Jet Blue Airways Corporation (JBLU - Analyst Report) , the U.S.-based low cost passenger carrier, has decided to stop its New York-Pittsburgh route from February next year. Air fares are expected to go up following the exit of JetBlue from the route.
The company started its flight between New York and Pittsburgh in 2006 and has been running four flights a day. JetBlue tried different options including marketing initiatives, special advertisements and shifting flight timings to make the route profitable. However, despite these efforts the route between John F Kennedy and Pittsburgh International Airport remained unprofitable, which is the primary reason for exiting this route.
JetBlue’s exit leaves Delta Airlines Inc. (DAL - Analyst Report) , American Airlines and US Airways Group Inc. as the direct flight service provider within the route, while United Continental Holdings Inc. (UAL - Analyst Report) flies just between Pittsburgh and Newark, which is located in New Jersey.
After JetBlue entered this route in 2006, the round trip fares between the Pittsburgh and New York route reduced by 20% due to increased competition. Until now a round trip fares between the two cities cost at least $116.
Now, with JetBlue’s exit, there will be a demand-supply mismatch due to less availability of seats in that route. This has already resulted in a sharp rise in the future airfares. The round trip fares within the route for March 2013 have skyrocketed to as much as $600.
A similar rise in airfares was observed when Southwest Airlines (LUV - Analyst Report) dropped its Pittsburgh-Philadelphia route leaving US Airways as the sole carrier in the route. Round trip fares jumped almost 6 times from $118 to $698 at that time.
Sealing the route will help the company reduce its losses and employ its resources in the more profitable routes. Nevertheless, we believe the ultimate loser with the closure of the route will be the customers, who have to shelve out more money as their travelling expenses.
We are maintaining our long-term Neutral recommendation on JetBlue. Currently, the stock holds a Zacks #3 Rank, implying a short-term Hold rating.