Background Today’s airline industry is a very competitive market, one that looks very different than it did 30 years ago. Due to the deregulation of the industry in 1978, the market has opened its doors to new segments other than just the major airlines (Case Study, 2010). There are now three main components of the airline industry – major airlines, regional airlines, and low-fare airlines. To begin, major airlines take in at least $1 billion in revenues per year. Some examples of airlines categorized as major include American Airlines, Continental, Delta, United, and US Airways. Many of these airlines use the “hub and spoke” system to accommodate to their customers who may not be living in the larger cities. This system helps the airlines to efficiently connect flights within the larger hub airports and keep flights moving smoothly. Regional airlines use smaller aircrafts and carry fewer passengers than the major airlines. However, the two usually end up combing forces to work within that “hub and spoke” system. Examples include SkyWest and Comair. Finally, low-fare airlines stay true to their titles: low- cost, low- fare. Typically the “no-frills” level of the airline industry, low-fare focuses productivity and efficiency, while keeping the costs down. This is level to which JetBlue belongs. They do not compete with the major airlines that have greater resources and cover more routes; JetBlue’s competition includes other low-cost airlines and some regional (JetBlue 10K, 2009). David Neeleman began his entrepreneurial career by renting condos in Hawaii which led him to establish his own travel agency. Not long after, in 1984, Neeleman and a gentleman by the name June Morris launched a charter airline company known as Morris Air. Neeleman was intrigued by the low cost airline company Southwest and its founder Herb Kelleher, and tried to model the new airline after Southwest. He was interested in Southwest’s business model and how they operated to the extent that he studied everything they did as well as tried to figure out how he could do it better (Case Study, 2010). Neeleman was most interested in keeping costs low and operational efficiency such as being able to turn planes around quickly. Neeleman was also interested in bringing innovation to the industry to help achieve these goals. He developed a system designed to allow customers to make airline reservations through agents that were taking these calls from their own homes. This cut fixed costs dramatically by cutting out office and infrastructure expenses. Neeleman is also credited for developing the first electronic ticketing system which also allowed for long-term savings. By 1992, Morris Air had grown substantially and was generating high revenues with low operating costs. Morris Air’s success caught

1 | P a g e the interest of investors and top management at Southwest as Morris Air was getting ready to go public through an Initial Public Offering (IPO). According to an article in the Los Angeles Times, Southwest purchased the company just before the IPO in a stock-swap deal valued at $129 million (Brooks, 1993). Neeleman was also recruited to join Southwest as an executive vice president where he stayed for only 2 years before resigning and signing a 5-year non-compete agreement. While honoring the 5-year non-compete agreement, Neeleman took the opportunity to further his interests. He refined the electronic ticketing system he had introduced at Morris Air and made it simpler and more user-friendly, naming it Open Skies. He then sold Open Skies to Hewlett-Packard in 1999. Neeleman also acted as a consultant for a start-up, low-fare Canadian airline named WestJet Airlines. In February 1999, David Neeleman announced plans for a new airline. According to an article by The Academy of Management Executive, assembled a team of airline industry veterans and raised $130 million of capital to put his successful airline formula into practice - innovative, high-quality service plus low fares equals a strong and loyal market. Neeleman’s new venture, JetBlue, launched operations with its inaugural flight between JFK and Fort Lauderdale, FL on February 11, 2000. He held the position of President and CEO of the airline until 10-May-2007 when Dave Barger was named JetBlue's President and CEO (JetBlue, 2010). JetBlue is based in the John F. Kennedy Airport in Queens, New York. It was established as a low-cost, low-fair airline that mainly operates on a point-to-point basis and currently serves 60 destinations in 20 states, Puerto Rico, and eleven countries in the Caribbean and Latin America. JetBlue’s mission is defined as being “dedicated to bringing humanity back to air travel” (JetBlue, 2010). The company has been able to establish a strong internal environment that encompasses many different elements. These elements include: resources, both tangible and intangible; a dynamic culture; and a solid functional structure.

