JetBlue Eyes Expansion

By Jens Flottau
Source: Aviation Week & Space Technology

This is being achieved by voluntarily forgoing the lowest-cost options. Barger argues that “people will pay a premium in this geographical region.” JetBlue is not concerned that it will be able to survive without participating in the current consolidation trend. “We are only five percent of the domestic landscape, but you can still be a very successful airline,” Barger says. JetBlue aims to become more relevant by paying close attention to what customers seek. In Boston it serves 65% of the markets people want to reach, and daily departures are scheduled to rise to 150 from 120 within the next three years.

Barger's goal is to thread the needle by positioning JetBlue between super discounters and large legacy carriers. He calls it being a “tweener.” But he acknowledges that some on Wall Street are skeptical. “Investors don't like tweeners.” To be one means putting 150 seats on an Airbus A320 that could hold 180, providing passengers with more legroom, all-leather seats, and live television feeds (broadband Wi-Fi is slated for this year). His target is a leisure customer who is willing to pay a bit more for extra comfort. “People will pay more for a Starbucks coffee,” he says.

JetBlue not only has been deleveraging the balance sheet, it has lately tackled strategic risk. Business markets in the northern U.S. are potentially more lucrative than leisure routes, however they take around two years to mature. By pushing for growth in leisure flying, too, “we are really using the markets down south to fund the markets up north.” In an earlier stage of JetBlue's development most of its markets were dictated by seasonality; because of rapid growth a large part of the network was still unprofitable and there were no partners. Now JetBlue is using connecting traffic from partner carriers to fill off-peak capacity.

In another tweak to the existing model, JetBlue plans to provide premium cabins in its A321s. The aircraft will be used on transcontinental services, where it competes with higher-quality cabins provided by other airlines. The new product will become available next spring to make the long-duration domestic services more attractive. The cabin could also be installed in some of the airline's A320s, Barger said recently. On the other hand, his game plan includes avoiding routes where there is fierce competition. JetBlue's cross-country flights to the Los Angeles basin do not land at Los Angeles International (LAX) but at Long Beach Airport, which is served by an art deco terminal built in 1941. It's not far from Los Angeles—and it is slot-protected, limiting competition. “We don't think anybody is profitable [at LAX] except for Southwest,” Barger says.

In spite of the CEO's concerns, most investors seem to like his approach. “JetBlue clearly understands its strengths and weaknesses,” Michael Derchin of CRT Capital writes in a note to clients. “It does not want to be all things to all people. It is not going after the high-end global business traveler . . . nor the ultra-price-sensitive leisure customer.” He also notes that JetBlue manages to further close the yield gap between it and legacy carriers as it focuses its growth on key locations such as New York, Boston, the Caribbean, parts of Florida and Los Angeles.

Scott Laurence, vice president of network planning, is responsible for network, partnership and fleet planning. Yet his office is so small there is barely enough room for a guest chair. And the walls are so thin that when Laurence is on the phone chances are his neighbors will listen in, whether they want to or not. But he is not perturbed. “We are very interactive, we all get along very well, we tend to punch above our weight and we act as owners.” The executive worked for legacy airlines before he sought out JetBlue. In the job interview, Barger asked him why he wanted to join. His answer: “I want to make a difference.” In the much larger organizations, that was difficult. But at JetBlue, Laurence quickly sensed that “this is what I was born to do.” There are many like Laurence in the “Support Center.”

When Barger boarded a flight in New York on a bitter winter morning, he snapped a photo out the window of a groundcrew braving the weather, which he sent out on his Twitter feed. Barger believes valuing and motivating employees is important for JetBlue. “Customer service is off the charts,” he asserts. That the employees are not unionized is a measure of his success in building that culture. “I'm not bagging on unions,” he said later that morning in an address to the Harvard Business School's Aerospace & Aviation Club in Boston. “But we just think you do not have to pay somebody to talk.” As JetBlue continues to grow, one of the biggest challenges will be “scaling the culture of the company.” But the truth is also that very few airlines have as strong a corporate culture, with the exception of Southwest.

Having a powerful culture can leave an airline in a somewhat isolated position, but the next step in JetBlue's development involves opening up to others. The airline has long worked with different carriers, but mainly in the sense of putting the other airline's code on its own flights. Allowing JetBlue's code on someone else's flight means relinquishing some control. That is likely to happen next. “We are working with carriers with whom the brands align,” says Laurence. Emirates or Aer Lingus are among them, but the most likely carrier for two-way code-sharing partnership is South African Airways (SAA). The carrier is, in many ways, the exact opposite of JetBlue: it is government-owned and controlled, and incurs huge losses, but because the airline traditionally has a big share of very long routes owing to geography, it pays special attention to comfortable cabins.

In addition to SAA, JetBlue currently has one-way code-shares with Aer Lingus, Emirates, Japan Airlines, Hawaiian Airlines and Lufthansa. The Aer Lingus deal was expanded in April to include another 33 destinations.

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