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More Trouble for JetBlue

Ted Reed

Flight operations at JetBlue(JBLU Quote) were normal Tuesday for the first time in a week, but the airline took a hit on Wall Street.

Shares, hurt by negative comments from analysts, fell 4.9% to $12.90. Meanwhile, on a conference call with reporters, CEO David Neeleman estimated the impact of the carrier's six-day storm-related operational meltdown at about $30 million.

He said JetBlue issued $10 million in refunds and $16 million in credits to passengers and had $4 million in incremental expenses, such as overtime and costs for chartered aircraft. Still, JetBlue will be profitable in 2007, he said, noting that this "is just one quarter."

Analysts agreed with the full-year projection, but they took a dim short-term view.

"We believe the stock will be dead money for the next few months," said William Greene of Morgan Stanley, who estimated a first-quarter loss of 16 cents a share. "Operational challenges over the past week are likely to negatively impact revenue growth, cost initiatives and earnings momentum," he wrote.

Morgan Stanley provides JetBlue with investment-banking services and owns more than 1% of its shares. The firm downgraded JetBlue to equal-weight from overweight.

Analyst Ray Neidl of Calyon Securities estimated a 14-cent first-quarter loss and said JetBlue may slow projected growth. The carrier "may have been too aggressive in cutting unit costs, which may have left its resources stretched too thin for emergency situations," he wrote.

Mike Linenberg of Merrill Lynch lowered his 2007 profit estimate to 40 cents from 50 cents, writing in a report that "the operational issues suggest that the company is still suffering from growing pains." Merrill has a financial relationship with JetBlue that includes acting as a market maker and investment banker.

For his part, Neeleman suggested storm cancellations will force the company to cut its guidance. He made his comments in an interview on CNBC, during which he also tried to contain the public-relations mess last week's foul weather has caused for the New York-based airline. He didn't offer any specific numbers.

JetBlue introduced a customer bill of rights on Tuesday, promising to compensate passengers for various delays. If a flight lands and can't get to a gate, the carrier will issue vouchers ranging from $25 for a 30-minute delay to full ticket price for a delay exceeding four hours. For ground delays of departures, vouchers for $100 will be issued at three hours and full-fare vouchers will be issued at four hours.

Vouchers will also be offered for cancellations within 12 hours of departure and for departure delays when they are caused by the airline rather than by weather or air traffic control. The financial impact of the bill of rights "is not a meaningful amount, [but] maybe people will look at this and say I want this to be my airline," Neeleman said.

In all, JetBlue canceled 1,096 flights between Feb. 14 and Feb. 19, about one-third of the total. Its Embraer 190 fleet was grounded for three days.

The airline's problems started when icy Valentine's Day conditions at its Kennedy International hub delayed or prevented departures, and then cascaded into five days of cancellations as various systems failed in the face of high demand.

JetBlue planes were loaded and ready to depart at 7 a.m. on Feb. 14, Neeleman said, as the airline expected falling snow to turn to rain. "By the time we realized rain wasn't coming, everything froze," he said. Planes couldn't move due to frozen conditions and occupied gates. Nine JetBlue flights sat on the runway for more than five hours, he said.

Subsequently, failures occurred in airport staffing, reservations staffing and crew management. In response, Neeleman said, JetBlue's Web site has been upgraded to allow passengers on canceled flights to rebook. A few hundred Kennedy-area employees will be trained to help out in emergencies.

The crew-scheduling system is being upgraded so that it can identify crews with flight time remaining. Reservations agents, many of whom work at home in Salt Lake City, will be required to work extra hours in emergencies.

Neeleman, who has assumed the burden of apologizing publicly for JetBlue's mistakes, said that in a crisis, a company needs to explain what went wrong and why it won't happen again. "If you try and hide stuff, if you try and twist the truth, and try and spin it your way, you don't come across as credible," he said.