Why Airlines Need Competition .
February Ice Storm Haunts JetBlue
NEW YORK — Memories of the Valentine’s Day ice storm that grounded more than 1, 000 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 Jet-Blue 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 Jet-Blue 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 7-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 revenue 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 polishing 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.
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 was 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. Jet-Blue 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.
In June, JetBlue flights were on time (defined as arriving within 15 minutes of schedule ) only 63 percent of the time, compared with an average of 69. 4 percent for the industry as a whole, according to Flightstats. com. Things didn’t get much better in July, when JetBlue flights were on time only 65. 3 percent of the time, compared with an industry average of 71. 5 percent.
JetBlue’s struggles have many wondering whether it’s an acquisition candidate, speculation fueled by a June Goldman Sachs research note on Delta Air Lines Inc.
Delta management “seemed eager to discuss the strategic logic of a JetBlue-Delta combination,” Goldman analysts wrote after a meeting with top Delta executives. “We understand this was not the first time [Delta ] articulated an interest in JetBlue.”
A Delta spokesman declined to comment on what she called “rumors and speculation.”
“Haven’t been approached,” Barger said when asked about the report. “I believe that organic growth is absolutely our game plan.”
JetBlue’s reduced growth rate is part of Barger’s plan to “calm” the airline’s once frantic expansion pace. Last month, Barger cut aircraft purchase plans by 26 percent over the next six years, and said JetBlue will expand to only two to four new cities a year, down from as many as 16.
“There’s no question in my mind that I think that we grew too fast,” Barger said.
However, JetBlue is not about to stop growing completely. 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. The company can expand, but it doesn’t have to be at a 30 percent compounded annual growth rate, Barger said.
“There’s still a lot of growth in JetBlue,” he said. ***
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By: John Wilen
The Associated Press
Source: http://www.nwanews.com
NEW YORK — Memories of the Valentine’s Day ice storm that grounded more than 1, 000 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 Jet-Blue 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 Jet-Blue 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 7-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 revenue 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 polishing 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.
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 was 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. Jet-Blue 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.
In June, JetBlue flights were on time (defined as arriving within 15 minutes of schedule ) only 63 percent of the time, compared with an average of 69. 4 percent for the industry as a whole, according to Flightstats. com. Things didn’t get much better in July, when JetBlue flights were on time only 65. 3 percent of the time, compared with an industry average of 71. 5 percent.
JetBlue’s struggles have many wondering whether it’s an acquisition candidate, speculation fueled by a June Goldman Sachs research note on Delta Air Lines Inc.
Delta management “seemed eager to discuss the strategic logic of a JetBlue-Delta combination,” Goldman analysts wrote after a meeting with top Delta executives. “We understand this was not the first time [Delta ] articulated an interest in JetBlue.”
A Delta spokesman declined to comment on what she called “rumors and speculation.”
“Haven’t been approached,” Barger said when asked about the report. “I believe that organic growth is absolutely our game plan.”
JetBlue’s reduced growth rate is part of Barger’s plan to “calm” the airline’s once frantic expansion pace. Last month, Barger cut aircraft purchase plans by 26 percent over the next six years, and said JetBlue will expand to only two to four new cities a year, down from as many as 16.
“There’s no question in my mind that I think that we grew too fast,” Barger said.
However, JetBlue is not about to stop growing completely. 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. The company can expand, but it doesn’t have to be at a 30 percent compounded annual growth rate, Barger said.
“There’s still a lot of growth in JetBlue,” he said. ***
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By: John Wilen
The Associated Press
Source: http://www.nwanews.com
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