Background

Todays 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, lowfare. 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; JetBlues
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 Southwests 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 Airs success caught
1|Page

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. Neelemans 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. JetBlues 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.
JetBlues 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 companys 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|Page

Navitaire Open Skies, to pilots 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 companys
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 employees 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 companys 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).
JetBlues 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 companys 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|Page

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)
Its the JetBlue Experience that is the companys 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: TVs 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). JetBlues emphasis on efficiency also plays a
part in the experience utilizing low turnaround times. JetBlues
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
JetBlues foundation and purpose of providing low cost flights
with top-notch customer service didnt 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 Yorks 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 didnt 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
wasnt 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|Page

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
JetBlues 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 airlines Sabre
applications and Navitaires 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 Valentines 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|Page

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 Valentines 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 Neelemans YouTube broadcast he outlined three major
changes that JetBlue would be taking in addition to the Customer Bill
of Rights (JetBlueCorpComm, 2007). Neelemans 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 webbased 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 whatif situations to make sure that are prepared for the worst (2007).
The Valentines Day Crisis forced JetBlue to prepare for emergency
situations and better now because of it.

Our Recommendations
6|Page

While we feel as if JetBlues 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|Page

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-q42009-earnings-call-transcript.
Brooks, N. R. & Sanchez, J. (1993). LA Times. Retrieved Feb. 15, 2010, from
Los Angeles Times, Los Angeles, CA. Web site:
http://articles.latimes.com/1993-12-14/business/fi-1787_1_southwestairlines.
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.
Dodds, B. (2007). JetBlue Airways: Service Quality As A Competitive
Advantage. Forest Ecology and Management, 3(4), 33-40. Retrieved
from Clute Institute for Academic Research database.
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|Page

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.
Neeleman, D., & Ford, R. C. (1993). David Neeleman, CEO of JetBlue
Airways, on People + Strategy = Growth. The Academy of
Management Executive, 18(2), 139-143. Retrieved from JSTOR
database.

9|Page