(FORTUNE Magazine) – The stock of Jetblue, once considered the darling of upstart airlines, hasn't been flying so high lately. In fact, while new low-cost carriers like Song and Ted have been grabbing the headlines, JetBlue's shares have been in a tailspin, diving from a high of $47 back in mid-October to less than $23 today. What gives?

For one thing, JetBlue embarked on an ambitious expansion plan, adding new planes and routes much faster than it added passengers. That eroded profit margins--a fact not lost on investors. In the last quarter of 2003, JetBlue's operating margins were 13.3%. For most airlines, these numbers would be fantastic. (After all, Southwest, arguably the most successful airline in the history of the industry, routinely generates 13% operating margins.) But JetBlue's stock took off on the premise that the airline might be able to generate margins in the 15% to 20% range, and that looks increasingly unrealistic.

JetBlue is also facing stiff competition, not least of which is coming from those new low-fare airlines backed by the majors (Delta owns Song and United owns Ted). Song has grabbed some of the snowbird business that JetBlue relies on to fill its seats between New York and Florida. Meanwhile, American, Continental, and Delta are all challenging JetBlue with new transcontinental flights.

JetBlue tried to attack Delta at its main hub in Atlanta by offering service to Long Beach. But it was forced to withdraw from the market after Delta responded by slashing fares and offering new routes to Southern California. That was a symbolically important blow because it proved the majors could beat JetBlue at its own game, says Richard Aboulafia, an aviation analyst at the Teal Group, an aerospace consulting firm. Now the competition will only intensify, and "nobody likes the hand-to-hand conflict of trench warfare," Aboulafia says.

Especially not exhausted investors. --Jeremy Kahn