The Right To Growth?
In an interview with TheStreet.Com, jetBlue CEO Dave Barger says that jetBlue has earned the right to grow. His justification for that comes from jetBlue having positive cash flow, steady earnings and it’s contrarian nature that has lead to success at difficult airports.
Personally, I think all airlines have a “right” to grow. I just think they have to make a busines case for it and as far as I’m concerned, have at it.
I think this signals something else. Here is an LCC announcing its attention to grow in almost insolent manner. In particular, Barger declares their intentions at Washington Reagan National and fails to mention that his opportunity for growth there comes from a partnership with American Airlines that included a slot swap.
But this is somewhat classical behaviour on the part of LCC’s. They see revenue opportunities on routes that legacy airlines are only, at best, barely managing to cling to and the LCC’s want to earn that money. Their costs are lower and they can handle going in at a lower fare and capturing the business. The only tool a legacy has to use to fight off that competition when that happens is adding frequency and matching prices for a sustained period. It does work sometimes. From time to time, a legacy airline can fight off an LCC intrusion but it’s hard and it does eat up cash and resources until it’s over.
That was easier to do when there were few LCC’s and they were focusing on peripheral airports and lesser routes. Now we have quite a few LCC carriers and they want in on the big action. That’s why we have Virgin American flying trans-continental routes, jetBlue flying from JFK and Southwest Airlines introducing itself at both La Guardia and now Newark airports.
Can legacy airlines fight these attacts on many more fronts as the airline business recovers in the US? Maybe. At least to some degree. But I suspect they’re going to have to be a bit more choosy on their fights and I think w’re going to see some markets where even SuperLegacy airlines concede, eventually, to LCC intrusion.
Dave Barger and jetBlue are the first to declare their intentions but they won’t be the last. It’s notable that all of the US LCC’s are earning good profits and increasing their revenue base (with the exception of Virgin America who has yet to earn a profit). That makes for a warchest and with their sizes approaching a critical mass, they can afford to take on more and more legacy airlines.
Airtran did it in Atlanta. jetBlue did it at JFK airport, Southwest did it in Denver and now it’s happening at Washington Reagan National. It’s going to happen at more and more airports too.
One alternative defense might be for more and more legacy airlines to strike deals with LCC carriers and offer them some success but access they can control as opposed to an all out fight that results in legacy airlines bleeding red with losses.
Look for more airlines to declare their intentions and justify those intentions with their current earnings and revenue growth.
No business in a capitalist system has a “right” to grow, any more than they have a “right” to go bankrupt. It’s a corruption of the meaning of the word “right” to say so.
Wanna grow your business? Give us a decent product at a decent price, and watch your profits roll in. But you do not have a “right” to do that, any more or less than I have a “right” not to patronize you if you don’t.
Market conditions do not equal “rights.”
-R