JetBlue tries to recover after February ice storm
Travelers have forgiven
JetBlue, but investors haven’t.
NEW YORK (AP) — Memories of the Valentine’s Day ice storm that grounded more than a thousand JetBlue flights and tens of thousands of passengers didn’t stop Suzanne Dohm from flying the New York airline.
“One incident like that is not going to turn me off. Those were extraordinary circumstances,” said Dohm, of New York, while waiting on a recent day for a JetBlue flight at John F. Kennedy International Airport. “I know what it was like that day. It was horrible.”
Customers may be willing to forgive the airline that offers free snacks and DirecTV at every seat, but investors have not: Shares of JetBlue Airways Corp. have been on a long slide in recent months and now trade for little more than half their January peak.
One big concern is that JetBlue has been forced to scale back its growth plans as it faces new competition from startup Virgin America and other carriers. Wall Street analysts say the seven-year-old carrier’s high debt load, along with its chronically congested JFK hub and reliance on cutthroat domestic routes, are crimping profits and leave it vulnerable to a takeover.
Indeed, JetBlue’s revenues per available seat mile have grown only 9.4 percent over the past five years, compared with growth rates of 23.5 percent at Southwest Airlines Co. and 28.6 percent at AMR Corp., which operates American Airlines. Per-seat costs, meanwhile, have jumped 29.4 percent at JetBlue, compared with a 20.7-percent increase at Southwest and a 3.3-percent increase at AMR. Fuel expenses, which make up nearly a quarter of airline costs, have risen sharply in recent years. Labor expenses have also increased, though more slowly.
JetBlue’s new management team knows that boosting the airline’s financial performance is imperative. But they also have no choice but to keep their focus on operational issues. Another systemwide misstep could be fatal.
Impact of a storm
JetBlue made headlines in February when an ice storm that socked the Northeast collided head on with the carrier’s policy of not canceling flights ahead of bad weather. JFK was particularly hard-hit as planes continued to arrive and none were allowed to leave. Thousands of people were trapped on planes for hours or stranded in terminals for days.
“We gridlocked ourselves,” said Dave Barger — named chief executive in May when JetBlue’s board asked founder David Neeleman to step down.
Neeleman, who remains chairman, was criticized for spending more time apologizing than fixing problems. JetBlue didn’t fly a full schedule for days.
Over the next month, JetBlue implemented a pre-cancellation policy and a “remote exit” procedure to get passengers off planes when terminal gates are full. It hired operational experts, including chief operating officer Russell Chew, who has an airline and Federal Aviation Administration background.
Most visibly, JetBlue drafted a “customer bill of rights,” promising vouchers in some cases when passengers are stranded or delayed. Vouchers cost the company $24 million in the first quarter, which included the storm. JetBlue hasn’t disclosed its voucher costs since.
However, JetBlue is not about to stop growing. Even with the cutbacks, the company will add 106 planes by 2012. After that, JetBlue’s pace of growth will accelerate — Barger plans to nearly double previously planned aircraft acquisitions between 2013 and 2015.
He realizes his challenge is managing that growth in a way that will keep customers happy and bring JetBlue back into favor with Wall Street.
“There’s still a lot of growth in JetBlue,” he said.