JetBlue Tries to Bounce Back from Storm of Trouble

After Valentine's Day debacle, management team gets new faces

NEW YORK -- When 130,000 JetBlue passengers had their February travel plans derailed by the airline's botched response to a winter storm, Russ Chew couldn't do anything but watch from his post as operations chief for the Federal Aviation Administration.

Now, Chew is JetBlue's COO. And he and a nearly all-new management team are working to make sure the 7-year-old carrier doesn't go the way of past start-ups whose promise faded when fast growth and intense competition unmasked perilous flaws at the first sign of adversity.

Before that widely reported and widely lampooned Valentine's Day debacle at New York John F. Kennedy Airport, change was already afoot at the airline that developed a fanatical following as it grew to be the USA's ninth-largest carrier in just seven years. But when ice-induced gridlock stranded planeloads of passengers on the JFK tarmac for up to nine hours, and thousands of passengers were stuck inside the carrier's terminal, the pace of change went into warp drive. The decision to hire Chew, an operations guru, is just the most visible sign of that.

While Chew goes about the job of whipping JetBlue operations into shape, newly named CEO Dave Barger, the only holdover from JetBlue's original senior management team, is focusing on financial performance. On May 10, company directors voted to remove founder and former CEO David Neeleman from the day-to-day operation of the airline. Neeleman remains as non-executive chairman, but last week, sold nearly a quarter of his JetBlue shares for more than $27 million.

JetBlue's financial performance had been slipping long before Valentine's Day. To make things right again at the once-profitable airline, Wall Street analysts say -- and Barger concurs -- that he'll have to get the airline's operating costs back under control, and in all likelihood, slow its growth.

JetBlue now is at "the point where it knows it has to make some changes if it wants to be around long term" says analyst Henry Harteveldt, who follows airlines for Forrester Research. "They have to evolve from a scrappy start-up to a more mature carrier."

Some of the changes:

*Customer rights. JetBlue has instituted the industry's first written guarantee detailing how passengers caught up in lengthy taxiway delays will be cared for and compensated. Vouchers for future travel will range from $25 to the full price of their ticket, depending on the length of the delay.

*Growth. To allow its management skills to match its fleet size, JetBlue has slowed its growth rate by stretching out the delivery of new planes coming from Europe's Airbus and Brazil's Embraer, and selling five Airbus A320s.

*Tickets. To make JetBlue more accessible to customers, it has begun selling tickets via conventional reservations systems used by travel agents and corporate travel managers, and third-party websites. Executives also are considering making tickets refundable, another move that would make flights more appealing to high-fare-paying business travelers.

*Strategy. JetBlue is looking to grow more in medium- and smaller-size markets that it already serves, such as Austin, Jacksonville, Fort Lauderdale and Pittsburgh, and similar markets where it does not yet fly. JFK will remain JetBlue's home and largest service point, if for no other reason than that metropolitan New York is the world's largest air market.

The carrier plans to open its new, larger terminal there in late 2008. But its growth strategy is changing subtly to markets such as Boston, Long Beach and Washington's Dulles Airport, where competition or congestion is less.

A maturing moment

Barger says the Valentine's Day chaos was probably a painful but necessary step in JetBlue's maturation, and vows, "We're going to be a stronger company as a result."

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