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USAToday on JetBlue

Old 02-22-2006, 03:49 AM
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Default USAToday on JetBlue

(I had to break the article into two parts, due to it's length. Here's part 1.)

=============================================

Loss shifts JetBlue's focus to climbing back into black
By Dan Reed, USA TODAY

NEW YORK — Onetime Mormon missionary David Neeleman had hoped to spend 2006 spreading the gospel of JetBlue, especially in America's heartland, where his airline's popular brand of high-style, low-cost, low-fare service remains largely unknown.

But for Neeleman, the founder and CEO of the USA's fastest-growing airline, the focus has changed. For the first time since its wildly successful initial public offering in 2002, JetBlue lost money during a quarter.

It was a surprisingly large, $42 million loss in the October-December period, the result of high fuel prices, low fares and a slow upward creep in the operating costs of the 6-year-old carrier. The fourth-quarter loss pushed the discounter $20.3 million into the red for all of 2005. The company expects to lose more money in 2006. (Audio: David Neeleman on the value of adversity)

What may have been met with a shrug at most other U.S. airlines, where losses have become the norm, has been a wake-up call at JetBlue headquarters. Instead of personally spreading the good news about JetBlue, Neeleman's top priority now is getting an additional $5 or $10 per trip out of the average JetBlue customer's pocket — the difference, he says, between profit and loss for the airline.

If Neeleman and the industry veterans who helped him create JetBlue's early success can't get the airline back in the black by 2007, plans for the airline's aggressive growth may have to be scaled back, and JetBlue could become just another struggling airline.

In an interview, Neeleman said, for now, he'll be "just focusing on revenue."

"I'd love to go talk to the Harvard Club. I love doing charity work," he says. "But the biggest responsibility I have ... is making sure that we can get an extra $5 or $10 a ticket."

Exactly how Neeleman and his airline bump up the revenue sufficiently to regain a profit remains unclear. JetBlue has to do it in the face of fierce price competition. And it has to do it at no cost to its image as a unique airline that provides a great travel experience to an almost fanatical base of customers who view low fares as part of the deal.

But Neeleman insists it can be done by selling fewer seats at the deepest discount price and by a smart growth plan that puts the right-size aircraft on the right new route.

Neeleman says JetBlue will stay on track to add eight to 10 cities to its network this year, mostly in the nation's heartland. He also remains committed to the carrier's plan to grow aggressively — 25% to 30% a year through the rest of this decade.

What skeptics said

Since JetBlue's launch in February 2000, the skeptics have said making money in the early years would be easy but that it wouldn't last. At first, its maintenance spending would be next to zero, and its employees would all be at the bottom of the pay scale. But that cost holiday someday would end, they warned.

Now some of those skeptics are whispering, "I told you so." Neeleman dismisses the whispers. JetBlue's fourth-quarter loss, made deeper by $13 million in one-time charges, was "all about fuel," he says.

But analyst Jamie Baker at JPMorgan, in a recent report to investors, mocked JetBlue, saying that it "appears to finally be acting like an airline," complete with "over-aggressive growth, unrelenting competition, deteriorating operational integrity, earnings disappointments and — longer term — shareholder value destruction."

Neeleman is more humble than the brash airline entrepreneur of previous years, says Standard & Poor's debt analyst Betsy Snyder.

"The fourth quarter was a turning point for them. He's saying, 'We messed up.' Before, they were, like, 'We're JetBlue! We can do no wrong!' Now, that attitude has changed."

Cost pressures mount

For the first time, JetBlue is having to deal with significant cost pressures that it largely sidestepped during its first six years. What's catching up:

•Maintenance. The first of JetBlue's all-new fleet have been in the air now for six years. Though still a small portion of costs compared with traditional airlines, JetBlue's aircraft maintenance costs rose 40% in the fourth quarter from a year earlier.

•Wages Not all of JetBlue's workers are newbies anymore, and many are advancing rapidly up the pay scale. Still, its many new hires — eight to 10 new workers each day — are starting at relatively low pay, helping to mitigate the creep of labor cost.

•Route expansion. After adding nine cities to its network in 2004, JetBlue eased back a bit last year by adding only three more. Austin came on line in January, giving the carrier 34 destinations. Roanoke, Va., and Bermuda will be added this spring, and the company expects to launch service to an additional five to seven unnamed cities later this year. But that rapid expansion brings high start-up costs, including outlays for marketing and advertising, airport rental and space remodeling.

(continued .....)
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Old 02-22-2006, 03:50 AM
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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
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Old 02-22-2006, 08:33 PM
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Default Irrational Competition

Originally Posted by fireman0174
Here's part 2

=============================================

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.


[/url]

I am not a JB hater in any way. Most JB crews I have had the opportunity to meet have been great guys/gals. In my humble opinion, I think JB management (Neelmans team) sees no end to their 25 to 30 percent annual growth plans. Does anybody believe for a minute that AA is going to allow JB to roll in on their turf without vigorously defending it? Delta at JFK or ATL? Continental in Newark? JB is in for a fight and Legacy airlines aren't apt to give away market share easily. One reason that Southwest has been so successful has been their patience in entering markets and their calculated growth. Some of you may recall how America West fared after buying 747's to expand into Hawaii with. It was a disaster because they grew out of their niche. If JB management continues on this "we are JB and can go and grow as we like" attitude, I sincerely think the airline will be hurt (and the employees) in the long run when costs continue to rise and revenues decline due to "irrational competition" which will surely continue. The Larger airlines will not roll over to JB and will fight them for every passenger. JB better have VERY DEEP pockets if they choose to continue this course. I wish the very best to all my JB friends!
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Old 02-23-2006, 06:28 AM
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Neeleman needs $5 -$10 more per pax........I do believe it was him and JB that started the DEEP discounts a few years back. Now he's crying about it? WAH
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Old 02-23-2006, 08:20 AM
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Lower the pilots pay so you can heep the fares down Neelman.

Last edited by FlyByWire; 02-23-2006 at 08:29 AM.
 
Old 02-23-2006, 08:24 AM
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Originally Posted by crewdawg52
Neeleman needs $5 -$10 more per pax........I do believe it was him and JB that started the DEEP discounts a few years back. Now he's crying about it? WAH
Jetblue invented discounted fares? Huh?
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Old 02-23-2006, 09:41 AM
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Obviously you cant read. Did I say he invented discounted fares.....no. I'm saying he started the ridiculously low fares.
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Old 02-23-2006, 09:44 AM
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Originally Posted by fireman0174
. 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.http://www.usatoday.com/money/biztra...lue-usat_x.htm
You mean the same tactics they used to gain their initial market share? I have little sympathy for the LCC's that used this to thier advantage and now want to be protected against it when it comes full circle.

The courts have ruled against these frivolous claims in the past, and it has been the begining of the end for quite a few start-ups over the years
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Old 02-23-2006, 10:00 AM
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Jet Blue is sinking in the very toilet they created.
 
Old 02-23-2006, 10:15 AM
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oh! wait! what's that sound? why, it's--it's--yes it is! it's the chickens coming home to roost!
 
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