That autumn morning should have been the beginning of another beautiful day for JetBlue. The start-up airline based at New York's Kennedy Airport had opened for business a scant 19 months before September 11, and its takeoff had been nothing less than astonishing: In an industry where red ink flows more freely than the champagne in first class, JetBlue was already profitable. Its fleet of 19 planes was flying daily to 17 cities, and the number of routes was growing each quarter. Business was so strong that on that very morning, the privately held airline, whose backers include financier George Soros, was planning to file its S-1 with the Securities and Exchange Commission-the first step toward an IPO that could yield a rich return for investors. The terrorist hijackings delayed JetBlue's plans for a stock market launch and sent most of its rivals into a tailspin. But even as air travel fell, JetBlue bucked the trend. Within two months it had returned to flying a full schedule of 84 daily flights and announced third-quarter profits of $10.5 million.
Long before the attacks of September 11, running an airline was a risky business. Plagued by fractious labor relations, unpredictable variables such as weather, fuel costs, and ticket demand, and a reputation for lousy customer service, the industry's never been one for those with a weak stomach. Into this turbulence flew JetBlue, a start-up piloted by an industry veteran, CEO David Neeleman, whose investors had given him a $130 million war chest. JetBlue has used that cash to try to build a hipper, 21st-century carrier, modeled on the formula that Southwest Airlines pioneered. JetBlue bought a fleet of brand-new planes and loaded them with extras in an attempt to create a new flying niche: low fares, high service. Aviation history is filled with new airlines that fell victim to the industry's cruel economics. But experts say JetBlue looks poised to succeed. Ask Neeleman if he was absent the day his school taught that it's impossible to make money in the airline biz, and he puts a positive spin on aviation's reputation: "It's an industry that has a lot of room for improvement," he says.
Although JetBlue is based in New York, the roots of its formula lie at Love Field in Dallas, Texas. That's where, in 1971, Herb Kelleher co-founded Southwest Airlines. Southwest began life as a "short-haul" flier, carrying passengers between Dallas, Houston, and San Antonio. To keep fares low, the carrier cut out all the frills-including assigned seats-and flew only Boeing 737s, making flight and maintenance crews more efficient. Employees, who received stock options and profit-sharing, had a stake in the company's success. Flight attendants cleaned cabins to speed turnaround time between flights, and ticket agents hit the tarmac to load baggage. The airline expanded slowly, flying only within Texas until 1979. But as it grew, its low fares attracted fliers and investors, making Southwest one of the business success stories of the '80s. While rivals suffered through fare wars, the Gulf War, and recession, Southwest managed to stay profitable for 29 straight years. Today the market capitalization of Southwest, the nation's seventh largest airline in revenue, exceeds that of the rest of the industry combined.
Success like Southwest's attracts imitators. Many low-priced carriers sprang up to try to copy its formula, but until JetBlue's arrival, few of them lasted long. "Most of the emulators, the wannabes, they had the operating strategies," says Kevin Freiberg, co-author of Nuts!: Southwest Airlines' Crazy Recipe for Business and Personal Success. Like Southwest (and later, JetBlue), they'd fly passengers point-to-point instead of routing them through "hub" cities as the major airlines do, providing nonstop flights to cities underserved by the big carriers. They also stuck to a single type of airplane and focused on squeezing turnaround-the idle time a plane spends at the gate between flights-to a minimum, aware of the old industry dictate that a plane has to be in the air to make money. But Freiberg says that these copycats concentrated too much on Southwest's operating model and not enough on its people. "What the wannabes have not figured out-and JetBlue may be an exception-is that it's not Southwest's operating strategy, but its culture." Freiberg cites the way Southwest employees hustle to get planes aloft on schedule and the way they offered to pitch in to cut costs after the terrorist attacks sent revenues falling. Says Freiberg: "Culture is one of the hardest things in the world to emulate."
