Jet Blue case study


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A teaching case study about Jet Blue's problems during the ice storm, written by Dr. Joe Brennan and Dr. Felicia Morgan.

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Jet Blue case study

  1. 1. CASE STUDYJetBlue: High-Flying Airline Melts Down in Ice StormJoe Brennan, Ph.D. , Ohio UniversityFelicia Morgan, Ph.D., University of West FloridaIntroduction On Wednesday, February 14, 2007, JetBlue Airways Corp. (NYSE:JBLU)suffered the most severe service disruption in its seven-year history. A winter stormsnarled operations at the regional carrier‟s JFK International Airport in New York, itsmain East Coast hub, forcing the airline to cancel more than half of its flights. Ten planessat unable to move on icy runways in New York, trapping passengers inside for up to 10hours. JetBlue‟s ordeal continued for nearly a week. The airline had trouble resumingnormal operations when additional storms struck, leaving planes and crews out ofposition. The carrier ultimately cancelled nearly 1,900 flights, affecting 130,000travelers, before it was able to restore normal operations on February 20. Theunprecedented service failure would force the airline to grant $26 million in passengerrefunds and vouchers and to spend another $4 million on employee overtime and otherstorm-related costs (Wong). Although the massive Valentine‟s Day storm affected every airline flying EastCoast routes, the news media focused their attention on JetBlue‟s problems.Commentators wondered if the company that had once promised to “bring humanity backto air travel” had abandoned its commitment to stellar customer service and become yetanother uncaring airline. Stranded passengers wasted no time publicizing their complaintson blogs and in the media, and skittish investors began unloading JBLU stock. This wasthe worst crisis in the young company‟s history. JetBlue‟s management had to act quicklyto regain customer loyalty, reverse a barrage of hostile press coverage, and reconfigureoperations to prevent a similar disaster from recurring.“Making flying happier and easier for everyone” The airline was founded in 1998 by 38-year-old David Neeleman, who sawhimself as “bringing humanity back to air travel and making the experience of flyinghappier and easier for everyone” (Neeleman). A former Mormon missionary, Neeleman started his first company, a travelbusiness, while a student at the University of Utah. He went on to establish a regionalcarrier, Morris Air, and in 1992 sold it to Southwest, where he became executive vicepresident. The entrepreneurial Neeleman lasted for six months at Southwest, where hisfast-paced style didn‟t suit the more cautious corporate culture. As one of his colleaguesthere later said, “He didn‟t understand the nuance of the organization. He needed to walk,not run” (Salter). Still in his 30s, Neeleman moved on to co-found WestJet, a Canadianregional airline, and after making it profitable, he helped develop Open Skies, anelectronic ticketing system later acquired by Hewlett Packard. 1
  2. 2. In 1998, Neeleman gathered a team of investors and seasoned airline industryexecutives and founded “New Air Corporation.” The firm changed its name to JetBlue inJuly 1999, when it announced that it would offer low-cost, high-quality service to andfrom New York City, as “New York‟s hometown airline.” At that time, the CEOpromised that JetBlue would be a “new kind of low fare airline,” offering the types ofamenities reserved for pricier carriers, including wider seats, more legroom and storagespace, and 24 channels of inflight television. The company‟s press release promisedinnovations like touch-screen check-in and “fares 65 percent less than other airlines onidentical routes.” JetBlue began flying in February 2000, offering non-stop servicebetween New York and Fort Lauderdale, Florida. The traveling public responded favorably to Neeleman‟s offer of excellentcustomer service, upscale amenities and low fares. Thanks to its younger fleet and newerstaff, the firm enjoyed lower maintenance and labor costs than its old-school competitors.It was also well-capitalized; the combination of lower costs and a strong balance sheethelped JetBlue avoid the major losses its competitors incurred after September 11, 2001,and positioned it to take market share away from them. Neeleman took the companypublic in April 2002. By the end of 2004, JetBlue was flying high. Its revenues hadquadrupled - and the company had made a profit every year of its life thus far. It hadclimbed to 11th place in revenue passenger miles generated, and had done so with fewerplanes than many of its bigger competitors (Air Transport Association). Exhibits A, B, Cand D provide data about the airline‟s growth and performance.Flying high in a turbulent industry By 2005, Neeleman was leading one of the few successful start-ups in the highlycompetitive U.S. airline business. More than 100 airlines had been launched since theindustry was deregulated in 1978, but only a handful had survived the tremendouscompetitive pressures in this mature industry (Salter). The events of September 11, 2001,had a significant impact on the U.S. economy in general and on the airlines in particular.In 2000, the industry generated total sales of $120 billion; over the next two years,revenues plummeted to $105 billion, and it would be five years before sales recovered(see Exhibit E). The airlines also faced strongly rising fuel prices, heavy debt loads andincreasing pension liabilities related to their aging workforces (Weber and Freed). BySeptember, 2005, four major carriers (United, US Airways, Delta and Northwest),representing 40 percent of the industry‟s total capacity, were operating under Chapter 11protection (Weber and Freed; Carpenter). During this period, JetBlue had effectively established a powerful brand andcarved out a distinct and profitable position as a low-cost airline offering a high level ofservice. The firm strove to provide every customer with “the JetBlue Experience,” whichcombined value, service and style. Passengers enjoyed free co-branded amenities,including brand name snacks, Dunkin Donuts coffee, XM satellite radio, DIRECTVsatellite television and Bliss Spa comfort kits. Passengers could watch live television,listen to satellite radio, purchase 20th Century Fox inflight movies and sip wines chosenby “low fare sommelier” Josh Wesson of Best Cellars, a value-oriented chain of retail 2
