JetBlue Airways Corporation

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JetBlue Airways Corporation

80-02 Kew Gardens Road
Kew Gardens, New York 11415
U.S.A.
Telephone: (718) 286-7900
Toll Free: (800) JETBLUE
Fax: (718) 286-7950
Web site: http://www.jetblue.com

Private Company
Incorporated: 1999 as JetBlue Airways Corporation
Employees: 1,800
Sales: $100 million (2000 est.)
NAIC: 481111 Scheduled Passenger Air Transportation

JetBlue Airways Corporation was created by Utah entrepreneur David Neeleman to “bring the humanity back to air travel.” It was also a good way to add another chapter to a successful career in budget air travel. Jet Blue was launched with a huge amount capital, brand new planes, and expert personnel in key positions. It grew rapidly as customers flocked to it to escape the steep fares and frequent delays of the major airlines.

Origins

Many small start-up airlines tried the low fare formula in the 1990s. Most, like Kiwi Air Lines and People Express, failed in the face of direct competition from the majors, which were able to withstand fare wars. (In fact, 87 airlines failed between deregulation in 1978 and the end of the century.) Insufficient capital and insufficient management talent were other factors that grounded many of the fledglings.

David Neeleman grew up in Salt Lake City with seven siblings. According to Time, a red airplane on his second birthday cake first attracted him to aviation. As a young man, he served in Brazil as a Latter-Day Saints missionary, then studied accounting at the University of Utah. But he dropped out of school before graduating in favor of entrepreneurial pursuits.

Before long, Neeleman was running Morris Air, an innovative, successful low-fare carrier that was the first to offer ticket-less reservations. He reportedly earned $20 million when he sold it to Southwest Airlines in 1993. He was just 33 years old at the time. Bound by a five-year non-competition agreement, in 1995 he went left the U.S. to help launch Canadian startup WestJet Airlines.

Neeleman told Sales and Marketing Management that it took 30 months of planning to get his next project, dubbed “New Air,” in the skies. It also took quite a bit of money. Neeleman raised $130.2 million in start-up capital, an unprecedented amount for a start-up airline, from backers that included Chase Capital Partners ($20 million); two George Soros funds and Quantum and Soros Fund Management ($40 million combined); and San Francisco venture capital firm Western Presidio ($30 million). Banc Boston Ventures, Massachusetts Mutual Life, and Nationsbank Montgomery Securities also invested $10 million each. A group lead by Neeleman invested $10.2 million.

Talented executives were lured from other airlines. President and chief operating officer David Barger had headed Continental Airlines’ operations at Newark International Airport. Other executives were recruited from Southwest. Chief financial officer John Owen had been treasurer there when Southwest was buying Morris Air.

The company copied large chunks of Southwest’s playbook. Its cabins would have only one class of seats. It did, however, order Airbus A320 narrowbody jets instead of the similar Boeing 737s used by Southwest, and reportedly got a huge discount from the Europeans in the bargain. Its ambitious first order was for 25 brand new jets with options on another 50. On many routes these jets would compete with turboprop-driven planes, deemed less comfortable and perceived as less safe by passengers.

Company Becomes JetBlue in 1999

In mid-July 1999, a new name for “New Air” was unveiled at a press conference: JetBlue Airways. “We’re going to bring humanity back to air travel,” was Neeleman’s bold rallying cry. As if that were not enough, JetBlue aimed to undercut other airlines’ fares by an average of 65 percent. JetBlue claimed to be primarily aiming to stimulate air traffic like Southwest, rather than stealing existing passengers from the established airlines.

For its base, JetBlue chose John F. Kennedy International Airport (JFK), which was further from Manhattan than LaGuardia but still busier than the out-of-the way airports favored by Southwest. In September 1999, the Department of Transportation awarded JetBlue 75 takeoff and landing slots at JFK. The carrier received an exemption allowing it operate there between the peak hours of 3 p.m. and 8 p.m. (Neeleman observed that the non-peak hours were quite suitable for quick turnarounds.)

Senator Charles Schumer (D-N.Y.), who had pledged to press for better air service to upstate New York in his election campaign, helped JetBlue finagle the slots. “In New York,” Neeleman was quoted in Airfinance Journal, “people have been ripped off like crazy. There is no low-fare interstate market.” Remembering advice from Southwest Airlines chairman Herb Kelleher, Neeleman quickly established a lobbying team for the airline in Washington, D.C.