Enter David Neeleman. Neeleman was raised in Utah as a Mormon and dropped out of college. In 1984, he signed on with a Utah travel agency and hatched a plan to start a charter air service schlepping vacationers to seaside resorts. The effort grew into a full-fledged low-priced airline called Morris Air. Neeleman attracted industry attention by making Morris the pioneer in electronic ticketing. After selling Morris Air to Southwest in the early '90s, Neeleman spent a few months working at Kelleher's airline. It wasn't a good match. "Southwest has a formula that works for them," Neeleman says. "They're really reluctant to change anything." So Neeleman left to create his own company to assist other airlines in adopting electronic ticketing, and then helped launch another airline in Canada.
But by the late '90s, Neeleman was ready for a bigger challenge. So he looked east and laid plans to launch JetBlue. He negotiated for gate space at Kennedy, used mostly by international carriers and less busy than LaGuardia. To pilot the start-up, he hired some of the industry's top talent. David Barger, the president and chief operating officer, arrived from Continental with a reputation as a guy who makes the planes run on time. From Southwest came the chief financial officer, an expert in negotiating the purchase of billions of dollars in new planes, and the HR chief, skilled at getting employees to hop-to. From Virgin Atlantic, the chic British carrier, came marketing executives to imbue JetBlue with buzz. Neeleman's timing was fortuitous, says Stuart Klaskin of Klaskin, Kushner & Co., a Miami-based airline consulting firm. "When there's high travel demand [as in the late '90s], the so-called major carriers do a good job of evoking the maximum revenue out of every possible seat. But that creates a disfranchised feeling among a large sector of the traveling public. People say, 'I'm tired of paying $1,000 to get from New York to Miami on a walkup fare. There has to be a better way to do this.' "
The real key to JetBlue's strategy lies in its bank account. Its $130 million cash horde let it buy a fleet of all-new Airbus A320s. That's a far cry from most new airlines, which typically cobble together fleets from the aviation equivalents of '72 Chevys. Neeleman says the new planes save money by consuming less fuel and requiring less repair time. They also help inoculate the company from any lingering effects of the 1996 ValuJet crash, which some experts contend made fliers wary of low-fare airlines. Inside JetBlue's planes you'll find leather seats and seat-back TVs, cushy features not found in coach class even on most full-fare airlines. Some of JetBlue's policies mimic Southwest's: It offers standardized one-way fares-in Jet Blue's case ranging from $49 to $299-and never requires a Saturday-night stay. JetBlue, however, does assign seats. Neeleman says that's a big improvement over Southwest's passenger free-for-all, which requires travelers to spend more time waiting in line and makes vacationing families worry they won't be able to sit together. Assigning seats "takes a lot of stress and anxiety out of a trip," he says, and doesn't really add to JetBlue's cost structure. The company also takes pains to cultivate employee loyalty-and follow Southwest's lead in granting stock options.
The result, JetBlue's fans say, is a new type of air travel. Most start-ups that have tried to imitate Southwest's formula "get an airplane, put a lot of seats on it, hire the lowest scale of life form to work on it, and wonder why it doesn't make money," says Mike Boyd, an aviation consultant at The Boyd Group in Evergreen, Colorado. "You wouldn't put your ex-wife on most low-fare airlines, the service levels are so bad." By going even beyond the service offered by Southwest, says Klaskin, JetBlue is innovating. "It's not a pure low-price competitor," he says. "JetBlue is cheap, but it's comfortable." The airliner has also worked to create a solid brand image, using everything from slick advertisements and Prada-inspired flight attendant uniforms to a savvy, easy-to-use Web site. The result, says Klaskin: "There's a cachet to traveling on JetBlue. They're perceived as very consumer-friendly and upmarket. There's kind of this hip, cool, buzz thing going on around them."
To maintain its position, the airline will have to be deliberate in its expansion. Until JetBlue, the closest thing to a successful copycat of the Southwest formula came in the '80s. That's when People Express, a Newark-based low-fare carrier, rode a spectacular growth curve to briefly become the nation's fifth-largest airline. But by the end of that decade, it had imploded due to overexpansion and mismanagement. Neeleman insists he'll avoid that fate. JetBlue recently instituted a route between Washington, D.C., and Miami, its first flights that don't depart from or arrive at Kennedy. It's planning to expand service from its growing outpost in Long Beach, California, this year. And, in February, JetBlue revived its plans for an IPO. Soon, the market will get to decide if JetBlue's smooth flight looks poised to continue toward the horizon.