  3. 3. wine shops. The JetBlue Experience also includes innovation. From its inception, allJetBlue travel has been ticketless, all fares one-way and all seats assigned. It was the firstairline to deploy the new Embraer 190 regional jet and the first to offer free livetelevision; in 2002 it acquired inflight television provider Live TV LLC and beganmarketing the service to other airlines.Service excellence JetBlue has sought to provide what it calls “the best customer service in thebusiness,” and it has won dozens of top awards for its performance( In 2007, itwas named the #3 most admired airline by Fortune and best in customer satisfaction byMarket Metrix. In 2006, it was picked as the best domestic airline by both Conde NastTraveler and Travel + Leisure, the best low cost/no frills airline by OAG, and the bestU.S. airline in the annual quality ranking survey conducted by the University ofNebraska-Omaha and Wichita State University. In 2006, JetBlue enjoyed the second-lowest rate of customer complaints among the 10 largest U.S. airlines (see Exhibit F). Neeleman‟s vision of a new category of airline, one that would make flying morefun and more civilized, was as compelling for employees as it was for passengers. Aformer missionary to Brazil, Neeleman had an extraordinary ability to connect withpeople and to inspire them, like the pilot who told Fast Company, “I would walk throughfire for him” (Salter). He traveled frequently on JetBlue flights, working alongsideemployees, talking with pilots in the cockpit, visiting with customers about theirexperiences, and asking how the airline could better serve them. Neeleman and hisexecutive team placed a high value on involving employees in all aspects of the businessand cultivating a sense of team work. All employees are called “crewmembers,” andsupervisors attend “Jet Blue University” for a course in the company‟s principles ofleadership taught by Neeleman and Barger. Al Spain, senior vice president of operations,said, “There is no they here. Its we and us. We succeed together or we fail together”(Salter). Even after the ice storm, employees defended the airline. On February 19,someone who identified him or herself as a JetBlue employee posted a response to ablogger who had been critical of the company‟s handling of the situation: Had you booked a ticket on Delta or American, your flight would have been cancelled and you wouldnt have gotten a refund. You would have had to fly at another time, but you wouldnt have been compensated for your delay -- at all... in no way. In fact, they wouldnt have apologized... at all... EVER! What happened to all of you (including my fellow pilots and flight attendants that were stuck right along with you – and just as miserable as you were) was awful, not cool, uncomfortable, a huge pain in the ass and a really, really, really bad day. Thats about it though. See, when you travel its like buying a lottery ticket: if you get to your destination hassle free -- you win! 3
  4. 4. If you have issues along the way... thats life! But if you get a refund for your troubles... thats amazing! … Im sorry you went through what you went through on Valentines Day, and I want you to come back to jetBlue so I can give you the jetBlue Experience youve grown accustomed to and we do our best to deliver every day ( lights in the cockpit In May 2004, Fast Company profiled the young CEO, praising his hands-onapproach and warning that it would be increasingly hard to maintain as JetBlue gotbigger: Much thats 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 thats required to manage a vastly more complex operation? Its 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? (Salter) Neeleman began flying into turbulence in 2005. At the same time as FastCompany was pondering his ability to save his company from the fate of People Express,a similar concept which failed in the 1980s, rivals Delta and United were launching Songand Ted, low-cost/high-frills offerings meant to directly compete with JetBlue. Labor andmaintenance expenses began to creep up as JetBlue‟s people and planes got older; thecompany experienced problems with the introduction of a brand-new aircraft type, theEmbraer 190; and on-time performance eroded. In addition, Florida and the Gulf Coast,important markets for JetBlue, were ravaged by Hurricanes Rita, Wilma and Katrina inthe summer of 2005. The demand for air travel to the affected regions fell, petroleumrefineries were closed, and JetBlue‟s fuel costs soared 52 percent. At the end of 2005, the company reported its first-everoperating loss, $20 million (JetBlue Airways Corp. Annual Report 2005). Neeleman and Chief Operating Officer Dave Barger discussed these challenges inthe company‟s 2005 Annual Report and offered a plan for recovery. They planned togrow revenues by raising average fares, using capacity more efficiently and addingservice to small and medium-sized cities where a relative lack of competition wouldallow JetBlue to command a price premium. They also reiterated the airline‟scommitment to reliable service, which meant “operating flights even with a delay ratherthan canceling the flight for the schedule‟s convenience”. To manage costs, theypromised to improve workforce productivity through better training, smarter business 4
