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Lofty goals

While some carriers cut back, JetBlue puts Boston at the center of its growth strategy

By Dave Demerjian
Globe Correspondent / June 27, 2010

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For JetBlue Airways, Boston is becoming big business.

In the six years since it entered the market, the low-cost carrier has become the largest airline at Logan International Airport, pushing down fares and helping to reverse a decade-long slide in passenger numbers. While other airlines have pared down operations in Boston in recent years, JetBlue has made the city a cornerstone of its growth strategy, pitting it against low-fare rival Southwest Airlines, which started flying from Logan last year.

“We saw people driving to Providence and Manchester to fly Southwest and knew there was a strong customer base,’’ said Marty St. George, JetBlue’s senior vice president of marketing and commercial strategy, adding that at Logan, the airline saw an opportunity to build a leading position at one of the only major US airports without a dominant competitor. “For years, you’ve had three high-fare airlines splitting Boston, none of them making a major commitment to the market.’’

Now, JetBlue, the nation’s eighth-largest airline by passengers carried, has committed to growing in Boston, with an expansion that will boost its daily departures by 30 percent this year. Last year, the airline boarded 3.7 million passengers in Boston, compared with 3.2 million for American Airlines and 2.9 million for US Airways, Logan’s number two and number three carriers, respectively. By July, JetBlue will fly an average of 77 daily flights to 34 destinations, further extending that lead.

Today, Boston is the second-busiest city in the JetBlue system, accounting for nearly 24 percent of its total capacity, up four points from last year. And the company says it will continue to expand here even as it reins in capacity growth throughout most of its network.

“Latin America and Boston are the two focus areas for us right now,’’ St. George said. The airline recently acquired two more gates, for a total of 13 inside Logan’s Terminal C, and St. George said plans include connecting the airline’s two concourses in the terminal and eventually building a centralized security checkpoint. “We have made a major commitment to Boston, and will continue growing here for as long as we can do so profitably.’’

Aviation consultant Robert Mann said JetBlue’s decision to build up its operations in Boston came in part because it found itself constrained in other markets, particularly at New York’s John F. Kennedy International Airport, where it faced endemic congestion and competition from a resurgent Delta Air Lines.

He said Boston’s demographics align well with what he calls JetBlue’s “business casual’’ brand because the city is “known in the business community as having a sort of ‘Silicon Valley East’ attitude.’’

“JetBlue looked at its route map and realized it didn’t have too many more places to go from JFK,’’ Mann said. “It needed someplace else where it could expand profitably.’’

JetBlue’s Boston expansion has been good for customers. The presence of JetBlue, which has been the top-rated low-fare carrier in J.D. Power and Associates’ North American Airline Satisfaction Study for five consecutive years, has led to a dramatic drop in ticket prices. In 2000, a roundtrip ticket from Logan averaged $404.59, highest in the country among eight major metropolitan areas surveyed. Ten years later, average fares have dropped 17 percent to $335.46, compared with a national decline of 6.1 percent during the same period.

That has given a major boost to Logan, which for years lost passengers to lower fare airports in Providence and Manchester, both within driving distance of Boston.

For the 12 months ended in February, Logan’s domestic passenger count rose almost a percentage point, to 21.8 million. Passenger numbers dropped by 8 percent at T.F. Green Airport, just outside Providence in Warwick, R.I., and by 14 percent at Manchester Boston Regional Airport.

“JetBlue’s growth in Boston has been huge for us,’’ says Ed Freni, director of aviation at the Massachusetts Port Authority, which runs Logan. “It has helped with overall passenger flow, and has attracted additional low-cost carriers.’’

While JetBlue’s growth in Boston comes as so-called legacy carriers scale back, low-fare competitor Southwest is expanding here, as well. (American and Delta have both reduced capacity at Logan, for instance, and in May, US Airways shuttered its Boston crew base.)

Southwest, which entered Logan in 2009, recently acquired a third gate and announced new service to Phoenix and Philadelphia, both major US Airways hubs. Although Southwest has a much smaller footprint in Boston, it could put pressure on JetBlue in markets where they compete directly.

“We may not be the dominant carrier at Logan, but we’ve seen a great response to our presence in the market,’’ said Paul Flaningan, Southwest spokesman, pointing out that on certain routes out of Boston, JetBlue seems to be reacting to Southwest’s growing presence. “When we announced that we were launching service to Baltimore, so did they . . . same story with Phoenix. So in a way, we’ve had an impact on their growth, too.’’

St. George said JetBlue has built its route network out of Boston to serve the widest possible cross-section of travelers, but the airline is specifically trying to capture more business traffic. In addition to JFK, it now serves business-focused markets such as Chicago-O’Hare and Charlotte, N.C., out of Boston, and it recently rolled out a partnership with American that allows JetBlue passengers to connect seamlessly with American’s international flights out of Logan.

Starting this fall, the airline will go head to head with Delta and US Airways on the lucrative Boston-Washington/Reagan National shuttle route.

“Our business model is built around cutting prices to stimulate demand in high-fare markets,’’ St. George said.

Airline analyst Holly Hegeman said it makes sense for JetBlue, which has seatback TVs on every plane, to court business travelers.

“As low-cost carriers go, the product they offer is definitely a better alternative for the business traveler than say, a Southwest,’’ she said. “JetBlue’s ‘friends and family’ leisure passengers are its bread and butter, but strategically, the airline also needs to compete in the business markets.’’

As far as growing its market share, Mann, the aviation consultant, said while JetBlue’s 17-percent passenger market share in Boston makes it Logan’s leading carrier, the airline needs to keep growing its network in order to realize the full economies of scale of a dominant airline.

“To get to a strong position in a multicarrier market like Boston, you need a market share in the low 20s, and ideally higher than that,’’ he said.

“They’re not there yet. But if the legacy carriers continue to pull back, there’s no reason to think it couldn’t happen.’’