Long Beach Chooses Southwest Over JetBlue With Slot Rule Changes

Long Beach Airport should be a desirable place to fly.  After all, it’s only 20 miles down the (admittedly traffic-choked) 405 freeway from LAX, and it provides a far better passenger experience.  But historically, Long Beach just hasn’t performed well for any airline.  Recent history has been dominated by JetBlue, but the relationship has become rocky.  For years, it looked like no other airline would be interested in filling JetBlue’s shoes if the airline decided to walk… until Southwest entered a couple years ago.  Recent moves have left Long Beach in the very difficult position of having to choose which airline it likes best.   With the decision to change slot utilization rules last week, the city has clearly sided with Southwest.

Ever since coming to the airport back in 2001, JetBlue has been a dominant fixture that has snapped up slots every chance it got.  The airport’s noise ordinance is complex, but it guarantees a minimum of 41 big jet flight slot pairs per day.  Thanks to reduced noise from more modern aircraft, that number of daily slot pairs increased in practice to 50 a couple years.  At its peak, JetBlue topped out at having 35 of the 50 slots.  (Also, note that 2 of the remaining slots are used by cargo carriers FedEx and UPS, so there are really only 48 total used for passenger flights.)

The problem was that JetBlue wasn’t doing all that well flying those 35 slots.  It had tried several different strategies over the years ranging from long-haul to short-haul flying, but none of them had led the airline to riches.  A few years ago, JetBlue decided that the key to success would lie south of the border.  If it could get a customs and immigration facility in Long Beach, it could fly to places like Mexico or Central America.  But the Long Beach City Council refused to even properly consider the idea thanks to pressure from a small but loud group of fearmongers in the city.  JetBlue was once again left looking for a strategy.

The increase from 41 to 50 slots was a dagger.  JetBlue had been under-utilizing its slots to stem losses. The rules said an airline could use its slots just over half the time (actually 57 percent over a 180 day period) and still keep them.  When that happened, other airlines could have filled in the unused days temporarily, but nobody wanted to.  As soon as the number of slots went to 50, Southwest decided to pounce for the first time.  For the first time in years, there was actually more demand than supply for slot pairs in Long Beach.  If JetBlue didn’t fully utilize its slots, Southwest could step in temporarily. 

Having lost its battle for a customs/immigration facility, JetBlue couldn’t have been blamed for just pulling out of the airport entirely.  Considering how much JetBlue has invested in the community, the loss for the region would have been profound.  But JetBlue opted to stay and fight.  It began fully utilizing its slots, launching a slew of new frequencies to prevent Southwest from stepping in.  It was obvious that this strategy wasn’t going to work.

It tried to get creative.  When Hawaiian expressed an interest in flying to Long Beach, JetBlue knew it could give up a slot and not have it go to Southwest or any airline that would be a competitive threat.  It did that and slot-holdings dropped to 34.

But that was still too much.  Earlier this year, JetBlue announced it was slashing service, cutting frequencies in nearly all short-haul markets.  It threw out a Hail Mary… some sub-daily seasonal service in random markets like Bozeman and Steamboat Springs, but that hardly made up for the cuts elsewhere.  Daily departures would drop to 23 (further down to 22 once a later pull-out from the Ft Lauderdale market was announced).  The expectation was that JetBlue was going to release these slots so others could take over, but that didn’t happen.  Instead, JetBlue just went back to its old tricks and started under-utilizing its slots.  If you’d think that Southwest would step in and fill the void, you’d be right… sort of.

Southwest only has six of its own slots in Long Beach (currently used to fly four flights to Oakland and two to Sacramento), and it has made no secret of the fact that it wants more.  When JetBlue stopped fully utilizing its slots, Southwest did ramp up a bit by adding two more Sacramento flights and three to Vegas for a total of 11 daily flights.  It could have grown more, so why did it stop?

In its labor agreements, Southwest has committed that it will employ its own people at an airport where it has at least 12 daily flights.  Anything under that can be run by contractors.  Since Southwest technically has only six slots in Long Beach, it has to be hesitant about growing above 11 daily flights.  What if it does, hires a bunch of people to run the operation, and then JetBlue decides to utilize its slots fully again?  In that case, Southwest would have to staff its six measly flights with a full complement of employees.  That is not the way to run a profitable station.  (Some would argue flying to Long Beach at all is not a good way to run a profitable station, but I digress.)

That left the city of Long Beach at a crossroads.  It could maintain the status quo and keep JetBlue happy-ish, or it could change the utilization rules to try and give Southwest a better opportunity to get its hands on some more slots.  It chose the latter.

The require an airline to fly 60 percent of its slots in a month, 70 percent in a quarter, and 85 percent in a year.  That allows for some seasonality, but it doesn’t allow JetBlue to keep doing what it has been doing.

Now, the ball is in JetBlue’s court.  Will it do what it probably should have done long ago and walk away from a seemingly ungrateful city?  Or will it ramp its flying up again to meet the new rules?  If it’s the latter, then service will likely sink deeper into the red.  If it’s the former, then the door will be wide open for Southwest to step in and turn Long Beach into a Burbank or Ontario clone.

On the surface, this seems like the wisest path for the city, especially since it prematurely shut the door on the customs facility discussion.  If there is more demand than supply for slots, then the city is right to try to maximize their usage.  But just because there’s a ton of demand today doesn’t mean it will be there tomorrow.  Long Beach is betting that Southwest wants to ramp up for the long-haul here.  If that happens and JetBlue walks away, we’ll see how people feel about having less New York and Boston and more Phoenix and San Jose.  But then, the city will again be in the position of having all its eggs in one basket.  It’s just a different basket this time.

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