JetBlue CEO Defends Growth Plans

Among JetBlue's contrarian ideas is a commitment to make coach travel comfortable with sufficient legroom, free food and free entertainment. Also, it is one of just two major carriers without first bag fees although unlike Southwest(LUV), it barely advertises this particular advantage.

That is an area where JetBlue seems to defy logic. Southwest defines itself as the airline where "Bags Fly Free" and says it has gained close to $1 billion in revenue as a result. Yet the concept seems almost an afterthought at JetBlue. Stifel Nicolaus analyst Hunter Keay said JetBlue leaves money on the table because it neither charges for the first bag nor advertises the lack of a charge. "The consumer expects [a charge] and is therefore surprised" Keay said. "That's a cardinal sin." His advice to Barger: "Pick one."

In Barger's view, however, "there are such things as bad profits" that alienate customers resentful of "nickel and diming."

Analysts also question the carrier's rapid growth. When Barger took over as CEO in 2007, he promised to slow the growth down, and did so. But now "he seems to be getting more airplanes again," said Avondale Partners analyst Bob McAdoo.

Meanwhile, at its Kennedy base, JetBlue has become the belle of the ball, sought out as a partner by all manners of airlines. El Al, AerLingus and South African are partners, while Lufthansa, a founding partner of the Star Alliance, is a 16.5% owner and has two board members. Yet JetBlue recently formed a partnership with American(AMR), a founder of the Oneworld alliance. "Lufthansa has a point of view," Barger said. "Do board meetings get interesting in terms of debate? You bet."

Barger likes being compared with Alaska(ALK), which has multiple partners at its Seattle hub. Consultant Bob Mann calls JetBlue "the East Coast Alaska, a cherry on top of everybody's deals" because it has partners across multiple alliances.

Barger said he is wary of code-share agreements, because often revenue is pro-rated on the basis of how many miles each carrier flies a given passenger, and JetBlue flies shorter, domestic routes. American vice president Art Torno told TheStreet last month that a code-share with JetBlue is possible. Said Barger, "We'll see what the future brings."

Meanwhile, McAdoo questioned the willingness to trade slots at Kennedy, where JetBlue has the ability to enhance revenue by connecting passengers for slots at National, where it cannot. "JetBlue is saying 'I want to go to National so bad I can taste it,'" McAdoo said. "To give up slots at your hub seems kind of strange."

But Barger said the word "hub" is not even in JetBlue's vocabulary because, despite its widespread appeal, exchanging passengers at a hub is a costly, inefficient practice. Of the nine largest airlines, contrarian JetBlue is the only one that doesn't chase connecting passengers: fewer than 20% of its passengers at Kennedy connect. "We don't use the words "hub" and "spoke," Barger said. "We obviously know what they mean, but point to point is more lucrative."

-- Written by Ted Reed in Charlotte, N.C.

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