Southwest Airlines Co. (LUV), JetBlue Airways Corporation (JBLU): Is It Time To Get Bullish?

Low-cost airlines have been gaining momentum as customers and corporate executives are trying to cut travel expenses. Exploiting that opportunity, JetBlue Airways Corporation (NASDAQ:JBLU), which was founded in 2000, grew at an astonishing pace to establish itself as one of the most successful low-cost airlines in the U.S.

The company has done several experiments with destinations and routes. Fortunately, it’s showing signs of success in the fiercely competitive, low-cost airline industry, where Southwest Airlines Co. (NYSE:LUV) enjoys a hefty market share. Southwest Airlines Co. (NYSE:LUV), founded in 1971, has also expanded rapidly since 2000, growing from about $5 billion in revenue in 2000 to $17 billion in 2012.

JetBlue Airways Corporation (NASDAQ:JBLU) has strategically chosen route networks that would potentially improve efficiencies. Redeploying aircraft and rolling out services in more profitable geographical markets is likely to support the company’s profitability.

Industry consolidation to help low-cost carriers

The recent rally of JetBlue Airways Corporation (NASDAQ:JBLU) and other U.S. airline carriers was driven by potential benefits that the proposed merger between US Airways Group Inc (NYSE:LCC) and American Airlines would bring to the industry. Though their merger will form the world’s largest carrier, U.S. Airways will remain under pressure until 2017, as American Airlines has net operating losses of $6.6 billion that must be carried forward. Additionally, US Airways Group Inc (NYSE:LCC) estimates that it will incur $1.2 billion in integration and reorganization costs. But, the situation for US Airways could get even worse as long-range planning is difficult in the airline business. Other carriers that have undergone restructuring in the past few years have seen that their projections were entirely different from the reality.

Now, let’s see how the US Airways-American Airlines merger will benefit JetBlue Airways Corporation (NASDAQ:JBLU). The merged company will gain presence in areas where either of them may have had little or no presence. Additionally, they can reduce the number of flights to geographical markets where their combined frequency will be too high.

This brings new opportunities to low-cost airlines like JetBlue Airways Corporation (NASDAQ:JBLU) and Southwest Airlines Co. (NYSE:LUV).

Customer-friendly policies

Industry consolidation would benefit low-cost carriers, so what gives JetBlue Airways Corporation (NASDAQ:JBLU) an edge over others? JetBlue Airways Corporation (NASDAQ:JBLU) and Southwest Airlines Co. (NYSE:LUV) both offer amenities and benefits not available on competitor airlines. However, Southwest Airlines Co. (NYSE:LUV) has failed to capitalize on this differentiation, while JetBlue embraced the opportunity by positioning itself as a “premium service” carrier. In fact, JetBlue has been constantly emphasizing its premium amenities and services in promotional campaigns. On the other hand, Southwest Airlines Co. (NYSE:LUV) is still struggling to differentiate itself from other carriers.