Fast Company

And Now the Hard Part

Can JetBlue make the leap from popular (and profitable) niche airline to major player -- without losing its soul? Only if it can grow big but stay small at heart.

He's flying, but not the way you imagine the CEO of an airline flying.

Instead of sitting aboard a new blue-and-white jet in leather-upholstered comfort, David Neeleman is piloting a dirt-caked Chevy Tahoe, doing a Dale Earnhardt Jr. through the dark streets of Queens. It's five before 9, his night flight to Salt Lake City departs at 9:25, and Neeleman, the CEO of JetBlue Airways, is 15 minutes from the airport. You do the math.

"I hope we make it," he says with a laugh, gunning the Tahoe into an open lane. "If there's an accident up ahead, we might not."

He could have left the office earlier, but that's not like him. Or he could have left the driving to someone else, but he's not that kind of CEO. He may run an airline with more than 6,000 employees and 57 twin-engine jets, and he may be, as a new book about him claims, "arguably the most innovative figure in modern-day aviation." But he prefers to drive himself, just as he does every morning on the nearly hour-long commute from Connecticut. If the vehicle suggests anything, it's practicality; he and his wife, Vicki, have nine children. Kids' clothes litter the backseat. An empty water bottle rattles amid discarded newspaper pages in the foot well.

As Neeleman races toward John F. Kennedy Airport, darting and weaving through evening traffic, it's clear that he's doing what comes naturally and what he happens to do so well: flying by the seat of his pants.

It's worked pretty nicely so far. At a tough time for the U.S. economy, JetBlue has quite literally soared. While much of the airline industry was crippled by September 11, and while United Airlines and US Airways fell into bankruptcy, JetBlue has been a dramatic example of what can happen when the right entrepreneur with the right idea -- low fares and popular frills such as satellite TV and leather seats -- comes along at the right moment. Founded in 1999 and flying since 2000, JetBlue has put together 12 consecutive profitable quarters. It enjoys among the industry's best operating margins, the highest percentage of seats filled, and one of the top rates for on-time arrivals.

And Neeleman has an even grander flight plan for JetBlue: He aims to vault his startup airline into the ranks of the majors, with 290 planes and 25,000 employees within seven years. Although it hit almost $1 billion in revenue last year, JetBlue is still tiny compared with American Airlines, with $17.4 billion, or United, with $13.7 billion, or Delta, with $13.3 billion. And for all its meteoric growth, JetBlue still operates just 220 flights to 23 destinations a day. Compare that with industry leader American's 4,200 daily flights to 250 cities in 40 countries. Now JetBlue is about to embark on a steep climb: In the next 12 months, it expects to hire between 1,700 and 1,800 employees. It's introducing a new plane every three weeks -- and next year will be adding one every 10 days, including a second type of aircraft.

Clearly, Neeleman will have to fly by more than the seat of his pants. The airline industry is littered with great startup airlines that never made it to the big time, all founded by ambitious and imaginative people. Neeleman is already running a company bigger than anything he's ever run before, and its organizational and competitive issues are increasingly daunting. This is, of course, the test all entrepreneurs face if they're lucky enough: Can the genius that helped them create a successful company from nothing be redirected to the very different challenges of running a vast enterprise?

But there's a special twist in JetBlue's case. Much that's distinctive about this airline -- from the enthusiasm of its employees to its relentless customer focus to its hip, slightly countercultural image -- is precisely the sort of thing you can pull off when you're small, and that becomes far tougher the bigger you get. Can JetBlue maintain those qualities as it morphs from nimble startup into the bureaucracy that's required to manage a vastly more complex operation?

It's a question that applies to many truly innovative companies these days. Call them postmodern corporations, perhaps. If they pull off this transition, they become big, but remain in important ways the antithesis of bigness -- think Starbucks, Dell, and Amazon. Like JetBlue, they depend on flexibility, speed, and a sense of intimacy with employees and customers alike. Put another way, the challenge JetBlue now faces is this: Is small scalable?

As Neeleman rushes into the terminal on this February night, it sure looks as if the answer could be yes. JetBlue is still the sort of outfit where the ticket agents at JFK call out, "Hey, David!" It's 9:15, but there's no need to panic. There's a slight delay. On his way from ticketing through security to the gate, Neeleman takes his time, chatting almost nonstop with employees. It could come across as patronizing, all fake smiles, glib lines, noblesse oblige. The difference here is that the boss knows many of these employees by name. He asks about their job, their kids, a spouse undergoing chemo.