JetBlue leased gates formerly used by TWA from United Airlines. JFK was undergoing a $10 billion building program that promised to give JetBlue part ownership in a terminal contingent on obtaining financing for it. JetBlue would rely on electronic reservations and ticketing to keep costs down. Neeleman had been CEO of the Open Skies reservation system for four years before it was sold to Hewlett Packard Co. This system allowed passengers to make reservations via Internet or touch-tone phone and could be operated with a tiny information technology (IT) staff, noted Computerworld. Within a couple of months of its launch, JetBlue would achieve the second-largest number of Internet bookings in the U.S., after Southwest Airlines.

The company was touted as the first airline launched from scratch in the computer age. Pilots received laptop computers, not manuals, noted Air Transport World. A ”telemedicine” service from MedAire allowed in-flight consultation with physicians. (Neeleman also maintained a high level of technology at home, where instead of watching television he kept himself and a family of nine children entertained with four networked PCs.)

The in-flight entertainment system boasted 24 channels of live satellite television broadcasts (including A&E, Animal Planet, CNBC, ESPN, the Food Network, Home & Garden, and the Weather Channel, but none of the four major broadcast networks) at every seat, a first among airlines, which usually aired taped shows. LiveTV, a joint venture between the Harris Corporation and Sextant In-Flight Systems, provided the service.

The airline would serve no meals but did offer gourmet blue potato chips and soda. All-leather seats, more legroom, and larger overhead bins were some of JetBlue’s other attractive amenities. These and the company’s marketing savvy brought it into comparison with Virgin Atlantic Airways, from which the company had in fact obtained some key personnel. One perk JetBlue did lack was a frequent flyer program, so tempting to high-mileage business travelers.

Wheeling in 2000

JetBlue began flying in early 2000 with just two newly leased Airbus A320s. It launched its first route, New York to Fort Lauderdale, Florida, on February 11. Advance-sale, one-way fare was $79. Six days later, the company began service to Buffalo for $49 each way.

Business grew rapidly in JetBlue’s first year in the sky. The company’s 300 call center employees in Salt Lake City, who had the option of working at home and saving the company overhead, were receiving 12,000 calls a day. Still, the company was booking 40 percent of its business over the Web, according to Informationweek.

In December 2000, Neeleman announced JetBlue’s millionth customer and third profitable month—an amazing achievement in so short a time for the airline business. (By contrast, rising fuel prices forced startup National Airlines into bankruptcy in 2000.) It reported about $100 million in revenues but no annual profit yet. By this time, the company was flying to ten destinations. In February 2001, JetBlue filled a higher percentage of its seats (79.9 percent) than any other U.S. carrier. Further, the “JetBlue” effect was credited with lower fares and increasing service at other airlines operating in New York.

Flush with initial success, the company aimed even higher. It planned to acquire a new plane every five weeks until 2008. By June 2001, it was operating a fleet of fourteen planes with 76 flights a day through JFK. Most were leased, since Airbus was unable to deliver enough new planes in time. At the Paris Air Show in June 2001, JetBlue announced plans to buy as many as 48 planes for as much as $2.5 billion. At the time, the company had another 68 planes already on order and 15 in service.

The company preferred to increase flight frequency on existing routes rather than quickly expanding the number of markets served. It only planned to add half a dozen destinations in 2001 to the eleven it started in its first year.

Company Perspectives:

Imagine how you would create an airline if you were building it from scratch. No ridiculous promises of “self-actualization” onboard, no exorbitant airfares, no cattle-train mentality, no hassles. In their place, add simplicity, friendly people, technology, design, and entertainment. JetBlue is a different kind of airline ... younger, fresher, more innovative. We’re looking at creative ways to reduce the hassles of flying and simplify the travel experience. So, we’re looking for creative, dynamic people to work with us to help develop the airline that brings humanity back to air travel. JetBlue embraces five values that represent the company and create our unique culture: Safety; Caring; Integrity; Fun; Passion. These five values not only differentiate JetBlue’s product; they result in a superior customer and crew member experience.

A slowdown developing in the general economy worried some analysts; Neeleman countered that low end of the air travel market would be a good position in which to weather a recession. Holly Hegeman, chief executive of PlaneBusiness .com, agreed. “These hard economic times are nirvana for JetBlue,” she told the Seattle Times. ”Nothing makes people happier than flying on an airline that makes them feel like they are getting a great deal for their money.” Neeleman was planning to take the company public within two years, reported Time.

In July 2001, a new five-year, $60 million lease with the Port Authority of New York and New Jersey gave JetBlue control of its own terminal at JFK. (The airline would then lease a few gates to United.) JetBlue had feared it would soon run out of gate space at JFK by the end of the year, prompting it to open a second base at California’s underutilized Long Beach Airport in August 2001. It still had not dared to take on the majors on their own home bases for fear of a price and capacity war.