  5. 5. processes, and more extensive use of automation, and they said they would control therisk of rising fuel prices through financial hedging strategies. The executive team alsorefused bonuses, and Neeleman delayed the delivery of 36 new aircraft (Foust). By the end of 2006, Neeleman and Barger‟s plan to grow their way out of troubleseemed to be working. Revenues rose 39 percent in 2006, to $2.36 billion. The firmenjoyed three successive profitable quarters, ending the year just $1 million in the red. InJanuary 2007, David Neeleman told investors, “Im tremendously proud of the efforts ourcrewmembers have made in advancing our plan to institutionalize low-cost carrierspending habits and improve revenue overall.” Dave Barger said that the airline‟sperformance in 2006 “positions us well for 2007, a year in which we plan to growcapacity 11 to 14 percent, while continuing to enhance the JetBlue Experience.” Investorsappeared to share management‟s confidence. Towards the end of 2006, analysts began toupgrade their recommendations, and by mid-January, the stock price had soared to a new52-week high. No one knew the turbulence that lay just ahead.Stormy weather On its seventh anniversary, February 11, 2007, JetBlue was operating some 500flights a day to 50 cities in the U.S., Mexico and the Caribbean. David Neeleman hadbuilt one of the very few successful major new airlines since the industry was deregulatednearly 30 years before. The company‟s prospects seemed bright. And then, three dayslater, JetBlue was hit with the worst crisis in its history. February 14 began as a normal day at JetBlue‟s Forest Hills, New Yorkheadquarters, near John F. Kennedy International Airport. The company had issued aroutine news release shortly after 9 a.m., announcing that it had formed a partnershipwith Cape Air to offer service to four communities on Cape Cod. The day before, a fronthad moved into the New York City region from the west, dropping one-tenth of an inchof snow. Heavy snow was in the forecast for upstate, but it appeared that the city wouldbe spared the brunt of the storm. At the airport‟s weather station, the barometer startedfalling at midnight. By dawn, what had been light snow in the early morning hours hadbecome ice pellets and light freezing rain, with temperatures hovering in the upper 20s.No one seemed to know that by lunchtime, barometric pressure would drop nearly aninch and a full blown nor‟easter would be raking the airport with winds gusting up to 40miles per hour, coating planes and runways with ice. Early that morning, in keeping withthe airline‟s desire to avoid cancellations, JetBlue gate agents loaded passengers onto sixplanes, in hopes that they could get out during a break in the weather. These planesremained stuck at the gate; while over the course of the morning, four more JetBlueaircraft arrived and remained on the tarmac, unable to reach the terminal because all gateswere occupied, and ground equipment used to tow planes was frozen in place. As the hours crept by for the passengers and crewmembers stuck onboard the 10airliners, JetBlue‟s operations appeared to have become paralyzed. The problems at JFK,its East Coast hub, rippled throughout JetBlue‟s system. Its 800 number, staffed by home-based workers in Utah, was overwhelmed by the crush of calls from customers seekinginformation or trying to rebook delayed flights. Its New York-based 20-person crew 5
  6. 6. services department, which handles the scheduling of crewmembers, was alsooverwhelmed. The storm showed signs of relenting by early afternoon, as freezing snow changedinto light snow, and JetBlue officials kept the loaded planes in place, apparently stillhoping to salvage some of the flights. By 3 p.m., however, they‟d admitted defeat andasked the Port Authority of New York and New Jersey for help in rescuing strandedpassengers. The last passengers entered the terminal after 7 p.m., having sat onboard forsix to 10 ½ hours. Television news crews were waiting for the passengers in the terminal. WABC-TV interviewed some of the 134 passengers on Flight 751, which had been bound forCancun, Mexico. “There was no power and it was hot. There was no air. They kepthaving to open the actual plane doors so we could breathe,” said one passenger. “Nobody gave us any answers. They kept telling us we know as much as you do.And I said, I dont work here, you work here, give me answers,” another passenger said. “Everybody is incredibly tired and frustrated and we didnt expect to be in NewYork tonight, so its ridiculous. Just sitting there and sitting there and them saying theywere going to pull us into the gate and they never did. There was very little food. It wasjust a nightmare," a third passenger was quoted as saying (Lipoff). JetBlue‟s problems quickly became national headline news. Yossi Glieberman, a41-year-old Brooklyn man who came in on a flight from Nashville that could not make itto the gate, told Newsday that the pilots provided frequent updates and flight attendantsdistributed snacks liberally, allowed passengers to recharge cell phones and let childrenhelp push the service carts (Strickler). “It could have been worse,” he said of the nine-hour ordeal. Other fliers were less complimentary. An unnamed man told ABC WorldNews, “My vacation is canceled. No flights out. I cant go anywhere. They cant get meout on vacation. My kids are home in four-degree weather when were supposed to be ona beach with 90-degree weather” (Gibson). Cheryl Chesner, a bride who had to cancel herhoneymoon trip to Aruba, told the San Francisco Chronicle, “It was the worst. It washorrific” (Armstrong). One customer, a New York resident who was angry about missing a much-anticipated Valentine‟s Day trip home to Los Angeles with her new boyfriend, started ablog called Using the screen name “Gen Starchild,” she wrote,“Nothing says „I love you‟ like being held hostage on a frozen plane with the man youlove, 99 strangers, 4 other people you happen to know, 4 screaming babies and 3rambunctious kids running about, nothing but chips and soda for sustenance, faultypower, unreliable direct TV and an overfilled sewage system for 11 hours.” The blog became well-known and led to an interview for Gen and her boyfriendon CNN. JetBlue‟s public relations department asked her to meet with David Neeleman.She recapped the March 5 meeting on her blog: It went a lot like this. 6
