JetBlue Airways chief executive Dave Barger begins a quest to keep the carrier vibrant in its second decade.
Only a few champagne corks were popped in an office building tucked away in Queens, New York on 11 February. The occasion was JetBlue's milestone tenth anniversary, but a large portion of the carrier's employees were entrenched in the home stretch of a complex cutover to the Sabre passenger management system that later proved to largely defy the odds of notoriously difficult IT transitions through a relatively smooth execution.
With so much attention given to the cutover, JetBlue has opted to turn its tenth anniversary into a year-long celebration, says carrier chief Dave Barger, who has been with the airline since its inception. He is settled back into in his office - BlackBerry and cell phone both charging dutifully at a conference table - having just wrapped up station visits to Florida and Salt Lake City. Tomorrow he is preparing to set-out for several stations on the West Coast. As part of his commitment to the carrier's tenth anniversary, Barger has committed to visit each city JetBlue serves.
But as Barger celebrates the carrier's first decade with visits around the system, one simple truth is guiding his vision for the airline's future. "What got us here in 10 years is going to have to be different at the end of 20."
Barger says JetBlue's biggest challenge is complacency: "We have to continue to change, and I think that a threat to JetBlue is JetBlue. There's always going to be, not just a copycat, but someone who's going to leapfrog you with something that's new. I think we've got to be part of that landscape. Innovation has got to be a part of our DNA."
Barger and JetBlue seem open to whatever form that innovation might take. "Does that mean widebodies? I don't know. I don't rule it out. Does that mean some new geography? Sure, why not." He shows no resistance to expanding the JetBlue brand further afield than its current international offerings in the Caribbean and Central and Latin America to potential transatlantic markets. "Why not? But you have to earn your right to start to fly into those markets."
A way to start to prove JetBlue's brand, says Barger, whether it is across the Atlantic or whether it is into South America, is to partner with other carriers. But at the moment any solo transatlantic operations are a very distant prospect as JetBlue is for now focusing on becoming "Americas' airline", by concentrating on destinations in North, Central, South and Latin America, says Barger. The carrier's push to expand its Caribbean offerings and branch into Latin America, "has been very good for our airline".
© Mark Greenberg
Barger realises JetBlue is "range-limited" with its current fleet of Airbus A320s and Embraer 190s, "so we're only tapping into Bogotá at this time. But why not Brazil? Or why not Chile?" he says of some of the other dense markets in the region. "That may be dependent on different aircraft."
He acknowledges another aircraft type would be "accretive and positive for our shareholders and our customers, and obviously in alignment with our crew members, you bet we'd do it," Barger explains.
JetBlue's strategy of tossing the textbook for low-cost carrier operations aside has resulted in a conscious effort to use its leading position at Kennedy International airport in New York to forge partnerships with Aer Lingus, American Airlines, Lufthansa and South African Airways. There are no limits on the number of partnerships JetBlue could create by leveraging the "tremendous piece of real estate" it holds at Kennedy. Barger says: "Could it be 30, is it 20 or is it 50, we'll see."
With the exception of a one-way codeshare JetBlue has with shareholder Lufthansa, all of its partnerships are interline agreements. JetBlue's new agreement with oneworld anchor member and rival American covers 18 of JetBlue's flights from Kennedy and Boston and 12 of American's international flights from those airports. By the law of numbers, Barger says it is fairly evident the revenue potential from the American agreement is larger than its other partners.
When JetBlue unveiled its partnership with American, speculation mounted about how the new tie-up would affect the relationship which JetBlue and Star Alliance member Lufthansa created in 2007, when the German carrier took a 19% stake in JetBlue and secured two positions on JetBlue's board.
Barger recognises that when Lufthansa finalised its $300 million investment in JetBlue in early 2008, "the timing was very fortuitous" as later that year oil prices reached historical highs of $147 per barrel. He expresses a huge amount of gratitude to Lufthansa for the guidance and board expertise it has supplied to his airline.
Yet, at the same time, he declares JetBlue has remained very consistent with its message to its German Star Alliance shareholder. "What we've always said to Lufthansa is that, as the largest airline at Kennedy and the largest domestic airline in New York, we're attractive to many airlines in terms of partnership opportunities. Does Lufthansa have a point of view? You bet they do."
He would like to think Lufthansa will remain a long-term strategic shareholder in JetBlue. "Of course, they're going to have to make that decision as we move into the future. As we add American and other carriers, that's going to be transparent. We're going to be monetising this opportunity we have at JFK and that should be in Lufthansa's best interest," he explains.
Barger often refers to JetBlue's strategy of partnering with aligned and unaligned carriers at JFK as "open architecture". And while there is no exact replication of the Kennedy model elsewhere in JetBlue's network, Barger does see an opportunity to replicate aspects of the concept in Boston, Orlando and "potentially other real estate".
He is particularly excited about slots JetBlue received at Washington National airport as part of the interline agreement it forged with American. Starting in November, JetBlue plans to launch seven daily flights to Boston and a daily non-stop flight to both Fort Lauderdale and Orlando.