At that moment, JetBlue still feels truly intimate. But then, as Neeleman heads down the jetway, the pilot of the plane teases, "So you really do exist." Turns out, it has taken him two-and-a-half years to finally meet the CEO. It's the hint of danger, the serpent in the garden. JetBlue isn't even that big, and already there's a pilot who has worked here since 2001 and can joke that Neeleman is just a myth.

For all his hands-on entrepreneurial brio, it's clear that Neeleman has been thinking big since the very beginning. For one thing, the bench of executives he's assembled to run the airline every day has depth that would be the envy of any other young company. And Neeleman and his team have carefully laid the groundwork for growth. Some things that startups usually wrestle with, like sophisticated technology, are already in place, years ahead of schedule. Pilots, for example, store their flight manual on laptops, so it can be updated instantly. It's the industry's first paperless cockpit. And Neeleman has other resources that will come in handy -- like money in the bank, about $600 million in cash and cash equivalents.

He'll need it, because this is one vicious business. A new airline hasn't managed to join the ranks of the real majors in a long time. Since deregulation in 1978, in fact, only a handful of startups (such as AirTran and America West) have survived out of the more than 100 launched. For good reason. Planes are damn expensive, and it takes a lot of people to run them.

And Neeleman's startup has gotten big enough to draw serious competitive fire: In just the last year, two major airlines have started their own versions of JetBlue, Delta's Song, and United's Ted. In December, JetBlue pulled out of Atlanta, its first retreat, after Delta and AirTran flooded the market with new cheap flights. And in January, JetBlue announced that its usually stellar profit margin had dipped three percentage points to 13.3% in the fourth quarter of 2003, largely due to price-cutting by the majors.

Then there are the inevitable growing pains -- pains that, in this business, can be lethal. For now, JetBlue enjoys the lowest costs in the industry, just over six cents per passenger seat mile. But any startup with new planes would have lower costs. The jets don't need major maintenance yet. They will. And none of the staff have worked at the airline more than a few years, so the pay scale is fairly low. It will rise. The point is, large airlines fork over more money to run their business, and the reason why isn't just unimaginative management. That's another price of being big.

Before JetBlue has to worry about the problems of bigness, of course, it has to last long enough and grow fast enough to face them. And Neeleman, 44, has one hole in his resume: He has never run a large company, or even worked at one for very long.

His forte has been launching businesses. While at the University of Utah, he started a travel business and dropped out to run it. Later, he teamed up with the owner of a local travel agency to launch Morris Air, a regional airline, which was eventually purchased by Southwest Airlines, a company he had long admired. Neeleman went along to take his dream job, executive vice president, but lasted less than six months before he was fired. "David didn't understand the nuance of the organization," says Ann Rhoades, a Southwest vice president at the time. "He needed to walk, not run." He went on to help create the company that developed Open Skies, the software for e-tickets, and started and departed from his second airline, WestJet, a thriving low-cost carrier in Canada, by the time he started JetBlue.

But if he's not a big-company guy, Neeleman knows how to attract and adapt mature talent to an immature company. Dave Barger, president and COO, ran Continental's Newark, New Jersey, hub. John Owen, CFO, was treasurer at Southwest. And the head of HR was none other than Rhoades, who had helped show Neeleman the door at Southwest. He has learned a lot since then, she says -- including how to practice the sort of restraint that can come hard to strong-willed company founders. "He realized that if you hire A-players, you don't have to sit on them and tell them what to do," she says.

Neeleman and Barger are an impressive duo and a bit of an odd couple, the excitable entrepreneur and the detail-oriented, highly organized, even-tempered son of a United pilot. "They're yin and yang," says Dave Bushy, who recently joined JetBlue as vice president of flight operations and who once held the same title at Delta.

Neeleman doesn't dwell on minutiae, doesn't dissect problems; Barger spends hours poring over operational matters, ironing out glitches such as too few wheelchairs at a gate. Neeleman skims business books, looking for nuggets; Barger reads them cover to cover. While Neeleman can't leave the office until a half hour before a flight from JFK, Barger leaves an hour-and-a-half early. They're alike in the ways that matter most, though. They share the same down-to-earth style and unrelenting work ethic (read: 12-hour days). They believe the best bosses practice "servant leadership," helping others do their jobs better.

