Jetblue Airways: New Type of Airlines Start-Up

JetBlue Airways: New type of airlines start-up

JetBlue is a new type of and rapidly growing airline company, founded in early 1999 with an initial capitalization of $130 million dollars and many experienced top management team who are from other successful airlines company. The core goal of JetBlue is establishing a value-based, low fare and high quality service organization depending on its “paperless” system, special fund raising strategy and high humanity both to customers and employees. As a result, JetBlue’s service grew from 9 departures per day to 50 per day and from 20 million available seat miles to 232 million in 11 months.

It seems that it may not be very difficult for a start-up airline to grow like that. However the whole situation is not sanguine during that time. Only 2 of 51 airlines survived airlines funded during the 1980s and JetBlue’s home base, JFK, was not a good place for airlines because of being heavily used and slot-controlled. Bad business environment can also be opportunities. When others had been doing a terrible job, airlines having some new ideas and good strategies had a chance to be successful. JetBlue is such kind of company as the fist “paperless” airline. To cover this risky situation, David Neeleman, the founder of JetBlue, combined his success of Morris Air, Open Skies and West Jet with innovative thinking, learned in Southwest airlines, and technology. Neeleman began with several fundamental beliefs, finding where customers want to fly by computer modeling and leveraging technology for safety and efficiency to customers. Strategies such as choosing under-served market as initial business base, improving efficiency by “paperless” technology, purchasing new airplanes, non-union environment, and customized compensation packages.

        Before start operating, the first action Neeleman took is venture capital funding enough money to support his star-ups and making sure that all excellent thinking can be adequately capitalized, the essential to success. Instead of IPO, Neeleman contacted several investors who had invested in Morris Air and raising $130 million in months making JetBlue best-funded start-ups. After that, with the successful record in industry and adequate capital, he attracted some industry’s top talents, working for successful airlines many years and looking for a chance to start from scratch. (See Exhibit 1 for JetBlue’s Top Management Team) On the other hand, the virtual team strategies, allowing offices geographically split, is another attractive points to those who want to work without disrupting families and personal lives.

        With adequate capital to start and outstanding top management team, JetBlue began operating in a good situation. However, this two conditions are not the only factors of JetBlue’s success. Several external critical decisions, solving key issues to start, and internal strategies are core. To external, JetBlue must decide the location of initial business base, what kind of facilities used, and how to leverage technology to deliver low-cost high service to customers.

        New York City is the best choice for JetBlue to establish its home base with enormous population, 19 million people in 60-mile radius, and several under-served markets. On the other hand, customers in New York City had suffered high-cost low quality service for a long time and wanted a low fare airlines after People Express and New York Air taken over by Continental. However, the initial suitable choice, Islip Airport, was not interested in this “start-up airline”. JFK Airport was chosen finally even though it was heavily used and slot-controlled which means JetBlue should purchase slots from previous owners. On one hand, during the period from 3 pm to 8pm, the JKF slots were under-utilized, which means JetBlue could avoid congestion compared to La Guardia and Newark airport. On the other hand, alliancing with New York State’s congressional delegation, JetBlue got 75 take-off and landing slots as a exchanging of promise to serve customers in Buffalo, Rochester and Syracuse, who were looking for a low fare airlines for a long time. Learned from Southwest, Neeleman thought that JetBlue could get secure revenue from its protected slots in JFK and under-served markets, Buffalo; Rochester; and Syracuse. As his estimation, these 75 protected slots would translated into $60 million in annual revenue, based on the fact that there were a potential 2.5 million passengers living within 10 miles of JFK. Protected revenues and under-served markets provided JetBlue a passion and cushion to develop at beginning.

        Second external key issue should be solved is leasing or purchasing what kind of airplane JetBlue use. To implement the core beliefs of delivering high service to customers and overturn terrible image of low cost start-ups, Neeleman and initial investors persisted in purchasing new aircrafts with its adequate capital. When it turned to the type of aircraft to fly, Neeleman entered into a contract to buy Airbus A320s that is surprisingly suitable to JetBlue’s low-cost high quality demands, burning less fuel; better cabin technology; and wider cabin,  instead of Boeing 737s only aircraft the famous Southwest used.

        Last issue is how to leverage technology and people to deliver high quality service to customers. Efficiency is a significant criteria of high quality to airline industry. To realize the core beliefs, JetBlue hired Al Spain to develop a “paperless” airline. Each pilot of JetBlue was provided with a laptop computer into which was loaded all the required flight and operations manuals, software to do the load and flight planning, and communications software. When official flight certification is need, JetBlue use a four-inch three-ring binder with a CD-ROM to replace boxes of files and paperwork. Pilots could eliminate enormous paper filling work and check pre-flight requirement themselves just in four minutes on their laptop. Depending on high computerized aircrafts and paperless process, JetBlue has saved labor costs of updating and maintenance the numerous flight manuals and gathered safety and efficiency gains from always being current in operational details and motivational gain form pilots getting rid of reams of paper. Pilots also could utilize laptop to communicate new ideas with his office easier and more frequently.  As a result, JetBlue can build the 30-minute turnaround and maximize aircraft utilization, 13.5 hours per day compared to industry average of about 10 hours.