  7. 7. Canned answer Canned answer We’re sorry It’ll never happen again I don’t have the answer, this is who you need to talk to. I’m sorry. Etc. Then he hit a wall and I could actually see the change in him. From the beginning of the meeting, he was playing these passive aggressive “you‟re not important” games, by taking FOUR PHONE CALLS, on his mobile at that. Not from JetBlue employees concerned about the weather cancellations. Calls from his wife. Calls from his neighbor. I‟m the queen of mind games, you can‟t pull that on me. Gen Starchild and her fellow “hostages” weren‟t the only travelersinconvenienced by the events of February 14, though they may have been the mostvisible. And JetBlue wasn‟t the only carrier grounded by the storm. Between February13 and 15, American cancelled 914 flights, or 13.4 percent of its schedule; Unitedgrounded 865 flights (17.1 percent); US Airways 728 (19.6 percent); and Contintental119 (3.7 percent). By comparison, JetBlue‟s 634 cancelled flights represented 39.6percent of its schedule (Carey and Pasztor). In all, some 250 flights, nearly half of JetBlue‟s entire schedule, were cancelledon Valentine‟s Day. The following days were also plagued by problems, because the icestorm had left airplanes and crews out of position and additional winter weather createdmore headaches. Internal communications and coordination between airline staff seemedto be a problem. A woman who took a JetBlue flight from California to New York onFeb. 17 posted this report on “JetBlues system was completelyoverloaded. The staff at Burbank had no clue what was going on - the lack of pilots was atotal shock to them - and there were so few staff actually at JFK that no passengers couldget answers. A man with a bullhorn finally came out (because the baggage carousel boardwas completely inaccurate) to tell people which flights were coming out on whichcarousels.” In an effort to restore order, the airline cancelled some of its flights on February15 and 16, but problems persisted, so managers took the unprecedented step of“precancelling” 23 percent of all flights over the next two days in order to repositionplanes and allow pilots and crews to rest. Announcing the move on February 17,spokeswoman Jenny Dervin told The New York Times: “Sometime in the afternoon, it justfell apart. The folks running the operation are just exhausted. We said, „Let‟s stop themadness‟” (Bailey). “We ran into an operational death spiral,” Dervin told Newsweek(Sloan). The pre-cancellations, which fell over the President‟s Day long weekend,worked, and by Monday, February 20 JetBlue was back to normal.JetBlue works to rebuild public trust As the airline‟s executives struggled to climb out of the operational death spiral,its public relations staff got busy trying to repair the firm‟s damaged image. On the 7
  8. 8. evening of February 14, JetBlue issued a public apology and announced that it wouldgive a full refund and a free roundtrip ticket to any passenger detained onboard for morethan three hours; it would also give refunds to any passenger whose flight was cancelled.Over the next few days, the airline announced that it was relaxing its policies aboutrebooking so that customers who were affected by the storm would not be penalized forre-booking new flights. Throughout the ordeal, top executives practiced theircommitment to “visible leadership.” Dave Barger went to JFK on the 14th to oversee theoperational response and speak with passengers and crewmembers. David Neelemanbecame the company‟s public face, granting dozens of media interviews, in which heaccepted responsibility, expressed remorse and pledged to prevent this kind of problemfrom happening again. In a front-page New York Times story on Sunday, February 19,Neeleman said he was “humiliated and mortified” and promised that JetBlue would paypenalties to customers if they were the victims of mistakes by the airline (Bailey). One week after the Valentine‟s Day ice storm, the operations were finally back tonormal. Neeleman had issued a personal apology, which appeared in his blog and in full-page ads in major newspapers (see Exhibit G). The airline also published a Customer‟sBill of Rights, specifying how and when it would compensate passengers for delays andother problems (see Exhibit H). Reactions to Neeleman‟s apology and the Bill of Rightswere generally positive. On February 21, USA Today published an editorial callingJetBlue‟s service failure “inexcusable” but praising its response. The paper contrastedJetBlue‟s handling of the Valentine‟s Day snafu to similar, smaller-scale strandings byAmerican and United in December and wrote that it hoped this would touch off “a roundof competition over customer-service guarantees, instead of the usual cost-cutting.” The business press, however, was far less kind. In a stinging rebuke, BusinessWeek struck JetBlue from its list of “customer service champs.” The magazine‟s March 5cover (see Exhibit I) was headlined “Our