If there's one airline that serves as a caution-ary tale for JetBlue, it's People Express Airlines. Back in the early 1980s, it revolutionized air travel, offering dirt-cheap fares, preaching customer focus, and priding itself on an energetic staff. Its charismatic and boyish fortysomething founder, Donald Burr, was featured on magazine covers and on TV. The airline reached a billion dollars in annual sales in less than five years. Sound familiar?

Then, at approximately the same point JetBlue finds itself today -- on the verge of becoming big -- People Express stretched too far. Its systems couldn't handle rapidly increasing volume, and it also choked on an acquisition. People Express wound up with a one-way ticket to oblivion just a year later. "I lived it," says Chris Collins, who was a team manager at People Express and is now JetBlue's vice president of systems operations. "For five years, we were the best thing going. A year later, we're [gone] be-cause we couldn't sustain growth. You want to know what keeps me up at night? Figuring out what we're going to need not next year but five years from now."

To get big, JetBlue's team knows, it's sometimes necessary to act big. For instance, Barger understands the processes and tools needed to drive consistency through the operation -- the often mundane details and numbers that seem to elude so many entrepreneurs. Early every morning, he and members of the operations team review the previous day's flights. On Mondays, they review the past week. At their fingertips: things like takeoff and landing times, and when the last bag hit the belt (the goal is no longer than 20 minutes after the plane reaches the gate). "The 45 minutes you wait for your bags is your last impression," Barger says.

The program also produces a list of "focus flights," the 10 worst delays, which the team deconstructs. Since people have such low expectations of low-fare carriers, Barger says, JetBlue wants to differentiate itself through reliability. Two of the most important performance numbers are the completion rate (the proportion of flights that aren't canceled), in which JetBlue led the industry last year, and on-time arrivals, in which it ranked second.

One of the latest tools designed to help JetBlue as it grows is an "operational recovery system." During any disruption -- weather that grounds some flights, for example -- it allows planners to select various goals before rerouting planes. No canceled flights or delays beyond three hours? The software produces a solution and calculates its cost. It factors in each plane's maintenance and fuel needs, and the flight crew's experience and availability within FAA rules. With the current fleet of 57 planes, the program is a perk. Down the road, with 100 or more planes, it will be indispensable.

As it manages growth, the airline must also standardize many other things it does to avoid starting from scratch every time. For example, JetBlue has developed a checklist of what has to happen whenever it enters a new market. Everyone involved has access to the list on the corporate intranet. Each department sees what has been done, what remains to be done, deadlines, problems. Currently, the checklist makes launches that occur months apart more predictable. But before too long, it'll make simultaneous launches, unthinkable early on, manageable.

These efforts also improve efficiency, which will be critical in the years ahead as JetBlue tries to offset rising costs for aging planes and more-senior employees. And low costs remain an obsession. JetBlue's reservation agents, for example, work from home rather than in an expensive call center. At the same time, Neeleman is looking to widen profit margins again. A new 100-seat regional jet fleet being added next year will tap relatively uncontested -- and so more profitable -- markets.

In many ways, the question of whether JetBlue can do all this -- grow and standardize and automate -- while still preserving its personal touch comes down to this: Can Neeleman be scaled?

He's certainly trying tonight. As the plane heads toward Salt Lake City, he works his way down the aisle talking to customers. He meets someone who knows his father. He meets a fellow entrepreneur. For an hour-and-a-half, Neeleman chats and collects business cards. He has an ease with people of all types -- been that way since he worked as a Mormon missionary in Brazil.

In some sense, the plane is his personal focus group. He asks customers what they like and don't like, what the airline should do differently. He jots down suggestions. Almonds, the newest snack, are being introduced in May after passengers asked him for a low-carb item.

Neeleman's real audience, however, is the flight crew. He works alongside them, creating "the JetBlue experience," great service that fosters loyal customers. "I want them to know that I value what they do," he says. "I value it so much that I'm not too good to do it. I fly with 8 to 12 crew-members a week, but the other 1,200 flight attendants know about it."

