Jet

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Jet
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jetBlue Airways Starting from Scratch

• Janet Baselice
• Katherine Corum
• Giri Prasad
• Kris Ramalingam
• Jerry Smith
• October 29, 2007

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Overview

• Brief History
• Timeline
• Values
• Who is David Neeleman?
• Who is Ann Rhoades?
• HR Practices
• What makes jetBlue different?
• Characteristics of an Entrepreneur
• Whats happening now?

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History of jetBlueMorris Air

• 1984-1994
• Low-fare airline based out of Salt Lake City,
  Utah
• Originally founded by David Neeleman, June
  Morris, and Mitch Morris
• The airline began charter operations as Morris
  Air Service in 1984.
• Charter flights were operated by Ryan
  International Airlines during 1992.
• Morris obtained its own FAR 121 operating
  certificate in December 1992 and then began
  operating as its own carrier.
• Sold to Southwest Airlines in 1993 for 130
  million

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History of jetBlueMorris Air

• Herb Kelleher
• CEO of Southwest Airlines
• Hired top executive from Morris Air to Southwest
  Airlines
• David Neeleman, executive vice president
• Was not a successful move for Neeleman, fired in
  1994
• David came running into a closed environment
• Anne Rhodes

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Non-Compete Agreement

• Part of the sale of Morris Air
• Condition of contract stating that David Neeleman
  could not work for or own any company that would
  compete against Southwest Airlines for 5 years

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History of jetBlueWest Jet /Open Skies

• West Jet
• Neeleman became CEO of Open Skies after leaving
  Southwest
• Company developed touch-screen airline
  reservation and check-in units
• Sold in 1998 to Hewlett Packard
• Updated versions of products still used in
  airports today

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jetBlue

• Non-compete agreement expired in 1998
• Neeleman began developing his next project?
  jetBlue
• He wanted to follow the successful example of
  Southwest, stimulating demand in under-served
  markets with low fares, enabled by the highly
  productive use of employees and aircraft His new
  airline would improve the passenger experience
  with technology, and would use technology to
  increase employee and aircraft productivity even
  beyond record levels achieved by Southwest

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jetBlue Timeline
Nov-2007 Voted Best Domestic airline 6 years in
a row (Condé Nast)
Jan-2003 Reports net income 55 million for 2002
June-2004 Launches first International
service To Dominican republic
2000 Takes delivery of its Aircraft
launches Service to Orlando, Salt Lake City
Fort Lauderdale
Mar-2002 Welcomes 5th Millionth customer
1999- David Neeleman startsJetBlue
Nov-2003 Adds more legroom in some rows of its
fleet
Jun-2002 Begins offering TrueBlue frequent Flyer
program
Jun-2005 JetBlue becomes first airline to take
delivery of the Embraer 190
June-2001 Takes operational Control of
JFK Terminal 6
Jun-2001- Orders 48 more A320s
July-1999 First Airline to offer Live satellite
television
Feb-2007 Introduces Customer Bill Of Rights
Jun-2005 opens training and support campus at
Orlando International Airport
Apr-1999 -Orders 75 new Airbus A320s For 4
Billion
April-2002 JetBlue announces Initial
Public offering
2003- Delta launches SONG to directly
compete with JetBlue
Oct-2001 Voted Best Domestic Airline (Condé Nast)
Oct-2003 Announces Three for two Stock split
Dec-2000 -Flies its millionth Customer
reports 100 million revenue
May-2007 Dave Barger Named President CEO
June-2001 Takes operational Control of
JFK Terminal 6
June-2004 Launches online Flight check in
SeptT-2002 Acquires LiveTV, Provider of
inflight Satellite TV
Jan-2003 Welcomes 10 Millionth customer
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Growth

• Original Team of 10 people ? over 1000 employees
  by 2001
• Predicting 5000 within 4 years
• Complete 9 trips per day in 2000 ? Increased to
  50 by 2001
• 2 planes originally ? over 10 in 2001 with orders
  for new planes to arrive every 5 weeks on average
• Predicting 20 by the end of 2003

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Discussion Question

• Why do you believe that jetBlue is expanding at
  such a rapid pace?

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Discussion Question

• What are the dangers of rapid growth for
  jetBlue?

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Discussion Question

• What are the dangers of not growing fast enough
  for jetBlue?

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What does it take to be a successful entrepreneur?
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Who is David Neeleman?

• PERSONAL
• School Dropout
• PROFESSIONAL
• Morris Air
• SWA
• Open Skies
• West Jet Airlines
• jetBlue
• MARKETING
• Word of Mouth
• Catch Bill Boards
• TV Sets
• Leather Seats
• Leg Room
• PEOPLE
• TARGET MARKET

• LAYOFF POLICY
• COMPETITION
• FUEL COST
• EQUIPMENT
• A320
• Embraer
• OUTSOURCING
• Equipment
• Labor
• HOME SOURCING
• Uncertainty
• Reducing Costs
• Quantifying Quality Time
• FURRY SLIPPERS
• 14 Rules

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Video Clip Jet Blue Video- Marketing Campaign
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What makes jetBlue different?

