What's new at jetBlue
— -- jetBlue was one of the most successful start up airlines in the post deregulation era. But when Dave Barger became CEO last May, oil prices were on the rise, profits had evaporated, and the carrier was still reeling from a Valentine's Day ice storm that stranded thousands of jetBlue passengers and gave the carrier a black eye.
jetBlue founder David Neeleman stepped down after orchestrating the carrier's rapid ascent into the top-ten largest U.S. airlines, and Barger stepped in with a focus on goals, business plans, and building a strong leadership team.. "It's all about blocking and tackling," he told me. I caught up with Barger at a recent aviation symposium in Phoenix.
Following the Valentine's Day disaster, the airline apologized to stranded customers and issued a first-of-its-kind " Customer Bill of Rights." "This is a commitment to our customers," says Barger, "that this isn't going to happen again at this airline."
Under Barger's direction the airline invested in self service technology to help passengers rebook or obtain refunds and increased the airline's ability to communicate with customers using cellphones and PDAs. jetBlue also altered its "completion" philosophy, preferring to cancel flights in inclement weather rather than risk stranding passengers en route to their destination.
Barger also brought in Russ Chew as President and Chief Operating Officer. As one of the most-respected names in airline operations, Chew held a similar post at the Federal Aviation Administration (FAA) and spent 17 years in operations at American Airlines. "Russ also brought in a cadre of directors with 160 years of experience to run our system operations control center," Barger told me.
The Valentine's Day storm not withstanding, jetBlue consistently receives high marks from customers on its service. The maverick start-up airline broke with the successful no frills strategy for low cost carriers, established by Southwest Airlines, by offering roomier seating and free satellite television at every seat aboard its fleet of new Airbus 320s. jetBlue distributed free headsets and complimentary in-flight snacks while other airlines were terminating meal service, removing pillows and blankets, and even charging for a bag of pretzels.
The economic downturn in 2000 preceding 9/11 was a difficult time to start a new airline. And if that wasn't difficult enough, jetBlue selected New York's Kennedy Airport (JFK) for its home base – a congested international facility historically unable to support a domestic hub operation due to its distance and the expense of getting to and from Manhattan. jetBlue also took on the major airlines in the highly competitive and prized trans-continental market.
With many factors stacked against them, jetBlue somehow quickly developed a loyal following and thrived while other airlines lost billions of dollars, with many filing for bankruptcy. While other airlines grounded airplanes and cut capacity, jetBlue added new cities, routes, and aircraft. With coast to coast non-stop service for $99, and their popular in-flight amenities, jetBlue's load factors routinely soared to a remarkable 90% level in those early years.
Today jetBlue serves 53 destinations with 550 daily flights. The carrier operates 134 aircraft, with nine more scheduled to enter service by year end. But in recent years, many of jetBlue's competitive advantages have eroded as other airlines emerged from bankruptcy and shed costs to be stronger and leaner, allowing them to match jetBlue's lower prices without losing money. United Airlines now offers more room on its competing transcon flights and American Airlines is upgrading its cabins on those same routes. Virgin America moved into the transcon space last year with a premium first class cabin and an unrivaled in-flight entertainment system that raised the competitive bar for jetBlue and all others.
jetBlue's 82% load factor for March declined 4% from the previous year while five other major airlines boasted higher load factors. Meanwhile, oil prices keep rising, which hurts smaller and discount airlines disproportionately to large airlines which have amassed substantial caches of cash to weather the fuel crisis. The big six U.S. airlines also have the potential to earn higher revenues per passenger with a large portion of their business rooted in premium cabin and overseas service.
Since jetBlue and Delta Airlines expanded their JFK operations, the airport is once again operating beyond capacity levels and the FAA recently proposed flight caps and wants to add congestion based fees for aircraft departing and arriving in the overcrowded New York airspace during peak times. Although jetBlue supports the flight caps to mitigate the airport's notorious flight delays, ultimately those caps and fees may increase jetBlue's operating costs and limit the airline's ability to grow at their JFK hub.
To regain its competitive edge jetBlue is implementing a number of new programs, according to Barger. Taking a queue from other airlines, jetBlue is reconfiguring its A320s to offer several rows with an extended 38" seat pitch for passengers willing to spend an extra $10 to $20 per flight depending on the segment length. Like most other airlines, TrueBlue frequent fliers may now purchase points to reach an award level faster. "Selling up" is a new strategy, according to Barger. Going forward the airline may decide to sell those headphones that were formerly free and vend meals and snacks on board.
jetBlue also departed from the Southwest playbook by adding a second aircraft type, the 100-seat Embraer E190, in 2005. Operating an additional aircraft type adds considerable cost, although Barger says higher fuel prices have diminished the cost differential between the E190s and the 150-seat A320s. He says the E190 has allowed jetBlue to serve many smaller markets or new and seasonal destinations more profitably.
To control costs, jetBlue has trimmed its growth plans and discontinued service to several cities. They have also slowed new aircraft deliveries and entered into agreements to sell 17 A320s to raise cash. But Barger also believes the depressed U.S. dollar may actually help jetBlue, which primarily serves domestic markets, as many Americans may opt for a domestic vacation this year where their dollars will go a lot further.
On the international front, the airline recently initiated an "intershare" program with Aer Lingus where customers may purchase joint tickets between 26 jetBlue U.S. cities and Ireland via Aer Lingus' website. "It won't be long before a consumer in Richmond is traveling to Cork for a golf weekend," says Barger. If successful, similar joint ticket sales programs may be initiated with Lufthansa, which recently purchased a $300 million stake in jetBlue.
Lufthansa's investment in jetBlue bolsters the carrier's cash reserve if rising fuel prices or the economic downturn create a cash crunch. Joint task forces are currently meeting to discuss programs where both carriers may expand their networks and explore other areas of cooperation.
In spite of rising fuel costs, Barger sees a silver lining for jetBlue with most airlines trimming capacity. While capacity cuts usually don't last, Barger believes this time around the industry may have the self discipline to hold that capacity down. If all other airlines are struggling to survive in the face of $100+ per barrel oil, he may just be right.
Send David your feedback: David Grossman is a veteran business traveler and former airline industry executive. He writes a column every other week on topics of interest and concern to business travelers. E-mail him at travel@usatoday.com.