|David " Dave" Barger, president and CEO of JetBlue Airways|
NEW YORK ( TheStreet) -- The airline industry, proud of itself for managing capacity better than it ever has, looks askance at JetBlue ( JBLU - Get Report). In an industry with flat-to-down capacity growth, JetBlue plans to boost its available seat miles by 6% in the current quarter and by 8% for the full year. "We have earned the right to grow," said a defiant CEO Dave Barger, in an interview with TheStreet. Growth is justified, he said, because JetBlue makes money in a recession, has cash flow that
turned positive in 2009 for the first time in its history and plans growth only in select destinations -- Boston, Latin America and Washington.
Washington's Reagan National Airport is a particularly profitable place for airlines because of its convenient location and stringent slot controls. There, JetBlue will begin service Nov. 1 with nine flights a day -- seven to Boston and one each to Orlando and Fort Lauderdale. "We'll grow Washington Reagan National one trip at a time," Barger said. "We will claw for every brick ... I'll be disappointed if we do not have 30 flights a day
by 2012." JetBlue, Barger said, is "contrarian," not only in its growth plans but also in its opposition to "the traditional model, which is 'if you can gouge, do it.'" Among his regrets, he said, is not starting service from Reagan National sooner. Passengers pay a price: It costs nearly 54% more to fly from Reagan National than it does to fly from Baltimore, and much of the service provided by US Airways ( LCC) is on small airplanes carrying 50 passengers or less. By contrast, JetBlue will fly 100-seat regional jets and 150-seat Airbus A320 jets, all with ample legroom. "There's no question in my mind that we will have great traction in that market," Barger said. Of course, limited slot availability makes Reagan National a tough place to grow, but it's not as if JetBlue hasn't overcome worse odds. In its first 10 years, the iconoclastic carrier became the biggest domestic carrier at both New York's Kennedy Airport and Boston's Logan Airport. That history alone should make its Reagan National intentions clear. On Tuesday, JetBlue announced plans for Boston-Newark service. This year, JetBlue shares are up about 2%, while the overall industry is up about 13%, with some of the gains fueled by merger-related increases and by US Airways' 86% leap. Analyst ratings for JetBlue are all over the map: Mike Derchin of CRT Capital Group has a buy and a $9 target price. Helane Becker of Dahlman Rose has a hold and a $5.50 target price. William Greene of Morgan Stanley ranks JetBlue "equal weight," neither over nor under.
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 - Get Report), 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 - Get Report), 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. >To contact the writer of this article, click here: Ted Reed