CHARLOTTE, N.C. -- JetBlue ( JBLU) needs another miracle, and it may well get one. When it began flying in 2000, JetBlue quickly achieved improbable success by turning two devoutly held industry beliefs upside down -- first by showing that New York's Kennedy Airport could be used for domestic flights, and second by proving that comfort and amenities in coach could be made to work. Seven years later, it is one of the big four carriers in the world's largest aviation market. The next youngest, Continental ( CAL), was founded in 1934. But JetBlue is also frayed around the edges, a victim of cost-cutting competitors, Kennedy's congested airspace, a February ice storm that exposed ugly operational shortcomings and the sort of overly rapid growth that has doomed promising startups in industry after industry. Hope, however, is on the horizon. Late in 2008, JetBlue expects to open a spectacular $740 million Kennedy terminal that will enable it to once again overturn conventional wisdom, this time with innovative design and an effort to eliminate waits in airport lines. CEO Dave Barger, who took over for founder David Neeleman in May, says the new terminal is just one of the cards he will play as he seeks to return JetBlue to its former glory. For now though, he said in an interview, he is busy "calming it down" at the carrier, which added 16 new cities in 2006. His cards, he says, also include the new 100-seat Embraer 190, "the perfect airplane" to open new markets, a cost per available seat mile of just 5.34 cents excluding fuel, and a product that remains largely unique. In the new terminal, ticket counters will be relics, tucked away in the corners. Most passengers will use kiosks for ticketing, rebooking and lost-baggage claims and will put their own baggage on conveyor belts. Nearly 200 kiosks will be scattered around the building. Sure, Alaska ( ALK) has already opened a new-age passenger terminal, but it is in Anchorage. JetBlue's innovations will be on display at the busiest airport in the world's media capital. And innovation will be everywhere, Barger says. For instance, airport concession workers may deliver food to customers who place orders with handheld devices. The new terminal will be so attractive, he says, that "people will want to fly JetBlue not just because of the flight experience but also because of the ground experience."
Employees could also be re-energized. In the existing terminal, "we're falling all over each other with substandard baggage systems and jet bridges," says project manager Debbie Usvaltas. "Coming into a new area, it will be like 'I'm starting a new job.'" Amazingly, at the moment, the project is on budget and more than six months ahead of schedule. The terminal should enhance a travel experience that, almost uniquely, includes free snacks, adequate legroom, entertainment options and often cheery flight crews. That engenders loyalty. As consultant Mike Boyd says, "Jet Blue doesn't have passengers; it has groupies." The preference can be so high, Barger says, that on some routes, JetBlue gains a premium in revenue per available seat mile. "It's not supposed to work that way," he said. "But there's a halo effect." For instance, on flights from LaGuardia to Fort Lauderdale, JetBlue commands an 11% fare premium over its closest competitor, Delta ( DAL). The E190s provide another growth platform. Although it recently deferred 16 deliveries, JetBlue at year-end will have 30 E190s with orders for 78 more by 2015. (It will also have 105 A320s.) With E190 reliability issues ironed out, Barger will use the airplane farther from the Kennedy maintenance base. This winter, for example, JetBlue will offer seasonal service to Fort Lauderdale from Charlotte, Raleigh-Durham and Richmond. To be sure, for all its future promise, JetBlue still has problems to solve. The stock chart tells a sad story. JetBlue shares reached a high of $30, adjusted for splits, in 2003, and have trended lower ever since. They traded Thursday at $9.66. Meanwhile, increasing Kennedy congestion means on-time performance has slipped. In both 2003 and 2004, JetBlue ranked third among the top 20 airlines with about 83% of arrivals on time. In 2005 and 2006, it ranked 16th, with on-time performance around 72%. And costs, while low, are rising: The carrier predicts that CASM, excluding fuel, will rise 6% to 8% this year. "JetBlue was a breath of fresh air when it arrived," says consultant Robert Mann. "It's not reliable anymore due to Kennedy congestion and the
terminal construction project. Dave Barger has earned points for putting the brakes on expansion, but in terms of fixing the airline, it's too early to tell." Still, Mann says, New York "is a bottomless pit of airline revenue potential." As the biggest carrier at Kennedy, and the only one focused on domestic travel, JetBlue sits on a gold mine, seeking to extract more RASM.
|More Green for JetBlue |
This chart shows revenue premiums on New York-Fort Lauderdale flights, using LGA-FLL as a base.
|Airport||Carrier||Daily flights||RASM||JetBlue RASM Premium|
|Note: Revenue per Available Seat Mile is in cents |
JetBlue compiled these figures using Transportation Department first-quarter filings.