How David Neeleman is spreading the gospel of service at the fast-growing airline

Preaching JetBlue: how David Neeleman is spreading the gospel of service at the fast-growing airline

Rick Newman

Spend a day with David Neeleman, and you’re more likely to feel you’re on a campaign swing than a corporate soiree. On a trip to Puerto Rico to launch service out of Aguadilla, a city near the island’s west coast, the JetBlue CEO steps off the plane to the cheers of a gaggle of employees. He does a quick TV interview, calling up a key talking point: “We’re making money. All the other airlines are losing money.” He chats up the local employees and learns that Eddie Torres, the newly appointed general manager for Aguadilla, recently got engaged. “Oh, that’s nice,” Neeleman swoons. “When are you getting married?… That’s a happy life.” Then as he boards the plane to leave, there’s another ovation. He blows kisses to his acolytes and deadpans, “I’m going into exile now.”

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No, Bill Clinton is not running an airline. This is the management style of the most popular boss in aviation. JetBlue, which Neeleman started in 2000 out of John F. Kennedy International Airport in New York, is likely to post a profit margin greater than 10 percent in 2004 in an industry projected to lose more than $3 billion overall this year. By most measures, the upstart airline stands out like Jack’s Beanstalk in a land of stubble. Its load factor–the percentage of seats filled–hovers near 85 percent, about 10 points higher than for the industry as a whole. Customers, lured by perks such as free TV at every seat, often pay more to fly JetBlue than to fly competitors, and New Yorkers make the long trek to JFK when other airports are closer. “Neeleman’s an idealist,” says analyst Jim Parker of Raymond James & Associates, an investment bank in Atlanta. “He thinks he can create an airline that people will actually like.”

There’s much more to JetBlue’s success than its grassroots CEO. The airline’s costs are among the lowest in the industry. It began life with coffers full of eash and a fleet of brand-new Airbus A320 aircraft, which helped. And Neeleman is supported by a strong management team with decades of industry experience. But it’s Neeleman’s everyman style that has clearly captivated employees, customers and investors, making him a darling of both Main Street and Wall Street. He knows many of his 7,000 employees’ names by heart, flies in coach even when he must travel on other airlines (JetBlue has no first class and, Neeleman swears, never will) and is passionate about service. “When I get treated poorly, it really pisses me off. Then it pisses me off that it pisses me off,” he chuckles. “Let’s just treat each other with respect.”

That’s not an ethic Neeleman picked up in business school. In fact, he quit the University of Utah after one semester to start a travel company near Salt Lake City. Much more influential than any formal schooling, says Neeleman, a Mormon, was the two-year mission he spent in Brazil, proselytizing in the slums of Sao Paolo. “I still remember walking down those dusty streets, looking at all those people,” he says. That’s where he developed “a disdain for people who think they’re better than others.” But he still appreciates the value of an elite education. “I’ve got a lot of those Stanford and Harvard guys working for me,” he grins.

On the flight from New York to San Juan, Neeleman seems charged being among his employees and customers. Once the plane settles into its cruising altitude, Neeleman walks to the front of the cabin, grabs the microphone and introduces himself. He explains that he’ll be coming through the cabin serving snacks, an announcement that prompts a smattering of applause. As he hands out chips and cookies from a wicker basket, he makes small talk with the passengers. “Whatcha playing?” he asks one man who is tapping away at a Game Boy. “How’s the legroom?” he asks another passenger. “You know, Row 10 has a few extra inches–for next time.”

A skeptical observer might wonder whether this is all a big publicity stunt for the benefit of a reporter tagging along. But the rest of the cabin crew seem familiar with Neeleman’s routine, and they casually go about their business while he marches up and down the aisle. “Seeing David is great,” says Kimmy Antenucci, one of the flight attendants. “He’s so easygoing and we get to talk.” Mike DeLorenzo, another flight attendant, points out another reason for the good morale: “The company does the right thing for us.” The base pay of JetBlue employees tends to be lower than at other airlines, but a generous stock purchase program and other benefits make up for it–at least during times when the company is as profitable as it has been.

Advantages of Youth

Neeleman’s competitors eagerly point out that as a startup, JetBlue has several inherent advantages over established carriers–no pension obligations, for one. Its pilots, flight attendants and mechanics are nonunion. Those advantages will fade, critics say, as the airline grows. Employees will get raises, boosting labor costs. As the planes age, maintenance costs will increase, and JetBlue will begin to face the same challenges as established carriers.

