HBS students love JetBlue. Maybe it’s because of their vision? Tele-vision that is. We’ve come to love the JetBlue experience, but the airline is now facing severe turbulence. Last week the Hospitality and Travel Industry Club hosted Dave Barger, president and COO of JetBlue, who shared amazing insight to the development of the airline and the challenges it faces in transitioning from a start-up to a mature company.
Mr. Barger was the latest in a series of prominent airline leaders to speak at HBS this year, including Josh Marks (founder of Maxjet), Bonnie Reitz (former head of marketing at Continental and president of Eos) and Martin Broughton (chairman of British Airways). In addition, Stelios (founder and chairman of EasyJet) and Gary Kelly (CEO of Southwest) are due to speak later in the semester.
Mr. Barger started off sharing stories on the development of the airline. The packed audience of over 175 students was amused to hear the other names considered for the airline: Mother (“How would you feel riding ‘Mother?'”), Egg (“What happens when you drop an Egg?”) and Taxi (“What comes to mind when you think of a taxi?.Rude, dirty and expensive!”).
“In the end we went with JetBlue (and not BlueJet which sounds like a toilet cleaner), a name without a specific meaning that allowed us to attach whatever emotions we wanted to it, based on a great flying experience,” said Mr. Barger.
JetBlue has been, until recently, the darling of the U.S. airline industry, soaring to over 10,000 employees in six years, with a fleet of 95 aircraft serving 34 destinations. According to Mr. Barger, “We were the best-financed airline start-up in U.S. history, so we should have been successful out of the box.”
However, the airline has been going through major growing pains and the future is now less certain. The airline recorded a loss for 2005, the first time in its six-year history, citing high fuel prices and the introduction of a second fleet type-the new 100-seat Embraer 190. JetBlue is the first airline to use this new aircraft and has been suffering from late delivery of planes, problems with in-flight entertainment and electronic glitches in the cockpit.
“This is the biggest challenge we’ve ever faced and we’ve had to add some slack into our system, reducing our utilization,” Mr. Barger said.
It was fascinating to hear Mr. Barger speak openly about the challenges of evolving the airline from a start-up to a full-fledged airline: “There used to be so much buzz and excitement around when we were doing so well. But how do you reward and motivate your employees with stock options when your market cap has halved from $4 billion to $2 billion?”
JetBlue has also faced the problem of maintaining customer enthusiasm.
“It’s hard to maintain a brand with operational problems. We recently moved from first place to last in on-time performance.” The airline needs to get back on track quickly, before damaging its brand equity. Mr. Barger referred to the danger of incidents such as the crash landing at Los Angeles airport, where passengers on-board were able to watch the event live on their TVs, and was seen by over two million people. “You can lose your brand in a heartbeat.”
Added to these challenges is the pressure for continued growth. The airline plans to continue adding a new plane every 10 days between now and 2012.
“The focus of our growth is the center of the U.S. and out West. We’ve been focused so far on the East coast from Boston to D.C., which is the most crowded air space, with the worst weather conditions! Expanding to other areas should ease that pressure.”
Barger isn’t worried about the upcoming launch of Virgin America, slated for the end of the year, in the premium market. “It sounds contrived but we like competition. We learned so much from Song. For example, we added 12 more DIRECTV channels and XM radio to keep up with them.”
Mr. Barger believes better revenue management and obtaining more revenue from other services will be key to restoring profitability. “On my flight from New York up to Boston, the walk-on fare was $40. The taxi to JFK airport was $50! We shouldn’t be giving away the product any more!”
In addition, JetBlue currently generates four percent of revenues from other services (mainly from $30 change fees). Other low cost airlines such as EasyJet and RyanAir generate as much as 15 percent of revenues from other services. But can JetBlue start charging for snacks, baggage and wheelchairs?
In the event of an emergency, the airline may need to adopt the brace position. Fasten your seat-belts!