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MARK GREENBERG / FOR THE HERALD
NEW AIRCRAFT: Brian Coulter, left, and Frank Westbrook are JetBlue pilots. The start-up, low-cost airline has a fleet of 11 new planes equipped with leather seats and free 24-channel satellite television.
JetBlue's
rapid ascent
The young airline is succeeding where other low-cost carriers have failed. What sets it apart: more frills for passengers and strong financial backing.
BY INA PAIVA CORDLE
Start-up carrier JetBlue Airways is defying the odds.
In the two decades since the airline industry was deregulated, plenty of low-fare carriers have come and gone. Most have filed for bankruptcy after growing too fast, spending too much money or misjudging the market.
But JetBlue, which flies from Fort Lauderdale, so far has succeeded where others have failed. The airline ended its first year in operation with a $37,315 quarterly profit, a base of loyal customers and an expansion plan that could include a public offering in the not-too-distant future.
The best capitalized low-fare start-up in aviation history, with a fleet of 11 new planes equipped with leather seats and free 24-channel satellite television, JetBlue has focused its efforts on customer service.
Passenger figures show the carrier is drawing repeat customers. With one million passengers booked in its first year, 21 percent of passengers took 56 percent of JetBlue's flights last year, Chief Executive David Neeleman said.
Unlike other low-cost carriers, JetBlue is ``building repeat business not just on price, but on price and service,'' said Coral Gables aviation consultant Stuart Klaskin, of Klaskin, Kushner & Co.
``What they have created is the byproduct of this huge traveler discontent that is out there,'' Klaskin said. ``People hate flying on airlines these days. The consumer is just horribly disenchanted, so that when an airline treats someone like a paying customer and then goes beyond that, the customer is almost shocked into happiness.''
After launching service from John F. Kennedy International Airport to 11 cities in its first year, JetBlue plans to double the size of its fleet, adding 11 new A320s by the end of this year, boosting its revenue from $108 million in 2000 to more than $300 million this year. The airline's goal is to produce an operating profit of 10 percent, Neeleman said.
In six years, JetBlue plans to have 82 planes, flying as many as 480 daily flights -- up from 64 today.
And Fort Lauderdale, one of the airline's launch cities, is a big part of JetBlue's long-term strategy. The low-fare carrier last week added its sixth flight from Fort Lauderdale-Hollywood to New York's JFK, and could increase that to eight next year -- and nine in 2003, Neeleman said.
JetBlue says it has captured 30 percent of the market from Fort Lauderdale to New York, with 20 percent of the available seats. With one-way fares ranging from $84 to $199, plus tax, planes departing Fort Lauderdale are flying at 90 percent occupancy, Neeleman said.
``We haven't found the bottom of the market,'' he said. ``The more flights we add, the fuller they are.''
As early as next year, JetBlue may begin offering flights from Fort Lauderdale to the Caribbean, to such destinations as Puerto Rico, the Dominican Republic, Jamaica and Trinidad, Neeleman said.
JetBlue, which currently maintains its only crew base in New York, is also considering basing a second crew in South Florida in the future, he said.
Meanwhile, Neeleman is in talks with several cruise lines to arrange to fly their passengers, which would boost flights from South Florida.
Managing the airline's growth will be the key to its future, analysts say.
As its next step, JetBlue plans this spring to launch a frequent flyer program -- giving passengers retroactive credit for flights taken. Passengers will be able to earn a free ticket after 10 round-trip flights.
The airline, which serves only a choice of snacks currently, will also begin offering passengers flying out of New York who booked their tickets online the option of ordering local food, which would be delivered to the airport for a fee.
Unlike other start-up carriers, JetBlue began with ample funding, raising an unprecedented $130 million in venture capital, including $40 million from investor George Soros, $30 million from the San Francisco venture capital firm Weston Presidio and $20 million from Chase Capital Partners. The same group later added another $30 million.
JetBlue's concept was based in part on popular Southwest Airlines. The airline would be a ``mega start-up,'' with a fleet of new planes, which would both cut costs and add prestige, said Neeleman, who owns a 10 percent stake in the airline. New planes are actually cheaper to operate because they require less maintenance, burn less fuel and can fly more because they are out of service less frequently, he said.
By starting from scratch, JetBlue could also ``do more with fewer employees,'' Neeleman said. Flight crews do most of the cleaning between flights, for example, cutting down on turn-around time and expense. The airline has no unionized workers, and its Salt Lake City call center is comprised of workers hooked up from home. More than 30 percent of its tickets are booked through the Internet.
Neeleman even passes out the snacks -- blue potato chips, bagel chips, animal crackers and chocolate chip cookies -- whenever he flies, about once a week.
So far, JetBlue has managed to keep costs down to 7 cents per passenger mile, and hopes to lower that figure to 6 cents per passenger mile by the end of the year, Neeleman said.
That compares well to the 6.5 to 7.5 cents per passenger mile costs typical of low-fare carriers, and is much less than the 9 to 13 cents per passenger mile for major airlines, Klaskin said.
``They certainly rewrote the book on how to start a new-entrant airline in every way, starting with the new airplanes, the massive capital, and doing it in a major market -- probably the most significant market in the U.S. -- the New York metro market,'' Klaskin said.
Among the top 10 city pairs for domestic origin and destination passengers, nine include New York. And JFK had no domestic hub carrier.
``Millions and millions of people go to New York -- within one hour of JFK there are five or six million people; within an hour and a half, there are 11 million,'' said Larry Twill, chairman of Ashwood Capital in New York, one of JetBlue's founding investors. ``Look at that number and look at other start-ups. To start up an airline, you need people. It's not rocket science.''
Moreover, during the past year New York's LaGuardia airport has registered massive delays, topping all U.S. airports -- enhancing the appeal of JFK.
But while JetBlue's first year was accomplished during a time of economic growth, this year could prove more difficult, as the economic slowdown begins to affect air travel, aviation experts say.
``As the economy slows and traffic starts to dip, the real test will be what happens when competition gets tighter up and down the East Coast,'' said aviation consultant Michael Boyd. ``The only unknowns here -- which is unknown for the whole industry -- is how deep will this downturn be. When a downturn hits, it's discretionary travel that is going to take a hit.''
Analysts and investors credit JetBlue's management team, including Neeleman and President and Chief Operating Officer David Barger -- who had previously run Continental's Newark hub and now handles JetBlue's day-to-day operations -- for much of the airline's success.
``David [Neeleman] is clearly someone who understands and knows the nuances of the aviation business,'' said Michael Lazarus, managing partner at Weston Presidio, which was among JetBlue's earliest investors. ``He is a service provider more than an aviation junkie, and he also has an uncanny way of attracting quality people around him.''
Lazarus has known Neeleman since 1991, when Weston Presidio invested $14 million in Salt Lake City-based Morris Air, which Neeleman ran as president. In 1993, the airline was sold to Southwest, resulting in a $25 million profit for Neeleman and a $29 million gain for Weston Presidio and its limited partners.
While Lazarus won't say when JetBlue might issue an initial public offering, analysts believe it could be as soon as next year, depending on market conditions.
``We invested because we believe -- one, it's an amazing team of people, and two, there is a screaming opportunity in the travel business -- and with the people we had to compete with, it's not difficult to manage expectations,'' Lazarus said. ``People have such low expectations, all you have to do is be a little better.''