first-ever ranking of companies where theconsumer is king. Here‟s the magnificent 25 – and one extraordinary stumble.” The covergraphic was a numbered list of the top four companies, with a squiggly blue line drawnthrough JetBlue‟s name. The editors said kicking the airline off the list was a “toughcall.” Despite Neeleman‟s candid, public apologies, “the road to recovery isn‟t pavedwith TV appearances,” the magazine cautioned. What matters most is execution – doing the deep, hard organizational work to ensure the crisis never happens again. While JetBlue recognizes that fact, it still has plenty to prove … JetBlue has piled up service accolades faster than most airlines collect complaints … plus JetBlue‟s trumpeting of its own customer-friendly approach, means its passengers‟ expectations are inevitably higher. Other airlines, after all, had long waits at JFK … but interminable delays, cancellations and service snafus, says UNC Kenan-Flagler Business School professor Valarie Zeithaml, can be „more detrimental [to JetBlue] than to a larger airline. It runs totally counter to who they are coming out and saying they are and what they live‟ (McGregor). 8
  9. 9. Other observers raised questions about Neeleman‟s leadership. On February 20, LarryKudlow, host of CNBC‟s Kudlow and Co., said: The guys a great entrepreneur. He created and built and grew this company. OK, no question about it. But how many times in the past do we know that entrepreneurial CEOs are not necessarily the ones that take these companies to the next stage where management and administration are really the keys? He clearly struck out on management, information, communications, wheres this equipment, where were the pilots, how to get in touch with one another, where are the flight attendants? And I know hes made a lot of mea culpas, and I appreciate his character in doing that, but the fact remains: Can he manage a large airline company?Earlier that day, the embattled CEO held a news conference at which said he had nointention of stepping down from his post. "Im the founder of the company, Im the CEO,and I think Im uniquely qualified to deal with these issues" (Wong). The incident also spurred calls by passenger advocates for tougher oversight bythe federal government. The Coalition for Airline Passengers Bill of Rights, a newlyformed group, used JetBlue‟s woes to again demand relief. The coalition was formed byTim and Kate Hanni, a Napa, California couple who were trapped on the ground for ninehours in Austin, Texas by American Airlines in late December 2006. The Hannisdescribed their experience in a February 4 letter to the Mobile (Ala.) Press-Register (seeExhibit J). These angry, frustrated travelers demanded that Congress pass new laws toforce airlines to refund 150 percent of the ticket price to passengers stranded more thanthree hours and inform passengers about what‟s going on within 10 minutes of aprolonged delay. They launched a web site,, and withinits first month reportedly collected 4,200 signatures on a petition (Martinez). A similar incident in 1999, when Northwest Airlines detained passengers forseven hours on a snow-covered runway in Detroit, had sparked calls for action byCongress. The airline industry staved off new regulations then by promising to take careof the problem. Now, in the wake of the Hannis‟ experience and the JetBlue debacle, itappeared that federal lawmakers were ready to act. Over the President‟s Day weekend,before JetBlue issued its own Bill of Rights, U.S. Senators Barbara Boxer (D-Calif.) andOlympia Snow (R-Maine) proposed a new law to prevent airlines from holdingpassengers onboard for more than three hours and to require them to provide food, waterand clean toilets. Congressman Mike Thompson, a Democrat who represented theHannis‟ district, promised to introduce a similar bill in the House. Sen. Boxer toldNational Public Radio: We have to protect the people of the United States of America. We have to protect their families. We have to protect our children. And now, post-9/11, it‟s very difficult for passengers to complain about anything because of the seriousness of what happened on 9/11. Passengers who cause any trouble at all can get themselves in a lot of trouble. So when you‟re on an aircraft, 9
  10. 10. you‟re pretty much - have to comply with everything. And here you‟re in a situation where you‟re in a lock-down, almost a hostage situation. It‟s just unacceptable. This is a very simple thing we‟re talking about. It‟s common sense. The airlines, I think, will benefit from it, and I hope we can get it done. I‟m not naive about it. Every single time there‟s a regulation we propose, there‟s an outcry. The automobile industry didn‟t want to do seatbelts. They didn‟t want to do airbags. Now they take credit for it. So, you know, there is a role for the government, since we are really responsible for licensing these airlines (Block).Aviation experts warned that the proposed new regulations could actually make thingsworse for passengers by depriving the airlines of flexibility. Daryl Jenkins, a consultantwho teaches airline management, told USA Today that the proposal was “ totallyimpractical …What if a plane is ordered after three hours to go back to the terminal whenthey are second in line to take off? That doesnt make sense.” John Cox, a former airlinepilot, said that it would reduce the reliability of the system because airlines need to keepflights ready to take off as soon as the weather permits. Returning them to the terminalcould increase delays (Levin).What’s ahead for JetBlue? Three weeks after the crisis, Neeleman was still communicating with customersabout the company‟s response. It appeared that some customers were confused by theconditions for when the company would and would not