Neeleman likes to say that the airline's TVs are overrated, that the real secret weapon is the employees, all of whom are called "crewmembers" to emphasize the companywide sense of teamwork. If you treat people well, the company's philosophy goes, they'll treat the customer well. "There is no 'they' here," says Al Spain, senior vice president of operations. "It's 'we' and 'us.' We succeed together or we fail together."

JetBlue's staff isn't unionized. While insisting that he's not against unions, Neeleman makes it clear that he would prefer to avoid them. If management and crewmembers trust one another and if people feel they're compensated fairly (last year's 17% profit sharing certainly helped), he believes that there's no need for a third party. And the crewmembers are more likely to stick by the company in tough times.

One challenge for a rapidly growing company is stoking the fires of new and old employees, the ones who are just joining the company and haven't been exposed to the culture and the ones who have been with the airline for years. You keep both groups excited, Barger says, by making them realize how much their contributions matter.

Take the pilots. At most airlines, they're seen as one-dimensional technicians, says Bushy, the VP of flight operations. He prods JetBlue pilots to participate in the business. One pilot creates elaborate airport diagrams to help orient colleagues. Another pitches in doing financial analysis for the company. And another is making an inventory of her fellow pilots' skills in hope of identifying other abilities that might be useful to the airline.

One of the reasons Neeleman and Barger have been so effective at building a dedicated staff is that their visibility is no gimmick. They're not making pronouncements from the corner office. David and Dave, as they're known to crewmembers, are out cultivating and championing the culture on the front lines. In addition to flying JetBlue most weeks, they appear together at nearly every first day of orientation for new hires. They conduct monthly "pocket sessions," informal Q&As with crewmembers.

As JetBlue's planes and cities multiply, though, Neeleman and Barger will no doubt seem less visible, simply because they can't be everywhere. To combat creeping management anonymity, each officer is assigned one of the airline's destinations, a "Blue City." Once a quarter, he or she visits that operation to meet with crewmembers and work alongside them. The visits help employees in the field form working ties to executives at headquarters. "Not many companies have the kind of culture where you're a customer-service rep and you can pick up the phone and call a VP at the company and get their ear right away," says Vinny Stabile, vice president of people.

All this effort isn't just to make employees feel good (or even to keep them from unionizing). Ultimately, it's about building a system that consistently delivers a better experience to passengers. And that may well be critical to JetBlue's survival. Despite plenty of evidence that the cost of a ticket is what matters most to airline passengers, Neeleman believes that JetBlue can compete on more than price. In some markets, its passengers are willing to pay fares that average $20 more than on American and Song. Ordinarily, upstart carriers duke it out in bare-knuckled price wars. Neeleman's betting his airline that good service, delivered by passionate employees, will give JetBlue a lasting edge.

But as JetBlue grows, it relies more and more on employees who weren't there in the beginning, when the entire staff could fit in one room. They weren't in the crisis center on September 11, scrambling to find shuttle buses and hotel rooms for stranded passengers. They weren't at JFK during the blackout in 2003, when employees armed with little more than flashlights worked around the clock to make sure most flights took off. They haven't been through the experiences that bind a staff together.

That's why preserving the culture increasingly requires conscious effort, starting with orientation. On the first day, Barger explains the JetBlue brand, and Neeleman teaches how the company makes money and how each employee contributes to the bottom line. "Our people have business literacy," says Bushy. And they care, in large part because the numbers affect their profit sharing.

He's supposed to be on vacation. That's what Neeleman tells the few dozen employees gathered in a training room at JetBlue University in Forest Hills, New York. He had promised his family a long weekend in Florida. When he drove them to the airport, though, he put them on a plane and headed to work. He'll join them tomorrow. Neeleman doesn't want sympathy. He simply wants the group to know how important he considers them and their training. On the first day of the program, Principles of Leadership (POL), Neeleman leads a session called "Why are you here?" It also explains why he's here.

POL is a sort of midflight correction -- a response to some troubling evidence that JetBlue's culture was already starting to stray off course. In a 2002 staff survey, one-third of respondents voiced unhappiness about their supervisors. To their dismay, Neeleman and Barger discovered they were promoting people without teaching them how to manage. Employees griped about bosses whose abrasive style and favoritism undermined the environment that David and Dave had nurtured.

