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JetBlue's challenge: How to avoid becoming 'like any other airline'

CNBC logo CNBC 1/24/2019 Leslie Josephs
JetBlue Airways interior© Provided by CNBC LLC JetBlue Airways interior

JetBlue Airways is looking more like its bigger competitors these days.

The New York City-based airline that burst onto the scene in with its first flight in the winter of 2000, vowing to "bring humanity back to air travel" will soon be entering its third decade, adopting measures used by some more established airlines to drum up revenue and please skeptical investors as its stock price price struggles. Increasing baggage fees? Check. Plans for a no-frills coach service? Check. Chasing those lucrative business travelers? Check. Slimming down corporate-office ranks? Check.

JetBlue's challenge is holding onto its quirky culture and succeeding at airlines' tough balancing act: keeping both investors and passengers happy.

"We're exiting that awkward teenage stage and becoming adults," said Joanna Geraghty, JetBlue's president and COO.

Despite updates like new planes and cabins, JetBlue wants to hold onto its customer-focused approach that first won it a loyal following almost two decades ago.

"Customers expect good service, and when they don't get it they're vocal about it," said Geraghty.

Armed with a fleet of brand-new Airbus jets, each outfitted with leather seats and screens offering satellite television at the back of each one, JetBlue was the brain child of serial airline entrepreneur David Neeleman, who is planning to launch a new U.S. airline.

JetBlue took its first flight on Feb. 11, 2000, from New York's John F. Kennedy International Airport. The carrier's bet on the airport was a gamble on whether travelers would trek out to an airport more known for international service for short- and medium-haul flights.

"The joke was you could bowl down the runway," said Mark Ahasic, who joined JetBlue a month after its first flight and stayed on for more than six years helping plan flights and run operations.

Neeleman ran a shoestring operation. Customer service agents operated out of their homes in Salt Lake City. The airline's corporate headquarters was in a section of Queens that sits between LaGuardia Airport and J.F.K.

Its marketing was quirky and smart: the airline drove an Airstream outfitted with its airplane seats around the country to improve brand awareness when it was virtually unknown in the new cities it planned to serve. It also targeted potential travelers in immigrant communities as it launched service to countries like the Dominican Republic to increase sales among passengers visiting friends and relatives.

a man wearing a suit and tie sitting in a car: JetBlue Airways' CEO David Neeleman acts as a flight attendant during a flight from John F. Kennedy International Airport to Syracuse and back.© Provided by CNBC LLC JetBlue Airways' CEO David Neeleman acts as a flight attendant during a flight from John F. Kennedy International Airport to Syracuse and back.

JetBlue grew quickly and in 2017 it was the fifth-largest U.S. airline by passengers carried, according to data from the Department of Transportation.

The airline's rapid growth wasn't without its meltdowns. In February 2007, an ice storm hit the Northeast, and JetBlue, hesitant to cancel flights and struggling to restaff its planes once the weather passed led to a cascade of delays and cancellations, stranding thousands of customers. Neeleman, as CEO, apologized in a letter to customers and issued a "customer bill of rights," which sets compensation standards for delays and canceled flights. He went on "Late Night with David Letterman" to apologize again. The board ousted him as CEO three months later.

a group of people standing in front of a crowd: JetBlue Airways passengers wait for flights at New York's John F. Kennedy Airport, in this Feb. 15, 2007 file photo.© Provided by CNBC LLC JetBlue Airways passengers wait for flights at New York's John F. Kennedy Airport, in this Feb. 15, 2007 file photo.

JetBlue rattled more established airlines. It's low-cost model, as well as that of rival airlines, inspired Delta to launch a standalone budget carrier called Song in 2003, while United rolled out its version in 2005, which it named Ted. Both failed and were quickly scrapped as their parent companies were in financial distress.

a large passenger jet sitting on top of a runway: JetBlue and Song low-cost airline planes sit on the tarmac at the Fort Lauderdale International Airport May 18, 2004 in Fort Lauderdale, Florida.© Provided by CNBC LLC JetBlue and Song low-cost airline planes sit on the tarmac at the Fort Lauderdale International Airport May 18, 2004 in Fort Lauderdale, Florida.

While unsteady at first, JetBlue has posted a profit since 2009, according to FactSet data.

JetBlue and most of its rivals have struggled over the past year, however, as investors dumped airline stocks as fuel costs ate into carriers' bottom lines. JetBlue's shares are off more than 23 percent over the 12 months through Jan. 23, and the only U.S. airlines to post a gain in that period are Spirit, which is up nearly 29 percent and United, up more than 6 percent.

Another uphill battle for the airline is improving on-time arrivals, as JetBlue has lagged competitors.

Even though it might want to avoid it, JetBlue has made some strategy changes over the years that have more in common with a Delta or American. In 2014, it launched Mint, a premium cabin with lie-flat seats, on its trans-continental routes, a play for lucrative business travelers in cities like Los Angeles, San Francisco, New York, Boston and Seattle. Fares in its premium cabin are often a fraction of what travelers could find on more established carriers, and the big three legacy airlines have also looked for ways to improve their transcontinental service.

JetBlue is considering adding flights to Europe, and a key part of that will be Mint class, Geraghty said.

JetBlue's workforce has also pushed to unionize in recent years, which will mean higher labor costs. JetBlue pilots ratified their first contract over the summer, while flight attendants voted to unionize last April.

Last summer JetBlue raised fees on checked bags by $5 to $30, a move that was copied by its larger rivals, to combat a surge in fuel costs.

"It became like any other airline," said Robert Mann, an aviation analyst and industry veteran.

The airline is also rolling out new cabins that may anger some flyers because to fit more seats on board, the airline is cutting standard legroom by two inches to 32 inches, still more than on many other airlines. Its "most legroom in coach" tagline is a major selling point.

"Cutting the pitch in economy: that's what Wall Street told them to do," said Mann. "I think they're still getting punished."

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