offer compensation for delays.Neeleman explained the differences between “controllable” and “uncontrollable” delayson his blog, “David‟s Flight Log.” On March 8, the company announced that John Owen, executive vice president –supply chain and information technology, had resigned but would remain with thecompany as a “senior advisor” through the end of 2008, and that Russell Chew had beenhired to serve as chief operating officer. Chew, a veteran of American Airlines and theFederal Aviation Agency, “brings a big-airline perspective to JetBlue… Russ will be incharge of making sure our operations run on time and as scheduled, so that you donthave to rely on our Bill of Rights for compensation,” Neeleman told customers. “Becauselets face it – getting a $25 voucher or more is nice, but its better to arrive or depart ontime.” Chew will report to Dave Barger, who would remain with the company as“President and Founding Crew Member.” See Exhibit K for executive biographies. The press continued to raise questions about JetBlue‟s long term viability,however. On March 12, Business Week cited unnamed “industry sources” as saying that,as part of its 2006 cost cutting moves, the company had sacrificed needed upgrades to itsreservations, call center and crew scheduling systems. It also warned that the market maybe tapped out, quoting a consultant who said, “there aren‟t too many markets you canthrow 150-seat airplanes into,” and raised the specter of a unionization drive among pilotswho have watched the value of their stock options fall. 10
  11. 11. The market appeared to have lost confidence in the once high-flying company. ByMarch 14, JetBlue‟s stock price had fallen to $11.75, 11 percent below its February 14closing price of $13.23. One month after the ice storm, JetBlue‟s management team was still digging out.Conclusion JetBlue was confronted with some serious issues as it continued to try to recoverfrom its Valentine‟s Day meltdown. Although operations had returned to “normal,” thecompany had spent millions of dollars on passenger refunds and vouchers, employeeovertime, and other storm-related costs. JetBlue executives had spent countless hourspracticing “visible leadership” and David Neeleman, the public face of the airline, hadaccepted responsibility, expressed remorse repeatedly, and promised that this type ofproblem would never happen again. But, could JetBlue depend on Neeleman to lead thecompany out of trouble? Did the executives at JetBlue learn enough from their servicefailure to fix what was wrong and prevent it from happening again? If not, what furtheraction should be taken? What, if any, strategic and operational changes should be made toensure the company‟s full recovery? NOTE: This case is based entirely on published sources and has been prepared forteaching purposes. 11
  12. 12. SOURCESAir Transport Association. 2004 Economic Report., accessed March 10, 2007.Armstrong, David. “Beleaguered air passengers want new laws.” San Francisco Chronicle, Feb. 16, 2007.Associated Press. “JetBlue to have customer bill of rights.”, Feb. 20, 2007.Bailey, Jeff. “JetBlue Cancels More Flights in Storm‟s Wake.” The New York Times, Feb. 18, 2007._____. “Chief „Mortified‟ by JetBlue Crisis.” The New York Times, Feb. 19, 2007.Block, Melissa. “Air Passengers Rights Bill Introduced in Senate.” National Public Radio, Feb. 20 , 2007.Boessenkool, Antonie and Michael Reid. “JetBlue sings the blues: Its stock is unlikely to soar to previous levels because it no longer has a big cost advantage over its rivals.” The National Post (Canada), Feb. 27, 2007.Carey, Susan and Andrew Pasztor. “Behind Travel Mess: New Rules for Sleet.” The Wall Street Journal, March 23, 2007.Carpenter, Dave. “Leaner United might be bankruptcy model for Delta, Northwest.” Associated Press, Sept. 18, 2005.Datamonitor. Airlines in the United States: Industry Profile. December, 2006.Elsasser, John. “True Blue: After a customer relations crisis, lessons learned at JetBlue.” The Public Relations Strategist, Summer 2007, 14-19.Farrell, Andrew. “Chew New COO at JetBlue.”, Mar. 8, 2007.Foust, Dean. “Is JetBlue the Next People Express?” Business Week, Mar. 12, 2007.Gibson, Charles. “JetBlue‟s Airline Meltdown.” ABC World News Now, Feb. 19, 2007.Hanni, Tim and Kate. “Family Endures 57-hour Journey from San Francisco to Mobile.” Mobile Press-Register, Feb. 4, 2007.Jet Blue Airways Corporation. Corporate and financial information. Accessed March 10, 2007. 12
  13. 13. Koenig, David. “Air Travel Returns Almost to Normal.” The Associated Press, Feb. 15, 2007.Levin, Alan. “Bill of Rights for Fliers Questioned.” USA Today, Feb. 22, 2007.Lipoff, Phil. “A Nightmare for JetBlue: Planes ran out of food and water as they sat for over 8 hours.” WABC-TV, New York, Feb. 14, 2007.Martinez, Michael. “Boxer to Introduce Airline Passengers‟ Bill of Rights: Crusade picks up steam after this week‟s JetBlue delays.” San Jose Mercury News, Feb. 15, 2007.McCartney, Scott. “Stuck on a Plane: Why nightmare delays happen.” The Wall Street Journal, Feb. 20, 2007.McGregor, Jena. “An Extraordinary Stumble at JetBlue.” Business Week, Mar. 5, 2007.Neeleman, David. “Dear JetBlue Customers.” David‟s Log,, Feb. 22, 2007.Salter, Chuck. “And Now the Hard Part.” Fast Company 82, May 2004.Standard & Poor‟s Net Advantage. Corporate and financial information. Proprietary database accessed online March 10, 2007.Schneiderman, R.M. “Neeleman‟s True-Blue Atonement?”, Feb. 19, 2007.Sloan, Allan and Temma Ehrenfeld. “Skies Were Cloudy Before Jet Blew It.” Newsweek 149:10, Mar. 5, 2007.Smith, Robert. “JetBlue CEO Promises to Improve Cancellation Plans.” National Public Radio, February 19, 2007.Stickler, Andrew. “Stormy Weather: Waiting til theyre blue; Jet Blue passengers stranded on planes for hours amid icy snarl at JFK gates.” Newsday, Feb. 15, 2007.USA Today. “Crisis Management Says a Lot About an Airline.” Feb. 21, 2007.U.S. Department of Transportation. Air Travel Consumer Report, February 2007.! Finance. Corporate and financial information. Accessed March 10, 2007. 13