JetBlue’s resources consist of many different items. While all of the assets the company owns are important, some are of greater importance and play a major role in the company’s success. One of such items is the planes. The company only operates two types of aircraft, the Airbus A320 and the Embraer 190, requiring less training. These aircraft are also new and more efficient models thus requiring lower maintenance and fuel costs (JetBlue 10K, 2009). In addition to the aircraft, the company also utilizes state of the art technology and software systems. These items range from an advanced paperless ticketing and online reservation system, known as

2 | P a g e Navitaire Open Skies, to pilot’s use of laptops in calculating operational functions for takeoffs and landing. Some other items such as electronic kiosks and in-flight entertainment systems help the company achieve its goal of product differentiation. A third and possibly the most important company asset is its people. JetBlue is dedicated to providing superior customer service and the basis of which start with its employees. The company has a very selective employment program. At the top of their list, is an employee who understands the concept of “knowing how to retain customers” (Dodds, 2007). Potential hires that apply to become part of the company (130,000 applied while only 2,000 made the cut), must know how to perform under all sorts of situations and deal with all sorts of customers (Dodds, 2007).

Safety, caring, integrity, fun and passion define the values that are the foundation for the culture of JetBlue. The company’s crewmembers live by these values and use them every day to make each and every decision. JetBlue believes that once they define their values, the company will carry the culture itself (Judd, 2003). Safety is very important at JetBlue. It is each employee’s job to ensure a safe environment and experience for the customers and for all other employees. In a report drawn from statistics between 1985 and 2009 of airline accident rates JetBlue was reported to be 36% above the average accident rate of the 87 airlines in the study. They have had no fatal accidents in their 1,140,000 million flights (Airline Accident Rates, 2010). This is also evident in the company’s work environment. According to an article from the Journal of Business Case Studies, their workplace is designed around six interconnecting elements: loyalty, satisfaction, capability, service quality, productivity, and output quality (Dodds, 2007).

JetBlue’s structure is composed of top management, airport operations, ground operations, in-flight, pilots, reservations, system operations, and technical operations. It is the cooperative effort among all the employees, as well as across structural lines, that contribute to the company’s success. An example of this was illustrated in an online article by CNN.com:

To help maintain that quality of service, Neeleman, 43, flies on at least one flight a week during which he works with the crew to pick up garbage and vacuum the cabins, among other duties." I do it every week regardless if there is a camera there or not," Neeleman said. "And I do if for a couple of reasons -- number one, to stay in touch

3 | P a g e and listen to what our customers are saying." The other reason I do it is because I want our crew members to appreciate what they are doing, and I am not above doing their job and hanging out with them." (2004)

It’s the “JetBlue Experience” that is the company’s competitive advantage. The JetBlue Experience is everything from its highly detailed level of customer service to its use of new technology to its emphasis on efficiency. There is only one classification of seating with leather seats and more legroom, allowing all passengers to be treated with the same level of service. In addition to these things, some of the amenities that stand out in this experience include: TV’s in all headrest that include free Direct TV and XM Satellite Radio; unlimited brand name snacks; complimentary snooze kit; and free wireless internet (JetBlue, 2010). JetBlue’s emphasis on efficiency also plays a part in the experience utilizing low turnaround times. JetBlue’s planes wait at the gate for around 35 minutes – 25 less than its competitors. Also, they refuse to let the planes waste time stationed on the ground; an average JetBlue plane is in the air for 13 hours a day (Dodds, 2007).

Critical Issues JetBlue’s foundation and purpose of providing low cost flights with top-notch customer service didn’t matter on the stormy day of February 14, 2007. This was the day that started the melt-down for JetBlue and caused their reputation to be questioned. February 14, 2007 was predicted to be a day of winter ice storms and snow, but forecast changed and only rain was to be expected. With this prediction in mind, JetBlue decided to load flights at New York’s J.F.K. airport and allowed passengers to be taxied to the runway in order to keep their customers happy. Unfortunately, the forecast was incorrect and conditions didn’t clear up as expected (Hanna, 2008). Equipment used to tow the planes away from gates froze to the ground and the aircrafts were gridlocked (CBS News, 2007). Also, FAA regulations regarding icy weather conditions prevented flights from taking off (Hanna, 2008). Passengers were kept on board for over eight hours, and JetBlue cancelled around 1,000 flights over the next few days. Passengers had trouble breathing while on board and the attendants actually had to open the doors every 20 minutes to let air in (Cohen, 2007). Air wasn’t the only issue on board. There was very limited toilet use and food became scarce. Many passengers said they felt like hostages being held on the tarmac. Around 3 p.m. there was no hope that the weather would clear up enough to allow the planes to take off, so

