Upstart JetBlue Flies High Despite Travel Slump
As a small but burgeoning airline, JetBlue Airways was planning its initial public stock offering and, as a first step, its executives were at a printer’s office one morning last month to oversee publication of the company’s prospectus.
There was just one problem: That morning was Sept. 11.
Like every airline, JetBlue suddenly had bigger things to worry about. In the aftermath of the terrorist attacks, the carrier had to endure an unprecedented two-day shutdown of the airline industry and then grapple with a plunge in the number of passengers, too nervous to fly again.
“The damage obviously is much more severe from the impact of the lingering effects of the attacks” than from the shutdown, said David Neeleman, JetBlue’s founder and chief executive, adding that the airline’s IPO was put on hold indefinitely.
But unlike most every other airline, 18-month-old JetBlue isn’t slashing operations or cutting its work force to survive. In fact, the carrier just added some flights--including one to California--and still plans to take delivery of three more aircraft by year’s end.
“We’re back to within 85% of where we were” in terms of passenger traffic, Neeleman, 41, said.
JetBlue was firmly in the black before Sept. 11. For the first six months of 2001, the carrier posted a profit of $10.7 million on revenue of $142.2 million, and JetBlue’s load factor was a stout 80%, according to figures compiled by the Department of Transportation and Back Aviation Solutions, a consulting firm in New Haven, Conn. Load factor is the percentage of airplane seats filled with passengers.
JetBlue, for now at least, exemplifies how a small airline--if it’s capitalized enough and operates with relatively low costs--can fly through even severe turmoil. While other airlines, big and small, have come narrowly close to filing for bankruptcy protection since Sept. 11, JetBlue seems poised to be a survivor.
“They’re the most impressive start-up [airline] in a long time,” said Michael Allen, Back Aviation’s chief operating officer. “They’re well-respected by the financial community . . . and they’ve put together a really solid management team.”
JetBlue has been an unorthodox airline since it took to the skies in February 2000. Based at John F. Kennedy International Airport in New York, the airline offers low fares and doesn’t include meals to keep down costs, but it flies new Airbus 320 planes, with plush seats and satellite TV for every passenger.
The perks drew enough raves from passengers that JetBlue, after only a year in business, placed second on Zagat’s 2001 customer-satisfaction survey, behind perennial favorite Midwest Express.
But travelers’ raves don’t guarantee profits--the survey’s fourth-ranked carrier, Midway Airlines, already was operating under a bankruptcy reorganization plan and then ceased operating after Sept. 11.
With 18 planes, JetBlue provides service from New York to 16 other cities, including Long Beach--its West Coast base--and Ontario. The carrier is adding a third daily nonstop flight between Long Beach and JFK, effective Nov. 1, and is offering one-way fares as low as $94 to promote the added service.
However, JetBlue has postponed planned service between Long Beach and Washington’s Dulles Airport, which was scheduled to start last Monday, until next spring, because of the effects of the Sept. 11 attacks.
While most start-up carriers fail because they don’t have enough initial funding, Neeleman secured a sizable $160 million to get JetBlue airborne and to keep it that way.
“I don’t think there’s any airline that has a stronger balance sheet,” he said. The airline also doesn’t yet need to tap the $10-billion federal loan-guarantee program that’s part of the $15-billion U.S. bailout of the industry, Neeleman said.
The other $5 billion is direct cash aid, of which JetBlue will get about $20 million, Neeleman said. Without that cash, JetBlue would have lost money in September and would keep operating at a loss through November. But it will end up breaking even with the government aid, he said.
“We hope to be making a profit again, without the government money, by December,” he added.
Like low-fare king Southwest Airlines, JetBlue flies one type of aircraft to keep down costs, and JetBlue’s overall operating expenses are among the lowest in the business, aided by a work force of 2,000 people that isn’t unionized.
JetBlue also shadows Southwest by focusing on less-populated airports that boost efficiency by allowing fast turnaround times for its aircraft. Those airports also enable JetBlue to avoid confronting tough competition at hub airports dominated by one or two major carriers.
That JetBlue shares some of Southwest’s traits isn’t a coincidence. In 1984, Neeleman started another small carrier, Morris Air, which he sold to Southwest in 1993. Southwest then forced Neeleman to sign a five-year agreement not to compete against Southwest, because it saw him as a major threat.
Neeleman said “one of the advantages of being small” is that JetBlue also was able to quickly tend to its passengers Sept. 11, when U.S. regulators ordered every jetliner to immediately land at the nearest airport. JetBlue flights traveling between California and the East Coast abruptly found themselves landing in Wichita, Kan., and Kansas City, Mo.
“We had a command center where we had each individual assigned to a certain airplane and its passengers,” he recalled. Some were placed on buses for the remainder of their trip, and “we were able to put everyone else in hotels,” he said.
JetBlue now faces the same dilemma as the rest of the airlines: convincing the public to fly again in big numbers. Neeleman said he recognizes many consumers’ fears, their concern about long lines at airports for security checks, and “there’s the whole question of the economy,” whose weakness was eroding air travel even before Sept. 11.
“But we have a bright future,” he said. “We’ve found that if we just do a really good job, the word would spread.”
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