  14. 14. Weber, Harry R. and Joshua Freed. “Delta, Northwest file for Chapter 11 bankruptcy protection.” Associated Press, Sept. 14, 2005.Wong, Grace. “JetBlue fiasco: $30M price tag: CEO Neeleman pledges reforms, vows to keep job after cancellation leaves passengers stranded; airline back to full schedule.”, Feb. 20, 2007.Zimmerman, Martin. “A contrite JetBlue offers a plan: After nearly a week of massive flight delays set off by bad weather, the airline issues a policy to compensate customers.” The Los Angeles Times, Feb. 21, 2007. 14
  15. 15. APPENDIXExhibit A. Jet Blue Financial Data JetBlue Airways Corp. Nasdaq:JBLU Source: Standard & Poors Net Advantage Company Profiles, 3/10/07 Revenues (Million $) for Fiscal Year Ending Dec. 2006 2005 2004 2003 2002 2001 1Q 490 374.2 289 217.1 133.4 63.85 2Q 612 429.1 319.7 244.7 149.3 78.4 3Q 628 452.9 323.2 273.6 165.3 82.61 4Q 633 446 334 262.9 187.3 95.56 Year 2,363 1,701 1,266 998.4 635.2 320.4 Earnings Per Share ($) for Fiscal Year Ending Dec. 2007 2006 2005 2004 2003 2002 1Q E-0.15 -0.18 0.04 0.09 0.11 0.1 2Q E0.22 0.08 0.08 0.13 0.24 0.1 3Q E0.20 NI 0.01 0.05 0.17 0.08 4Q E0.16 0.1 -0.25 0.01 0.11 0.1 Year E0.43 NI -0.13 0.29 0.65 0.37 Income Statement (Million $). 2006 2005 2004 2003 2002 2001 Net Inc. -1 -20 47.5 104 54.9 38.5 Depr. 154 117 77.4 50.4 26.9 10.4 Int. Exp. 146 91 44.6 23.7 15.7 6.1 Eff. Tax Rate NM NM 38% 41% 42% 8.10% Pretax Inc. 9 -24 76.8 175 95 41.9 Oper. Inc. 281 165 190 219 132 37.2 Revs. 2,363 1,701 1,266 998 635 320 Other Financial Data (Million $). 2006 2005 2004 2003 2002 2001 Cash 10 6 410 571 247 263 Curr. Liab. 854 676 486 370 270 0 LT Debt 2,626 2,103 1,396 1,012 639 291 % Ret. on Equity NM NM 6.7 19.1 25.6 Total Cap. 3,714 3,130 2,275 1,782 1,093 615 Total Assets 4,843 3,892 2,799 2,186 1,379 820 15
  16. 16. % Net Inc.of Revs. NM NM 3.7 10.4 8.6 12 % LT Debt of Cap. 70.7 67.2 61.4 56.8 58.5 47.3 Curr. Assets 927 635 515 646 283 0 Curr. Ratio 1.1 0.9 1.1 1.7 1 0 Cash Flow 153 97 125 154 75.9 32 Cap. Exp. 996 941 617 573 544 0 % Ret. on Assets NM NM 1.9 5.8 5.3 0 Common Equity 952 911 756 671 415 324 Data as originally reported; before results of discontinued operations and/or specific items. Per share data adjusted for stock dividends as of ex-dividend date. E - Estimated. N/A - Not Available. NM - Not Meaningful. NR - Not Ranked.Exhibit B. JetBlue’s Growth Revenue Revenue Passenger Operating Employees Passengers Miles Revenues (full- and Operating (000s) (millions) (million $) part-time) Aircraft Destinations 2000 1,144 1,005 320.4 1,174 10 12 2001 3,117 3,282 320.4 2,361 21 18 2002 5,752 6,836 635.2 4,011 37 20 2003 9,012 11,527 998.4 5,433 53 21 2004 11,783 15,730 1,266 7,211 69 30 2005 14,729 20,200 1,701 9,021 93 33 2006 18,565 23,320 2,363 10,377 119 49 Sources: Jet Blue 10K reports, Air Transport Association of America, Standard & Poors. “Revenue passengers” represents the total number of paying passengers on all flight segments flown. “Revenue passenger miles” represents the number of miles flown by revenue passengers. Employee count does not include LiveTV LLC employees. 16
  17. 17. Exhibit C. Passengers per Employee Passenger to employee ratio 2000 1800 1600 1400 Revenue Passengers 1200 1000 800 600 400 200 0 2000 2001 2002 2003 2004 2005 2006 Source: authors’ calculationsExhibit D. Top 25 U.S. Airlines, 2003 Source: Air Transport Association of America Annual Report, 2004.Exhibit E. Total Revenues, U.S. AirlinesYear $ billion % Growth2000 120.02001 111.9 -6.8%2002 105.0 -6.1%2003 110.2 4.9%2004 116.3 5.6%2005 125.0 7.5%Source: Datamonitor Industry Profiles, 2005, 2006 17
  18. 18. Exhibit F. Customer Complaint Rates For the 10 Largest U.S. Airlines (2006)Airline Complaints per 1 million passenger emplanementsUnited Airlines 13.60US Airways 13.59American Airlines 10.87Delta 10.35Northwest Airlines 8.84Continental Airlines 8.83AirTran Airways 6.24Alaska Airlines 5.24JetBlue Airways 3.98Southwest Airlines 1.82Average of all airlines 8.67 Source: U.S. Department of Transportation Air Travel Consumer Report, Feb. 2007; Wall Street Journal, March 27, 2007. 18
  19. 19. Exhibit G. David Neeleman’s Apology Dear JetBlue Customers, We are sorry and embarrassed. But most of all, we are deeply sorry. Last week was the worst operational week in JetBlue‟s seven year history. Many of you were either stranded, delayed or had flights cancelled following the severe winter ice storm in the Northeast. The storm disrupted the movement of aircraft, and, more importantly, disrupted the movement of JetBlues pilot and inflight crewmembers who were depending on those planes to get them to the airports where they were scheduled to serve you. With the busy President‟s Day weekend upon us, rebooking opportunities were scarce and hold times at 1-800- JETBLUE were unusually long or not even available, further hindering our recovery efforts. Words cannot express how truly sorry we are for the anxiety, frustration and inconvenience that you, your family, friends and colleagues experienced. This is especially saddening because JetBlue was founded on the promise of bringing humanity back to air travel, and making the experience of flying happier and easier for everyone who chooses to fly with us. We know we failed to deliver on this promise last week. We are committed to you, our valued customers, and are taking immediate corrective steps to regain your confidence in us. We have begun putting a comprehensive plan in place to provide better and more timely information to you, more tools and resources for our crewmembers and improved procedures for handling operational difficulties. Most importantly, we have published the JetBlue Airways Customer Bill of Rights – our official commitment to you of how we will handle operational interruptions going forward – including details of compensation. We invite you to learn more at You deserved better - a lot better - from us last week and we let you down. Nothing is more important than regaining your trust and all of us here hope you will give us the opportunity to once again welcome you onboard and provide you the positive JetBlue Experience you have come to expect from us. Sincerely, David Neeleman Founder and CEO 19
