New York (TheStreet) - JetBlue (JBLU - Get Report) said Thursday that Dave Barger, its embattled CEO who has been under pressure from Wall Street, will step down in in five months when his contract expires.
The iconoclastic consumer-friendly carrier, founded in 1998, has had just two CEOs in its history, and now both have been hounded out of office by Wall Street investment banks and investors. Founder David Neeleman left in 2007, after a snowstorm led to an operational meltdown at the carrier's JFK hub, and on Thursday, Barger, an operations guy who was part of the founding group and Neeleman's successor, has stepped down.
Barger will be replaced on Feb. 16, the day after his contract is up, by JetBlue President Robin Hayes, who had been widely expected to succeed him. Hayes, whio joined JetBlue in 2008, is a veteran of 19 years at British Airways.
In the current round of historic airline industry profits, JetBlue has simply not kept pace, a failure that has been blamed largely on its eschewal of bag fees and its apparently failed effort to offer a premium product with extra legroom, when JetBlue already provided more legroom in coach than its rivals.
Wall Street opposition to Barger has been mounting since May, when JP Morgan analyst Jamie Baker upgraded JetBlue to overweight, noting that "management has not historically been the most committed to capital returns, but is seemingly willing to adjust senior ranks going forward.
"The current CEO's contract is down to under 10 months," Baker noted. At the time, JetBlue shares were trading around $8. Baker set a target of $10.
By the end of July, shares had risen to around $11. On July 30 Baker wrote a note in which he modeled for a first bag fees that could boost annual revenue by $200 million, and for slower capacity growth, which led him to raise his target price to $13.50.
Many other analysts began calling for the imposition of fees and for Barger's departure. In mid-August, Imperial Capital analyst Bob McAdoo raised his one-year target price for JetBlue to $20 from $10, saying "Investor interest is focusing on possible management and strategy changes that could great enhance earnings."
McAdoo proposed a list of changes that he said would add as much as $550 million to the base pretax income of $279 million. He recommends adding a first bag fee, resulting in an estimated $150 million to $200 million in annual revenue and adding seats, which could add $250 million to annual pretax income.
Additionally, McAdoo recommended cutting unprofitable routes ---primarily trans-continental routes and routes from Boston. "Flights to/from and along the West Coast corridor are generally unprofitable and have been for several years," McAdoo wrote. "In addition, contrary to the comments in most quarterly earnings reviews, quite a number of the Boston domestic markets, including only those that have been in system for over a year, generate seven-figure losses annually."
The pressure evidently got to Barger. who fired back in an interview with a Business Week reporter who attended the Boyd Group International Aviation Conference in Last Vegas in late August. "You want to compare my track record to bankruptcies and layoffs?" asked Barger, referring to the bankruptcies at most major carriers. "Go ahead. I'll take that comparison."
To The Wall Street analysts, Barger declared, "It's a free country. You can write what you want," according to Business Week.
In a prepared statement issued Thursday, Barger said, "Helping to found and lead JetBlue has been the experience of a lifetime. We set out to create a better airline, and through our commitment to that simple goal, the people of JetBlue succeeded in establishing a new standard for value and customer service in our industry.
"I have been looking for the right time to take the next step in my life for a while, and my decision was ultimately determined by the strong state of the company and my absolute confidence in Robin's leadership," he said. "I know that JetBlue's best days are ahead."
Analysts are likely to issue reports Friday supporting Barger's departure.
But late Thursday, Barger received a tribute from an unusual source - the leaders of Boston Logan Airport, where Barger built JetBlue into the biggest carrier.
"We have all benefitted tremendously from the leadership of a visionary like Dave Barger,'' said Massport CEO Thomas Glynn, in a prepared statement. "The list of JetBlue firsts is impressive, but JetBlue's growth in the Bay State under Dave has been nothing short of phenomenal." Glynn said Massport looks forward to continued JetBlue growth under Hayes.
Ed Freni, Director of Aviation at Massport said of Barger, "It has been an honor to work so closely with one of giants of the aviation industry who found a critical spot between low cost carriers and legacy carriers to bring a new standard of service to the industry. "