David Neeleman, the 40-year-old founder and chief executive of JetBlue Airways, exudes confidence that the newest low-fare carrier will find passengers and profits as New York's new hometown airline.
"Look at all the factors," he says, citing $130 million in start-up financing, a fleet of elegantly outfitted Airbus A320s, attractive pricing and lean overheads, with managers drawn from successful low-fare carriers. "We have a great management team, great capital, great product and cost structure - and we're laying it in the biggest market in the world."
The new carrier is using as its hub New York's Kennedy Airport, an airport grossly under-used during most hours of the day because of its heavy proportion of international flights. Most of the metropolitan area's domestic flights operate from LaGuardia Airport, about 10km (6 miles) north of Kennedy, and Newark International Airport in New Jersey.
Although Neeleman concedes that nobody thinks of Kennedy as a domestic airport, he believes JetBlue will be able to attract passengers. "If you look at the catchment area, there are 5 million people as close, or closer, to Kennedy as LaGuardia or Newark," he points out. And there are 18 million people altogether in the metropolitan area to draw from. "This is a huge market," he says, and "a great travel market," comprising people who want to come to New York for business and leisure, and people residing in the area who want to travel.
Despite the size of the market, however, domestic enplanements contracted by 4% between 1985 and 1998, while those in the rest of the country rose 65%. "New York's share of the market dropped from 9.5% to 5%," says. Neeleman. "We're counting on a return of passengers to the 1985 traffic levels."
JetBlue's initially plans three daily roundtrips from Kennedy to Buffalo, New York, and Fort Lauderdale, Florida. A third aircraft will be used to begin services to Tampa, Florida, on 16 March. By the end of its first year, JetBlue expects to be serving 10 routes with a fleet of 10 aircraft and plans to add as many destinations and aircraft in each of the following two years.
People Express
The carrier's primary destinations are being selected from 44 cities, most in the eastern half of the country, but some as far west as Denver and Salt Lake City, Neeleman's hometown and site of the airline's reservations centre. The team's detailed analysis includes paying close attention to the traffic generated by People Express Airlines, which operated low-fare services from a Newark hub between 1981 and 1986.
Traffic between Buffalo and New York, for instance, amounted to 695 passengers a day in 1980 - a level that rose to 2,200 a day in 1985 when People Express entered the market, with its pioneering but ultimately unsuccessful low-fares formula. By 1998, however, with People Express gone, fares had risen significantly and the traffic levels had fallen back to only 660 passengers a day.
Neeleman thinks the passenger levels will rise again because of JetBlue's fares, which are as much as 65% lower than others in the markets. Rivals may match fares, but he believes that all will benefit by market growth. "We will not be able to accommodate all of it," he says.
The airline is scheduling its flights so that passengers can travel from one destination through the hub to another on a one-stop or connecting basis, but it expects 80-85% of travellers to be going to or from New York.
JetBlue has a simplified pricing structure, with five fares on each route: either 14-day or seven-day advance bookings at peak or off-peak rates, with a final slightly higher "walk-up" fare. All fares are priced on a one-way basis with no requirement for a Saturday night stay. Because every booking must be accompanied by credit-payment within 24h, JetBlue will not overbook. Tickets are non-refundable, but passengers who cancel their flight will be issued a one-year credit for future flights, with the only penalty a $25 rebooking charge.
"It's the cheap fares that will bring passengers to us and the good service will bring them back, and back again. When they get on the aircraft, they'll go wow," says Neeleman.
The carrier's new A320s are equipped with 162 seats in a single class, offering more leg room than competing economy class cabins. The A320's wide fuselage also attracted JetBlue, and aided its selection ahead of the rival Boeing 737-700. Neeleman admits that the selection was a "tough decision", but that, apart from passenger comfort, the A320 also burned less fuel than the 737 and allowed for 24 more passengers.
The aircraft are furnished with leather seats which cost twice as much as fabric, but last twice as long, says Neeleman, and feel good, too. Each seat will have a television monitor with access to 24 channels from DirecTV, which passengers can view with a $5 credit-card swipe. Oversized, overhead storage bins allow the ubiquitous roll-on bags to fit lengthwise.
JetBlue is eschewing airline food, which Neeleman calls "crappy". Instead, flight attendants will provide beverage service and will pass through the cabin with large baskets of snacks, encouraging passengers to take as much as they want.
Unlike Southwest Airlines, the USA's oldest and most successful low-farecarrier, JetBlue has assigned seating. Travellers will soon be able to make their own seat selection via the Internet by clicking on a diagram of the JetBlue aircraft. Available seats will appear in green and already-taken seats in red. Like Southwest though, JetBlue plans to set new benchmarks for efficiency. The airline expects to operate 12 flights from each gate per day at Kennedy. It is also counting on a 30min turnaround of the aircraft at the gate, slightly more than Southwest's famous 20min turnaround. "It's the only thing we can control," Neeleman says.
One minute rule
All flight- and ground-crew training has centred on what Neeleman calls the "one minute rule". The airline expects there to be just one minute between the time that the last passenger gets off a flight and the first passenger gets on for the next. To help speed the process, JetBlue will operate a double jet bridge system from its gates, allowing passengers to board and deplane from front and back, even in poor weather. Flight attendants will move through the aircraft behind deplaning passengers, tidying up as they go. Each has a handheld vacuum cleaner to remove crumbs.
Although landing fees and some other costs are high in New York, Neeleman expects expenses to average out across the network. He is planning to keep costs at under ó7 per seat mile (ó4.3/km) after the first year - the level needed to compete with Southwest - with breakeven load factor around 50%.
Neeleman also hopes to achieve 12h utilisation a day with the first three aircraft and that may go higher. JetBlue is considering supplementing its mainline services with overnight flights to airports in the west, starting in the summer. There are many cities without nonstop services to New York - such as Ontario, California - which probably would welcome "red-eye" flights at fares about $99 each way, Neeleman says.
Not unexpectedly, many airports are angling to be added to JetBlue's route map and the carrier, is "more predisposed" to go to the airports that have set aside gates and counter space for new entrants. Although he is not initially counting on attracting business travellers, many of whom are wedded to existing loyalty programmes, Neeleman says that his team is "very opportunistic". If local businesses are prepared to guarantee a certain number of seats to entice JetBlue to their community, then the airline will listen. He does think the airline will attract small-business travellers - "The guy from Buffalo who comes to market once a year, but now will come four times a year."
Connections with international carriers are also not part of the business plan, but could be considered. JetBlue's advance fares are well below the prorates that foreign airlines would expect to pay to the US majors for customer connections, so if baggage transfer can be worked out, there could be a deal.
The airline, with a workforce of about 300 by mid-March, has had no trouble finding employees. In seeking experienced pilots, Neeleman says the airline was confident of its plan and "didn't try to be chintzy". Noting that "pilots want security and want it in writing", JetBlue is giving "guaranteed employment" contracts, taking care of all training costs, and giving pilots stock options. "They are owners from day one," he says.
Neeleman's own track record is impressive. He masterminded Morris Air, sold to Southwest in 1993, was consultant to successful Canadian start-up WestJet Airlines and headed Open Skies, creator of a touch-screen electronic reservations and check-in system sold to Hewlett-Packard. That helped in raising nearly $130 million in venture capital for JetBlue, including $90 million from Soros Private Equity Partners, Weston Presidio Capital and Chase Capital Partners.
That capital frees that airline from being forced into an early public offering, says Neeleman. It can happen "years from now" when market conditions are right. In the meantime, the top investors get free rides on the airline.
Source: Airline Business
