Here's part 2
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•New terminal. At New York John F. Kennedy airport, where it has more flights than any other carrier, JetBlue's already paying for a grand new terminal that won't be ready until 2009. JetBlue last fall began work on the $875 million terminal at JFK, which is its home base. The new terminal will adjoin the airport's architectural signature piece, the old TWA Flight Center designed by architect Eero Saarinen, which sits unused. It will have 26 gates and allow for up to 250 departures a day, vs. about 120 today.
But the biggest cost issue for the moment stems from the addition of a second aircraft type to its fleet.
Until November, JetBlue flew only the 156-seat Airbus A-320. Then, JetBlue became the world's first airline to incorporate the new Brazilian-made Embraer 190 into its fleet. So far, JetBlue is flying eight E-190s, with 93 more on order. It has options to buy an additional 100.
Executives remain convinced that, at 100 seats, the E-190 is the perfect plane for taking the JetBlue brand and in-flight experience into smaller markets. The carrier's new non-stop flights between Austin and both New York and Boston are prime examples of where JetBlue wants to expand.
However, the teething pains with the E-190 have been worse than expected, and COO Dave Barger acknowledges the plan for its introduction was too aggressive.
Unexpected glitches
Originally, JetBlue had expected to be able to fly the E-190s for 14 hours a day almost right out of the chute. It's what the carrier does with its A-320s. But all eight of the E-190s now in JetBlue colors arrived behind schedule. And the carrier ran into delays installing its sophisticated add-ons, particularly the seat-back TV and in-flight entertainment system that is integral to the celebrated JetBlue passenger experience.
Also, as is often the case with brand-new planes, JetBlue is running into unexpected technical glitches. Pilots and mechanics used to doing things a certain way on the A-320s are discovering that those same actions produce surprising, even perplexing, results on the Embraers.
For example, the pilot of an A-320 in a long line of planes awaiting takeoff may set the parking brake. But on the E-190, the plane's electronic systems reacted to the routine act of setting the brake as if the plane had landed and arrived at the gate.
Such glitches typically aren't safety problems, Barger says, but they can delay flights. During the Christmas season, such glitches caused JetBlue to cancel some flights.
For now, Barger says, the airline is building more slack into its schedule than initially planned for its E-190 routes, a pullback that further pressures JetBlue's bottom line.
Fuel costs
Then there's the fuel-cost problem. JetBlue, like most carriers, has little control over price. Its ability to buy futures contracts or put into place other hedges against future high prices is limited by the big layouts of cash that would be needed and by current market conditions.
Because JetBlue is a new airline designed to run lean, CFO John Owen says, it has none of the "massive inefficiencies and bureaucracies" that allowed the bigger airlines to trim billions to offset high fuel costs. In other words, JetBlue can't "save" itself back to profitability, Owen says.
The result: Executives are working to adjust thinking throughout the company so that high fuel prices are viewed as permanent. As COO Barger says: "Let's learn to work" with higher jet fuel prices. Although nobody at JetBlue is counting on it right now, Owen and other executives acknowledge that the carrier could catch a break if the current "irrational competition" subsides. That's the term JetBlue executives apply to actions taken by competitors threatened by encroachment by the discounter.
No. 1 on JetBlue executives' list of "irrational competitors" is Delta Air Lines, which created Song to go head-to-head against JetBlue at its New York JFK stronghold.
But Delta, in Chapter 11 since Sept. 14, seems to be stepping back a bit from its costly confrontation with JetBlue. It has announced plans to fold Song into the Delta mainline system in May and has already stopped advertising Song as a separate brand.
Further, Delta plans to shift Song's 199-seat Boeing 757s to higher-demand Delta routes and is expected to fly its 150-seat Boeing 737-800s on what are now Song's routes. Delta's reduced flying capacity on those routes is likely to ease pressure on JetBlue pricing.
Even if competitors such as Delta scale back this year, Neeleman says, increasing JetBlue's revenue will remain his focus.
To that end, Neeleman is shifting the company's all-important revenue management team from Salt Lake City to company headquarters in the Forest Hills section of Queens. The unit, which manages airfares in relation to travel demand and competitors' pricing, is critical to achieving Neeleman's goal.
"They're going to be three floors up," Neeleman says. "I'll be able to run right up and spend most of my time up there."
http://www.usatoday.com/money/biztra...lue-usat_x.htm