  20. 20. Exhibit H. JetBlue Customer Bill of Rights 20
  21. 21. Exhibit I. Cover of BusinessWeek, March 5, 2005Exhibit J. Letter to Mobile Press-Register by Kate and Tim Hanni Traveling with our two sons, we were trying to make it from Napa Valley, Calif., to Mobile for a business trip coupled with a family vacation. But after being diverted to Austin, Texas, because of heavy storms in Dallas (where we had our connecting flight), we waited on the plane for nearly nine hours on the tarmac in Austin. At first, we hoped that we could get to Dallas. Eventually, we wished we simply would be cleared to go to an open gate. The only food on the plane was a few snack bags of pretzels. Gradually, cell phones and music players slowly went dead. The air became stale and later polluted when the toilets overflowed. When we finally got off the plane in Austin after 9 p.m. that day, we had hardly eaten a bite since wed left home at 3 a.m. Everyone was famished. But as we stepped into the terminal, the last of the restaurants were rolling down their metal security cages and refused to serve us food. Then, after waiting another frustrating two hours to find out that our luggage would not be unloaded, the line for a measly $10 discount on a hotel room was impossibly long and all of the hotel shuttle services were done for the night. We gave up and checked into a cheap hotel, ending a 22-hour day of travel. We slept for only four hours so that we could be back at the airport at 6 a.m. We boarded a flight for Dallas 21/2 hours later. But when we reached Dallas, we were told by one gate assistant that we wouldnt be able to get on the next flight to Mobile "unless youre the Queen of 21
  22. 22. England." Four and a half hours later, we check into another airport hotel - still without toiletries and clean clothes. We had left Napa Valley at dawn on Friday, Dec. 29. We did not make it to Mobile until Sunday afternoon, Dec. 31 - 21/2 days late, angry, frustrated, exhausted and grimy. Source: Mobile Press-Register, Feb. 4, 2007.Exhibit K. Executive BiographiesDavid Neeleman, Chief Executive Officer and Director David Neeleman is our Chief Executive Officer and a member of our board of directors. He has served in both capacities since August 1998. Mr. Neeleman was a co-founder of WestJet and from 1996 to 1999 served as a member of WestJets board of directors. From October 1995 to October 1998, Mr. Neeleman served as the Chief Executive Officer and a member of the board of directors of Open Skies, a company that develops and implements airline reservation systems and which was acquired by the Hewlett Packard Company. From 1988 to 1994, Mr. Neeleman served as President and was a member of the board of directors of Morris Air Corporation, a low-fare airline that was acquired by Southwest Airlines. For a brief period, in connection with the acquisition, he served on the Executive Planning Committee at Southwest Airlines. From 1984 to 1988, Mr. Neeleman was an Executive Vice President of Morris Air. Mr. Neeleman attended the University of Utah.David Barger, President, Chief Operating Officer and Director David Barger joined our board of directors in September 2001. Mr. Barger is our President and Chief Operating Officer and has served in this capacity since August 1998. From 1992 to 1998, Mr. Barger served in various management positions with Continental Airlines, including Vice President, Newark hub. He held various director level positions at Continental Airlines from 1988 to 1995. From 1982 to 1988, Mr. Barger served in various positions with New York Air, including Director of Stations. Mr. Barger attended the University of Michigan.Thomas Kelly, Executive Vice President and Secretary Thomas Kelly, age 50, is our Executive Vice President and Secretary and has served in this capacity since August 1998. From August 1998 until February 2003, he was also our General Counsel. From December 1995 to October 1998, Mr. Kelly served as the Executive Vice President, General Counsel and a member of the board of directors of Open Skies. From 1990 to 1994, Mr. Kelly served as the Executive Vice President and General Counsel of Morris Air Corporation and served as a member of the board of directors of Morris Air from 1991 to 1993. Mr. Kelly received his Bachelor of Arts degree in University Studies from Brigham Young University and a Juris Doctorate degree from Harvard Law School.John Owen, Executive Vice President – Supply Chain & Information Technology John Owen is our Executive Vice President – Supply Chain & Information Technology and has served in this capacity since January 1999. From August 1998 to December 1998, Mr. Owen served as the Vice President for Operations Planning and Analysis for Southwest Airlines. From October 1984 to August 1998, Mr. Owen served as the Treasurer for Southwest Airlines. Mr. Owen received his Bachelor of Arts degree in Economics from Southern Methodist University and a Master of Business Administration degree from the Wharton School at the University of Pennsylvania.Source:, accessed March 19, 2007 22