JetBlue Says Delay's Could Cost $30 Million
This is a very interesting read. Scroll down to the "JetBlue Passenger Bill of Rights." Seems like a bad business idea to me!
NEW YORK (Reuters) - JetBlue Airways Corp. said on Tuesday it would cost $30 million or more to reimburse the 130,000 or so passengers affected by canceled flights over the past six days and to meet extra costs caused by the cancellations, sending its stock down sharply.
"It's going to be very expensive," CEO David Neeleman said in an interview on NBC television. "I don't have the final number, but it's going to be maybe $20 million or $30 million and maybe a little bit higher."
Neeleman said the costs would hit first-quarter results and JetBlue would update its financial forecasts soon.
The carrier's shares were down 66 cents or 4.9 percent to $12.90 on Nasdaq in afternoon trading, down 25 percent from a 52-week high of $17.02 hit in mid-January. At one point in the morning, the stock was down as low as $12.51. Shares of other airlines rose slightly.
JetBlue is struggling to make up ground after the worst crisis in its eight-year history, as it canceled 1,096 flights following an ice storm in the U.S. Northeast last week, leaving many passengers stranded. During that time, the airline had about 3,500 scheduled flights.
The low-cost carrier, which has won fans in the past for its reluctance to cancel flights because of bad weather, is blaming the problems on its inability to cope with rescheduling so many flight crews.
"We had a weakness in our system," said Neeleman on the "Today" show. "We were overwhelmed."
Speaking on a conference call with reporters later in the day, Neeleman said he felt no pressure to resign and was "uniquely qualified" to lead the company he founded in 1999. He said no JetBlue employees would be fired.
The carrier is paying out $10 million in refunds to passengers on canceled flights and issuing $16 million worth of vouchers to delayed passengers for future travel, said Neeleman on the conference call. He said extra crew and flight expenses cost a further $4 million.
But he added he was "not really concerned" about the immediate financial impact of flight delays and was focused on getting operations back to normal, making sure such delays did not happen again and restoring JetBlue's reputation.
BILL OF RIGHTS
In a bid to win over worried customers, Neeleman unveiled what he called the "JetBlue Customer Bill of Rights," basically a sliding scale of reimbursements for delayed flights.
The plan was couched in language that appears to be designed to preempt moves in Washington to create an industry-wide passenger bill of rights.
The reimbursements will apply retroactively to passengers delayed on February 14 or after.
Under the new plan, passengers will get a $25 flight voucher for flights that arrive half an hour to an hour late; a $100 voucher for flights one hour to two hours late; the value of the one-way ticket for two to three hours late; and the value of the round-trip ticket for flights that are four or more hours late.
Other reimbursements apply for flights that are late departing or otherwise delayed by factors within JetBlue's control. Passengers that lose their places on a flight because of overbooking will get $1,000 in cash.
JetBlue will "take the necessary action" to get passengers off planes delayed on the ground for more than five hours, and will form a customer advisory council, which will be consulted on improvement programs, according to the plan.
PASSENGERS, WALL STREET REACT
Passengers and Wall Street analysts were critical of JetBlue, but hopeful the setback would lead to improvement.
"The marketplace is holding JetBlue accountable, and like competitors before them, the pounding will lead to positive change," said Kevin Mitchell, who represents the interests of corporate travel managers as chairman of the Business Travel Coalition.
Merrill Lynch analyst Michael Linenberg cut his full-year 2007 earnings forecast to 40 cents per share from 50 cents but kept his "neutral" rating on the stock. Analysts are expecting 53 cents, on average, according to Reuters Estimates.
"These things happen in the airline industry," said Linenberg in a note to clients. "At the end of the day, customers will return to JetBlue."
In Washington, JetBlue and other carriers still face challenges. Last week Rep. Michael Thompson, a California Democrat, said he planned to introduce a bill that would address delayed flights, time on the tarmac, cancellations, and lost or damaged luggage.
One of Thompson's constituents, Kate Hanni, launched a drive for a passenger bill of rights after she was stranded on an AMR Corp. American Airlines flight in Texas on December 29.
The airline industry beat back a similar push for legislation in 1999 after agreeing to adopt a voluntary customer service initiative in response to a Detroit snowstorm that snarled Northwest Airlines Corp. operations.
(Additional reporting by Jeremy Pelofsky, John Crawley and Jim Wolf in Washington)
Copyright 2007 Reuters