4 | P a g e buses were arranged to transport passengers from the plane to the airport. (CBS News, 2007). This was the beginning of many more issues. The terminals were overcrowded with irate passengers being bussed back and with the passengers still expecting to get on flights. Things spiraled out of control and four main problems arose: 1.) The reservation system could not handle the amount of incoming customer calls and customers were only able to rebook their flights by calling the reservation office. 2.) There was no option to rebook flights using JetBlue’s website through the airport kiosks. 3.) With passengers struggling to get through reservations, their bags piled up, and there was no system in place to record and track all luggages. 4.) The last problem occurred because of a glitch in the airline’s Sabre applications and Navitaire’s SkySolver. The Sabre applications manage, schedule and track the planes, and provide pilots and flight attendants access to their schedules using a Web portal. The Navitaire system provides information on factors such as flight status, fuel information, passenger lists, and arrival times. Because of the glitch there was no information or way to figure out the best way to handle the flight disruptions (Case Analysis Article).

Solution Communication

Since this disaster, JetBlue has taken several actions to try and correct the errors in their system, compensate their passengers, and once again, rise to the top in customer service. One of the best things that JetBlue did in the wake of the Valentine’s Day crisis was take responsibility for its actions. Companies that are focused on customer service should make the effort to identify customers and personally connect with them. If you do this, the brand name speaks for itself (Bailor, 2007). J. Hanna mentions in an HBS case that the CEO of JetBlue, David Neeleman, tried to get his message out through about every form of media (2008). In total, Neeleman publicly apologized to over 131,000 customers. One of his largest announcements was broadcast over YouTube just days after the incident.

Customer Bill of Rights

One of the most revolutionary changes that JetBlue took in lou of the incident was creating a Customer Bill of Rights. It provided, and still provides today, compensation for a variety of delays; even being involuntarily bumped from a flight. It states that customers will be notified of any cancellations or delays. If a flight is canceled then customers will have the option of rebooking or getting a full refund. Delay compensation ranges from $25 to free round-trip flights.

5 | P a g e Customers can even be compensated $15 if the TV onboard is not working properly (JetBlue, 2010). Creating a system like the Customer Bill of Rights really goes above and beyond what most airlines, let alone businesses, do to ensure the customers that they are valued and listened to. The steps that David Neeleman and his employees at JetBlue have taken since the crisis have very much restored the faith of their customers. One reporter stated overhearing a disgruntled man on a competitor airline remark how much better JetBlue was on accommodation (Bailor, 2007). The Valentine’s Day crisis may have been what JetBlue needed to see where there faults were located and to really cater to customer needs.

Three Step Plan

In Neeleman’s YouTube broadcast he outlined three major changes that JetBlue would be taking in addition to the Customer Bill of Rights (JetBlueCorpComm, 2007). Neeleman’s first change was that all non-airport crew members would be trained and badged to report to the airport during difficult times. Many employees worked from home and wanted to help, but were not trained. The second change would be in the reservation system. The day of the storm all reservation systems (phone and website) failed because of the high volume of people trying to reschedule flights. CIO Charles Mees created a phone reservation system that could handle double the normal amount of calls for future problems. He also got the web- based reservation system running and prepared to handle high volumes (Hanna, 2008). Thirdly, Neeleman stated that he wanted an organization system to keep track of where pilots, attendants, and crew members were at all times. If JetBlue was aware of who was available at all times and where they were, then they could employ those people if needed. Numerous attendants and pilots were sitting in hotel rooms when the crisis broke out, but they could not get through to JetBlue and JetBlue did not know where they were or how to incorporate them. Charles Mees, in addition to the reservation system, also organized a database to track crew locations. Crew members also received cross training so in the event of an emergency they could take on the role of whoever was needed (Hanna, 2008). Coreen Bailor mentions that all businesses should go through “what- if” situations to make sure that are prepared for the worst (2007). The Valentine’s Day Crisis forced JetBlue to prepare for emergency situations and better now because of it.