“I don’t think JetBlue has a better chance of being profitable than 100 other predecessors with new airplanes, new employees, low fares, all touchy-feely,” Continental Airlines CEO Gordon Bethune told Time in 2002. “All of ’em are losers. Most of these guys are smoking ragweed.” A copy of the story with Bethune’s remark is taped to a pillar in the JetBlue employee lounge at the San Juan airport.

To employees and customers, however, the “touchy-feely” aspect of the airline seems to matter. “When you have a leader who’s so friendly, it makes everybody feel good about what they’re doing,” says Jim Small, general manager for San Juan, who worked for US Airways before coming to JetBlue. “At US Air, there was no comparison. Management was the biggest factor souring the grapes.” Meanwhile, there’s a steadily growing body of lore about JetBlue’s can-do customer service–notable, perhaps, because air travel has become such a high-pressure endeavor. JetBlue is generous with travel vouchers when passengers are inconvenienced. And employees are encouraged to go out of their way for customers. Neeleman himself once drove an elderly couple from JFK to Connecticut, where he lives and where they were headed, rather than let them spend $200 on a taxi. “He makes everybody want to take care of the customer,” says Parker of Raymond James. “It makes everybody more productive. You do get a revenue premium.”

Numbers support that. Delta Air Lines, for instance, launched its low-fare subsidiary Song in large part to compete with JetBlue out of New York. It has touted traditional big-airline come-ons, such as frequent flier miles valid throughout Delta’s worldwide system. And Song has even undercut JetBlue’s fares. But JetBlue still attracts more customers on the most competitive routes. Between New York and Orlando, for instance, JetBlue filled 89 percent of its seats in the fourth quarter of 2003, the latest available data. Song filled just 72 percent of its seats–even though its one-way fares were almost $5 cheaper.

Lessons From Herb

After passing out snacks on the flight to San Juan. Neeleman hangs out in the galley at the back of the plane, chatting with passengers eager to hear his story. Neeleman proudly obliges. The travel business he started instead of going to college went belly up when the air charter company he relied on to transport passengers ran out of money. Neeleman then wrangled a job with a tiny local carrier, Morris Air, and persuaded venture capitalists to invest $15 million in the company. That helped it grow into a scheduled carrier with 300 flights per day. When Southwest bought Morris Air in 1993, the investors got back two-and-a-half times their investment.

Neeleman worked briefly as an executive at Southwest, where his frenetic, innovative style clashed with the basic Southwest formula: efficient, cookie-cutter service. But Southwest CEO Herb Kelleher taught him a few things. “I learned from Herb a whole new appreciation for the way he treated his employees, the way he communicated with them,” Neeleman acknowledges. “And if you have the capability, it’s much better to buy new aircraft than to lease them. You get instant credibility.”

When Neeleman was setting up JetBlue, he approached some of the same money men who had helped finance Morris Air. “They said, ‘Sure, we’ll invest with you all day long,'” he tells several passengers. Those investors have already seen a hefty payback. George Soros invested $50 million, for example, and has gotten back $105 million in cash–and he still owns nearly $400 million worth of stock.

Later, Neeleman elaborates on his experience and the lessons he’s learned. “Number one,” he says, recalling his failed travel company, “don’t ever rely on somebody who can put you out of business. And be well-capitalized so you can ride over the rough spots.” Then, demonstrating his raw talent for numbers. Neeleman ticks off a list of shortcomings in the cost structure and business models of various competitors. One mistake they make is running too many flights to tiny markets, he insists, doing calculations on his wristwatch calculator to prove that they’ll never reach a break-even revenue level. Another competitor has squeezed so many seats into its planes that passengers can barely fit. A third is running coast-to-coast flights on 737s with only two bathrooms. “I don’t think people like that,” he suggests.

Neeleman’s own skills, however, will be put to the test as JetBlue matures and becomes a major airline in its own right. Over the summer, for example, the company fell shy of earnings forecasts and reduced its 2004 revenue projections, due to increased competition in coast-to-coast markets and higher fuel prices. And the introduction next year of a second kind of aircraft, the Embraer 190, will increase complexity and, potentially, costs.

The key to successful growth, Neeleman insists, is having the agility to go where the business is, instead of getting locked into certain markets. “This company will change its mind if the market moves,” he says. Meanwhile, he’s seeing to it that his customers don’t change theirs.

How JetBlue Stacks Up

2004 airline net profits (estimated in millions)

AirTran 33

Alaska Air 30

American -80

Continental -150

Delta -895

JetBlue 90

Northwest -330

Southwest 30

Source: ValueLine, Raymond & *

*[UNREADABLE IN ORIGINAL SOURCE.]

Note: Table made from bar graph.

COPYRIGHT 2004 Chief Executive Publishing

COPYRIGHT 2004 Gale Group