the September 11, 2001 terrorist attacks, low-cost airlines were able to fill a significant
capacity void left by traditional network airline flight reductions. Lower fares and increased low-cost airline
capacity created an unprofitable operating environment for the traditional network airlines. Since 2001, the
majority of traditional network airlines have undergone significant financial restructuring, including
bankruptcies, mergers and consolidations. These restructurings have allowed them to reduce labor costs,
restructure debt, terminate pension plans and generally reduce their cost structure, increase workforce
flexibility and provide innovative offerings similar to those of the low-cost airlines while still maintaining their
expansive route networks, alliances and frequent flier programs. As a result, while our costs remain lower than
those of our largest competitors, the difference in the cost structures and the competitive advantage previously
enjoyed by low-cost airlines has diminished.
Competition
The airline industry is highly competitive. Airline profits are sensitive to even slight changes in fuel costs,
average fare levels and passenger demand. Passenger demand and fare levels historically have been influenced
by, among other things, the general state of the economy, international events, industry capacity and pricing
actions taken by other airlines. The principal competitive factors in the airline industry are fares, customer
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