Our Recommendations

6 | P a g e While we feel as if JetBlue’s competitive advantage is unstable due to fair ease of duplication and other microeconomic factors, we do feel that further research and implementation of the following could help protect it. As airplanes get older, airlines are facing maintenance costs and costs associated with breakdowns and crashes. We recommend that JetBlue start implementing new airplanes into their operations. The cost of these planes will be accommodated by having fewer maintenance costs and in turn the airline will have a better image in the industry due to fewer failures. It is important that JetBlue uphold its stated cultural importance of safety to maintain their customers’ trust in them. We recommended implementing a new plane once a year/quarter. Which type of plane to implement, how often, what are we recommending they do with old planes (sell, for how much), how long will these new planes be good? The Airbus 320 ranges in cost from $73.2 million to $80.6 million and the Embraer 190 costs range from $27.4 million to $80.6 million (2010). Currently the maintenance expense per available seat mile, which is the number of seat miles that were actually available for purchase, increases 20% per year. This is due to the gradual aging of the airplanes which leads to an increase in the number of heavy maintenance checks (Barger, 2010). By replacing the older planes with new, maintenance costs will dramatically decrease and safety will prevail. Our second recommendation is for JetBlue to get back to its original focus of simplicity by operating only two types of aircrafts, the Airbus 320 and the Embraer 190. This is important because they will be able to reduce costs by having to train operators on only two types of aircrafts. Also, because of having fewer specialties and training needs pilots will be able to fly most any aircraft available, and turnaround times will be shorter.

7 | P a g e References (2004). JetBlue Founder Takes Low-fare Airline to New Heights. Retrieved Feb. 15, 2010, from CNN. Web site: http://www.cnn.com/2004/WORLD/americas/04/16/neeleman/index.html.

(2010). Airbus A320 Family. Retrieved Feb. 13, 2010, from Wikipedia. Web site: http://en.wikipedia.org/wiki/Airbus_A320_family.

(2010). Airline Accident Rates. Retrieved Jan. 26, 2010, from Plane Crash Info. Web site: http://planecrashinfo.com/rates.htm.

(2010). JetBlue. Retrieved Feb. 9, 2010, from JetBlue, New York, NY. Web site: http://www.jetblue.com/.

Bailor, C. (2007, May). JetBlue's service flies south. CRM Magazine, 11(5), 15-16. Retrieved 9 February 2010, from Business Source Premier: http://www.lib.ncsu.edu.www.lib.ncsu.edu:2048/cgi-bin/proxy.pl? server=http://search.ebscohost.com.www.lib.ncsu.edu:2048/login.aspx ?direct=true&db=buh&AN=24965565&site=ehost-live&scope=site. Barger, D. (2010). JetBlue Airways Corporation Q4 2009 Earnings Call Transcript. Retrieved Feb. 13, 2010, from Seeking Alpha. Web site: http://seekingalpha.com/article/185212-jetblue-airways-corporation-q4- 2009-earnings-call-transcript.

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Case Study, 2010

CBS News. (2007). JetBlue Attempts to Calm Passenger Furor. Retrieved Feb. 8, 2010, from CBS Broadcasting Inc.. Web site: http://cbs2.com/national/jetblue.tarmac.JFK.2.279800.html.

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JetBlueCorpComm, . (2007). Our Promise to You. Retrieved Feb. 9, 2010, from YouTube, San Bruno, CA. Web site: http://www.youtube.com/watch?v=-r_PIg7EAUw.

JetBlue, . (2009). United States Security and Exchange Commission. Retrieved Feb. 15, 2010, from JetBlue Airways Corporation, New York, New York. Web site: http://sec.gov/Archives/edgar/data/1158463/000095012310009322/y0 2987e10vk.htm.

8 | P a g e Judd, H. (2003). JetBlue Succeeds with Fun and Passion, Exec Tells USU. Retrieved Jan. 25, 2010, from Utah State University, Utah. Web site: http://newscafe.ansci.usu.edu/archive/nov2003/1120_jetblue.html.

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