Updated from 10:03 a.m. EDT

JetBlue Airways ( JBLU) shares fell almost 2% after it missed Wall Street's top- and bottom-line targets because of heated competition on routes the low-cost carrier serves.

JetBlue announced second-quarter net income of $21.5 million, or 19 cents a share, missing the 21-cent Wall Street estimate and down sharply from the $38 million, or 36 cents a share, that it had a year ago. In reaction, shares fell 40 cents, or 1.7%, to $23.15, having gone as low as $21.82.

This year's results aren't immediately comparable to 2003 because the year-ago quarter included a $22.8 million reimbursement from the government for security fees. But even when this item is excluded, the second quarter of 2004 comes in below 2003, which had adjusted income of $26.5 million, or 25 cents a share.

JetBlue is the latest carrier to report disappointing earnings for the April-June period, which has been a surprisingly difficult one for the industry. Southwest Airlines ( LUV) last week surprised analysts by missing earnings forecasts, even though its profit rose during the period.

In short, JetBlue's results are slumping because of increased competition, with rivals like Continental Airlines ( CAL), Delta Air Lines ( DAL) and American Airlines, unit of AMR ( AMR), targeting the low-cost carrier's route structure with deep fare sales to protect market share. The end result is erosion to JetBlue's operating margins, which came in at 14.1% in the second quarter, down from 18.6% a year ago.

Because JetBlue is expanding so fast, revenue continues to grow, coming in at $319.7 million for the quarter, up 30.7% from last year but short of the $323.9 million expected by Wall Street. But the company is making less by flying more often with passenger revenue per available seat mile, or RASM, coming in at 6.64 cents, down 8.3% from last year.

The company said it expanded capacity, as measured in available seat miles, by 42.2%, while traffic, as measured in revenue passenger miles, rose 40.8%. With supply slightly outpacing demand, JetBlue filled 84.5% of its seats in the quarter, down from the year-ago 85.3%.

Growth in expenses, overall, is also starting to outpace the growth in JetBlue's revenue. For the second quarter, expenses came in at $274.6 million, up 37.9% year over year, driven by a 76.9% jump in fuel costs and a 23.7% jump in wages and salaries. That said, JetBlue retained its considerable cost advantage vs. rivals, with cost per available seat mile, or CASM, of 5.90 cents, down 3% year over year.

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