The answer was POL, a five-day program taught by senior executives for managers at every level, from VP to first officer. The idea is to reinforce and transmit the key elements of JetBlue's culture by teaching attendees to practice the five primary principles: "Treat your people right," "Communicate with your team," "Inspire greatness in others," "Encourage initiative and innovation," and "Do the right thing." "POL is designed to create leaders that understand what I would do if I were there," says Spain, the operations chief. "They're not clones, but I want them to understand the foundations of the business, the principles we built the company on, and the leadership principles."

JetBlue's senior leaders tell stories to illustrate those principles -- stories that often have to do with flexibility or circumventing barriers. When is it okay to break the rules? Spain describes how a JetBlue pilot bought a couple of dozen McDonald's Happy Meals for kids when his plane was stuck on the ground. The fast-food run may have been unorthodox, but he did the right thing.

Make no mistake, though: POL is all about helping JetBlue scale. Graduates become "anointed proprietors of the culture," says Stabile. "Instead of 25 officers, you have 800 people in leadership positions throughout the company who believe in this culture." Most carry a copy of the principles with their ID badge. "It's our crewmembers' bill of rights," says Neeleman.

And it's values like those taught in POL that, in turn, attract people like Bonny Simi. She's one of the hardest sort of people for JetBlue to sign on, an experienced pilot working for a major airline. If pilots switch airlines, they start over, at the bottom rung of seniority. But Simi, a captain at United for 12 years (and three-time Olympic luge slider), wanted to be more engaged with an airline, more inspired.

Wary of a young, unproven airline, she researched the company for six months. The values mirrored her own, but she wanted to be sure they weren't just talk, and that it would be worth taking a big pay cut. She read business-school case studies and SEC filings. She contacted Michael Lazarus, then chairman of JetBlue's board, and grilled him. "This is the next 20 years of my life," she says. "I had to be sure."

Several months into the job, Simi routinely sends Bushy ideas on how to improve safety and standardization. Recently, she walked into the office of Collins, the vice president of system operations, without an appointment to pitch an idea on pilot reports. "Did I feel valued that I had an idea and a vice president here said, 'I like it'? Definitely. That was so cool. Does that inspire me to come up with other ideas to make this a better airline? In a major way."

At half past midnight in Salt Lake City, Neeleman looks as grounded as you could get. Dress shirt untucked, eyes rimmed red, he's coming down the aisle of the Airbus A320, his arms wrapped around a bundle of blankets and pillows. All JetBlue employees help clean a plane when it lands. Another cost averted: no cleaning crew. But like other practices at JetBlue, it serves a symbolic purpose as well. The work transcends job titles. Pilots don rubber gloves to empty seatbacks. Staffers traveling on their day off pitch in, too. And so does the visiting CEO.

In his own way, Neeleman does scale. Like JetBlue, he's retaining certain qualities while evolving. He's not the brash, impatient thirtysomething entrepreneur who thought he had all the answers at Southwest. He's a 44-year-old big-company executive in the making.

He's still a man on a mission -- to continually improve the product, the JetBlue experience -- and he still has an uncanny ability to rally other people to that mission. But he also says he's not as hands-on as he used to be. He understands his role. "I'm not the guy to oversee the day to day," he says. "That's Dave Barger. He loves that. I'm looking for the new deal, the new technology. My passion is making sure our product stays fresh and exciting and that we keep our costs low."

Not day to day, perhaps. But Neeleman can't resist checking, tweaking, reaching out. He logs on to the airline's Web site and books a flight to Buffalo to find out if the extra leg room is being promoted enough (it's not). He calls the operations department to find out what's being done for passengers on a plane that was struck by lightning and delayed for six hours (not enough). He also makes time to call a flight attendant he knows who collapsed on a flight the day before (she's fine).

Neeleman's one-on-one leadership may seem quaint and overmatched in a large company, but it has ways of rippling out, of moving people to feel passion about his vision and their work at JetBlue. "I would walk through a burning building for him," says Tom Krizek, the pilot of the Salt Lake City flight. He's the same pilot who met Neeleman for the first time five hours earlier and spent the last hour of the trip talking with him about family and life and flying after Neeleman moved to the cockpit. The pilot who had greeted him, "So you really do exist."

