MARY KIRBY / WASHINGTON DC
Southwest with seat allocation
When most US network carriers are bleeding unprecedented amounts of money, JetBlue Airways is the blueprint for how a low-cost start-up cansucceed even in the worst of times.
The New York-based operator was set up in 2000 by David Neeleman, its chief executive, who was renowned for masterminding Morris Air, sold to Southwest in 1993. He was also consultant to Canadian low-fare start-up WestJet Airlines. After an era when US low-fare carriers have minimised start-up costs by spending little on assets (ValuJet, now AirTran Airways, launched with McDonnell DouglasDC-9s cast off by Delta Air Lines), Neeleman raised nearly $130 million in venture capital for JetBlue - the largest ever for a US start-up - and launched with new Airbus A320s.
Backers included Soros Private Equity Partners with $90 million, Chase Capital Partners and Weston Presidio Capital. Two later infusions have brought JetBlue's equity capital to $175 million. Investors will probably benefit from the carrier's planned $132 million initial public offering (IPO), for which it filed intent last month.
JetBlue's net profit last year was $38.5 million on revenues of $320 million, even as its competitors lost billions after 11 September. The airline operates 24 162-seat A320s to 19 destinations from two hubs - its main New York Kennedy base and Washington Dulles. The airline has 59 more A320s on firm order and Neeleman envisages the fleet will number 100 by 2010.
He attributes the airline's early success to an adherence to his original plan, which included strong financing, high utilisation, fleet homogeneity, attractive pricing and experienced management. "We're Southwest with seat assignments, leather seats and television," Neeleman says.
After rapid expansion, Neeleman says the carrier is unlikely to introduce more than two new destinations and a frequent-flier programme this year. JetBlue is facing increasing competition from American Airlines and United Airlines in key markets. "So far, the carrier has not been a competitive thorn in anyone's side. American [and United] are possibly sending a message that the game is getting a little tougher," says Global Aviation Associates consultant George Hamlin."
United will compete against JetBlue Airways with similar fares from next month on services between Washington Dulles and Oakland, California on 8 May. Meanwhile, American and JetBlue have been engaged in a turf war over Kennedy Airport in recent weeks. They already compete in the Kennedy-South Florida market and American is starting to take on JetBlue between Kennedy and Oakland and Ontario, California. JetBlue, meanwhile, will move into American's back yard next month, with Kennedy-San Juan flights. This market has been dominated by American since its acquisition of TWA last year.
While the IPO will raise working capital and assist with the purchase of additional A320s, Hamlin believes it will ensure JetBlue "has sufficient cash on hand for a war chest", so it is prepared to go head-to-head with carriers such as American.
Source: Flight International