"I think DCA [National] is an artificially capped airport and the prices are high," says Barger. He believes slot legislation at the airport is outdated and observes that many carriers serving National use 50-seat jets to preserve large airplane slots. "What a wonderful place for our 100- to 150-seat model to come to town," he says. "It won't be at the expense of the other two [Baltimore and Dulles]. I think there's room to grow all three."
As JetBlue continues to monetise Kennedy and potentially expands the open architecture to other markets in its network, full-blown codeshares with existing and potential partners are not taking precedence.
Carrier chief commercial officer Robin Hayes explains JetBlue's website remains the main gateway for JetBlue's customers. "We primarily continue to see ourselves as a consumer-direct business. That way, we control the environment in which they buy the flights and we can make sure that interlining does most of what we need. Having travel agencies distributing for us through a codeshare doesn't really add that much when the vast majority of our business comes direct."
Another key objective for JetBlue is to enlarge the mix of business passengers in its overall customer composition from the current levels of roughly 20%. "As I look at the next couple of years, I'd love to see us starting to move north of 30% because it will start to flatten out the valleys," says Barger.
While the peaks have been consistently strong in JetBlue's business, "our troughs traditionally have been quite deep", he explains. "September shouldn't be the time of year when we say where is everybody?" During the global recession in 2009 JetBlue noticed a lot of corporations that were looking for value, Barger explains. "They don't want to pay $800 to go from Boston to Charlotte, and as they were looking at our product and the offering of flying us, that was really positive."
JetBlue's efforts to move to that 30% benchmark include adding frequencies from Boston to places like Chicago, Pittsburgh, Raleigh and Charlotte. In late 2009 it also introduced changes to its TrueBlue loyalty programme, "really rewarding spend of wallet as opposed to miles", says Barger.
He understands why more pro-rate schemes were put into place by other carriers, based on points, miles and how often passengers fly. "But isn't it important in terms of how much you're spending? That's what we want to reward," he says.
Some of JetBlue's planned 6-8% capacity growth for 2010 will support the new flights from Washington National, targeted towards business travellers, as well as other new markets, such as Hartford, Connecticut to Fort Lauderdale and Orlando.
© Mark Greenberg
But the projected capacity growth, along with its intent to add seven used A320s this year, has raised some eyebrows on Wall Street as JetBlue's low-cost carrier counterparts and legacy carriers plan to keep capacity largely flat, or are planning only modest growth, for 2010. "We've had a lot of questions about the growth plan, but I do absolutely believe, and so does our team, that we've earned the right to grow," explains Barger.
At the time it unveiled plans to add the A320s during the back half of this year, JetBlue also announced the deferral of six new A320 deliveries scheduled for 2011-12 to 2015. As a reminder, Barger explains in 2006 JetBlue was taking an aircraft every 10 days and was previously scheduled to accept 36 aircraft in 2009.
If JetBlue had not taken steps to defer and sell aircraft during the last two years, by the end of 2010 its fleet count would have stood at 275, instead of the current projection of 161 aircraft. "We've played a lot of defence over the last several years, just calming things down," Barger explains. "I think we are well positioned to play some offence."
JetBlue is leasing the six A320s joining its fleet this year from lessor GECAS. The aircraft were previously operated by the carrier. "We had a very nice financial proposal to bring those aircraft back into the fleet," says Barger. "Boy, you bet we'd do that."
To address some of the sceptics, Barger responds: "The education we've been putting forwards is that this is a company that strengthened its balance sheet. This is a company that slowed its growth. This is a company that has a management team which is focused on a return on invested capital metric, a free cashflow metric. Ask the other airlines if they have the same approach in terms of their financial metrics, because we're running the company for the long term."
Part of executing Barger's strategy for JetBlue's prolonged viability is maintaining favourable labour relations. But, as the carrier begins its second decade, Barger is cognisant that the carrier's non-unionised workforce is a prime target for union representation. This is especially coming to the fore because of a recent law taking effect in the USA which allows representation to be granted based on the majority of votes cast, rather than a majority of an affected work group.
"I definitely think we're going to be a target," says Barger. "But I don't believe that our crew members have to pay somebody else to speak on their behalf." He admits that during JetBlue's first 10 years, "we certainly haven't been perfect in terms of how you build a culture that's different from everybody else, but I think we've been pretty good".
Barger does admit he gets questions fired at him regarding why JetBlue does not furlough or issue pay cuts. "Well, it is because we have a different model, it is called collaboration versus negotiation and that model [negotiation] historically has not really been good for the industry".
JetBlue's chief executive believes the carrier's entry into it second decade without a merger, acquisition or taking a trip through Chapter 11 supports an underlying belief that "there's plenty of opportunity to try things differently". Far from being perfect, Barger admits the company has made "lots of mistakes", but he says it is important to be humble and learn. He concludes: "I'm just as excited today as we were 12 years ago when we were putting the plan together."