And after 1 a.m. (3 a.m. his time), Neeleman stands in line at the Hertz counter. As he waits, he talks to a few passengers who have just gotten off his flight. He asks about their upcoming ski trip, tells them about plans to expand JetBlue to new cities. When they're done, he steps forward and hands over his premium club card. He didn't have to stand in line for his car. He could have whipped out the card and been on his way, but that would have meant jumping ahead of JetBlue customers. That's not his style.

Sidebar: David Neeleman'S flying lessons

JetBlue is the third airline Neeleman has helped create. What has he learned?

  • Do more for customers
    "Not everything resonates with every customer," says Neeleman. "Some people like the leather seats, some like the TV, some like the fact that we don't overbook our flights. I don't care if they don't notice everything we do. Just as long as they notice something that's different about us."
  • Only the paranoid survive
    Neeleman is always on the lookout for complacency, particularly when things are going well. That's when companies develop bad habits and inefficiencies creep in. "When you're making money and good margins, you tend to get sloppy," he says.
  • Actions speak louder than words
    Neeleman talks a lot about teamwork, how every employee is vital to the success of the airline. But he knows that message could ring hollow if he didn't live it. When he flies, he helps flight attendants pass out snacks and stays behind to clean the plane. "You can't ask employees to do something you wouldn't be willing to do yourself," he says.
  • The best culture polices itself
    At JetBlue, managers aren't the only ones holding employees accountable. Flight attendants and baggage handlers keep an eye on each other, too. "If you treat a fellow crewmember or a customer badly, there's enough people around here who care about profit sharing and the JetBlue culture that you're going to hear about it later," says Neeleman.
  • Competition is the ultimate motivation
    When rivals began pulling out all the stops to compete with JetBlue last year, Neeleman used the battle to unify employees. "It's easier to motivate people when you're under attack," he says. "I say, 'They want to kill this airline and take your jobs away.' People respond to that challenge."
  • Employees have to understand the business
    "I always talk about the tripod -- low costs, a great product, and capitalization," he says. "If everyone here understands how important it is to maintain each leg, you've got a very stable business model."

Sidebar: How to scale without losing your soul

JetBlue's flight plan for growth

  • Build a team of big thinkers
    Since he has never run a large company, founder and CEO David Neeleman has surrounded himself with senior executives who have. From the beginning, they've been adding technology, processes, and personnel before the airline actually needs them.
  • Don't scale at the expense of people
    One of the first questions senior managers ask when making changes is, "How does this affect the crewmembers' way of life?" If a change hurts morale, it's not worth it, because, says Neeleman, employees treat customers the way they're treated themselves.
  • Stay small as you grow
    JetBlue tries to maintain the feel of a startup by having senior officers practice "visible leadership." Once a quarter, they each visit an assigned city, conduct an informal Q&A session with employees, and work alongside them for a day. Throughout the year, each executive serves as a point person for his or her city, a direct connection to top leadership.
  • Propagate the culture
    Perhaps the biggest fear among JetBlue senior executives is losing the airline's distinctive culture as it becomes a big company. In a series of training courses, Neeleman and other senior managers teach supervisors the principles they rely on to manage people and make decisions.

Chuck Salter is a senior writer at Fast Company.


Discussion Guide

Interested in further exploring some of the ideas and issues in this article? Consider starting a Fast Company reading group. Here are some possible conversation catalysts:

  • Chuck Salter's profile of JetBlue shows how the startup developed its niche -- but faces an uphill climb to compete with the top air carriers. Draw out the frequent business travelers in your group and survey what they look for when flying for work. For those who get to choose their airlines, are they seeking out alternative carriers such as JetBlue, MidWest Express, and Southwest, or sticking with the major ones? In the cutthroat, low-margin airline business, how can JetBlue boost its business appeal?
  • Develop a list of other companies in recent years that stalled and lost their focus before picking up their growth again. What can JetBlue do to avoid this?
  • Would your group members ever choose a higher fare in return for certain service guarantees, or is price the ultimate driver? If so, can the JetBlue model work?
  • Discuss some of the advice in the "How to Scale Without Losing Your Soul" sidebar above. Are you and your organization able to "stay small" as you work to expand? How do you maintain a successful culture even as the business core changes?

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