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Monday, October 24, 2005

JetBlue Flying Embraer 190 Against Smaller RJs

The aviation industry has spent the last two years trying to read tea leaves to tell just how JetBlue Airways [JBLU] would be using the 100 100-seat Embraer [ERJ] 190s it has ordered.

In a plan announced earlier this month, JetBlue said it will dispatch the new jetliner as part of a multifaceted strategy - a strategy that some say will have the 190 competing directly with 50- and 70-seat RJs. JetBlue itself is not making that claim, however.

"We tend to think of the Embraer 190 as a category 'straddler' and not exclusive of either the mainline or regional jet community," said JetBlue spokesman Brandon Hamm.

"These are not regional jets," said aviation consultant Michael Boyd. "When you get 100 seats you are at a mainline airplane. These people who call them regional jets are out of whack. We have worked with Embraer since they began to design the plane. It was never designed to be a regional jet. It was basically designed to fill the gap left by the DC 9s, DC 10s and Fokker 100s."

When JetBlue announced its order, the original strategy made it look as though the primary mission of the 190 would be similar to that of the 50-seat RJ - connecting small city pairs, said Michael Allen, president of BACK Aviation Solutions. "I think they have a much more complex strategy than that. They are telling us that they have many ways to use the aircraft."

JetBlue's Embraer 190 Rollout

Phase one - Nov. 8: Establish shuttle service between New York's JFK and Boston.

There are currently 73 daily flights between the two airports, all on 37-seat or 50-seat RJs flown either by American Connection or Delta Connection, Allen said. Continental Airlines [CAL] provides narrow-body service from Newark and US Airways [LCC] flies Airbus A318s from LaGuardia.

JetBlue can provide a "product that is superior to the competition. They are offering the service at a price that will catch people's attention," Allen said. The special one- way introductory rate will be $25. The regular fare will range from $40 to $120. Delta's fare had been $99 prior to the announcement and American was charging $139.

Phase two - Dec. 6: Increase the frequency of flights from New York to both Burlington, Vt., and Buffalo, N.Y.

While the routes are currently serviced by JetBlue's Airbus A320s, additional frequencies will be flown on the Embraer 190. In the future, the Embraer 190 might be used to "right size" markets like these, especially in the offseason, when frequent use of the 150-seat Airbus cannot be justified, Allen said.

Phase three- Jan. 19: Begin daily fights between Austin, Texas, to New York and Boston.

The $129 regular fare will offer better price competition than the average $260 now charged on the route, Allen said. Delta Connection recently started service to JFK from Austin on an Embraer 170 while ExpressJet [XJT] flies for Continental into Newark. "The choice of Austin is not a surprise - it is a major high tech center," Allen added. "There is nice demand between New York and Austin, as well as between Boston and Austin."

Phase four- March 31: Launch daily trips to New York and Boston from Richmond, Va.

On the Richmond routes, JetBlue will be competing against 50-seat RJs flown by US Airways and Delta. "Product differentiation" will be the key component on these flights, with JetBlue touting a larger plane with more room and in-flight entertainment at a lower fare, Allen said.

Both Richmond and Austin are the big "chunky markets" that JetBlue needs to fly. "You need to get 80,000 people on your airline in a year to make it work. These are not small markets," Boyd said.

Hamm describes the introduction of the Embraer 190 as the industry's first major watershed event since the introduction of the first regional jet.

But that claim is largely hyperbole, said Richard Aboulafia, a consultant with The Teal Group. "If they are just recreating frequency on existing routes, then it will probably not have much impact. If it is all about frequency, then no, it will not be revolutionary. The revolutionary aspect was to do a lot more city-pairs.

"My gut reaction is that they will have put a nickel in the bank and it will be worth doing, but it will not be revolutionary."

For the regional carriers, Aboulafia said, the outlook is "bleak and uncertain. JetBlue is the only low-cost carrier to break the one-fleet-type mantra. If the experiment pays off, then you are talking of a further erosion by the LCCs [low-cost carriers] of the hub-and-spoke model - and that is nothing but bad news for the regionals."

While Boyd does not believe JetBlue's use of the Embraer 190 will have a major impact on regional carriers, he does believe its use by the mainline carriers will change the relationship between them and their regional code-share partners. "Historically and traditionally, aircraft of this size have always been flown by the mainlines. The mainlines will go ahead and buy them, but there will be a mix of who flies them - either by a surrogate operator [a regional carrier] or the mainline. In this day and age, the airline industry is modular, and any module can be done by outside people or done in-house. You will put this wherever you can get the biggest bang for your labor buck."

>>Contacts: Brandon Hamm, JetBlue, (718) 709-3078; Michael Allen, BACK, (203) 752-2000; Michael Boyd, Boyd Group, (303) 674-2000; Richard Aboulafia, Teal Group, (703) 385-1993.<<

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