“When you’re making money and good margins, you tend to get sloppy,” JetBlue founder and CEO David Neeleman warned us two years ago (“And Now the Hard Part,” May 2004). The hard part, we wrote, would come as JetBlue’s new planes aged and its pilots moved up the pay scale. Meanwhile, the company’s fast growth would test the close-knit culture Neeleman created.
Today, those words sound downright prophetic as the airline has hit turbulence. It lost money for the first time, $42 million in the fourth quarter. Neeleman then had to announce fare hikes. Although they were as little as $5 a flight, it was enough for the competition to win some price battles. JetBlue also ranked last in on-time performance for three straight months.
Neeleman anticipated some, but not all, of these problems. Notably, he miscalculated in hedging fuel costs. By securing only 20% of its needs at a low price, JetBlue pays more than $60 a barrel for most of its fuel.
Now Neeleman is focused on what he and his employees can control: moving the revenue management team to headquarters to better scrutinize pricing; avoiding runway rush hours when possible to improve on-time performance; adding high-demand, shorter flights (which require less fuel) with its new 100-seat planes; and continuing to deliver distinctive service, which he believes justifies slightly higher fares. Time–and the flying public–will tell if he’s right.
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