• Airbus320
• Leg room 1-11 (36) competition (32)
• 12-25 (34)
• 150 seats (3x3)
• 2700 nautical miles
• 36 channel Direct TV
• 100 channel XM radio
• Expect 202 by 2012
• Removed 6 seats-cost saving
• 30 mil over 5 years
• Reduced crew member
• Reduced weight-low fuel

• Embraer190
• No middle seat
• Leg room 1-11 (32)
• 12 (34)
• 13-25 (33)
• 100 (2x2)
• 2100 miles
• Expect 100 E190s
• 18 per year from 2006-2011

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Customer Service

• Assigned Seats
• Snacks and Drinks
• Dunkin Donuts
• Chips/cookies/Crackers
• Shut Eye Service
• Snooze Kit
• Self Service Snack
• Hot towel service
• Low fares (65 less than competition)
• TruBlue (one way points)
• 100 points I round trip
• 2 points (short trip) (JFK to Buffalo)
• 4 points (medium trip) (Roch NY to FL)
• 6 points (long trips) (JFK TO OAK)

• Award Winning Service
• Customer Bill of Rights
• Contingency Plans
• Travel Vouchers
• Direct TV
• 36 channels
• XM Radio
• 100 channels
• In-flight Movie
• More than 2 hrs flight (5 movie)
• Wireless Hotspot
• JFK and Long beach
• No coordination with other airlines
• No transfer of Passenger bags

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David Neelemans14 Rules

• Follow your passion
• Think outside the box
• Learn from the best
• Be ready to move on
• Build a better mousetrap
• Well capitalized
• Take good care of your people
• Respect your customers

• Admit your mistakes
• Dont let them slow you down
• Pay attention to details
• Control costs
• Dont let it show
• Use technology
• Attract lots of attention
• Stay true to your core values

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Fundamental Beliefs

• Belief 1
• You need to go where people want to fly

• Belief 2
• New airline should leverage technology for safety
  and efficiency and with a commitment to people.

In Total Its bring humanity back to travel
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Discussion Question

• What are jetBlues key success factors?

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Discussion Question

• What do they have to do from a management
  perpsective to execute these?

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Management Perspective to Execute Success Factors

• Bigger plane -More fuel-efficient plane
• created a real category killer with E190
• Giving their people enough upside (avoiding
  Unions)
• Balance rising salaries by bringing new people
• Use Planes better than competition (13 hours)
• More automation-pilot laptops
• Good Cost Structure for long time
• Focus of its market
• New market expansion
• Operational recovery system
• Differentiate through reliability

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Success Factors Continued

• Standardize through checklist
• Focus on its crew members
• Maintain strong culture
• Build a dedicated staff
• Utilize pilots experiences
• Use of Blue City assignment
• Good service by passionate employees
• Training- Principles of Leadership

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Who is Ann Rhoades?

• Was instrumental in Southwest Airlines HR
  practices, especially in the area of hiring
• Was responsible for firing David Neeleman from
  SWA
• Previous service industry experience with
  DoubleTree Hotels and M Bank
• Believed strongly in establishing values at the
  start
• Different from a mission statement, values form a
  basis for common decision making

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Who is Ann Rhoades?

• Likes to build the People (HR) function, but lets
  others maintain it once in place
• Resigned as Executive Vice President of People at
  Jet Blue in 2002, however remains a member of the
  Board of Directors
• Currently president of her own HR consulting
  firm, PeopleInk, Inc.

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Video Clip Jet Blue Video- Ann Rhodes- Empower
your People
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5 Values

• Safety
• Caring
• Integrity
• Fun
• Passion

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Safety

• Supports compliance with all regulations
• Sets and maintains consistent high standards
• Committed to safety first
• Ensures sense of security for co-workers and
  customers
• Never compromises safety in making business
  decisions

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Caring

• Maintains respectful relationships with each
  other and customers
• Role model at work and in community
• Embraces healthy balance between work and in
  community
• Takes responsibility for personal and company
  growth

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Integrity

• Exhibits honesty, trust and mutual respect in all
  aspects of the job
• Gives the values a heart beat
• Unwillingness to compromise the values for short
  term results
• Possesses and demonstrates broad business
  knowledge
• Committed to self-improvement

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Fun

• Exhibits a sense of humor and ability to laugh at
  self
• Adds value to customers experience through
  humor
• Demonstrates/creates enthusiasm for the job
• Converts a negative situation into a positive
  customer experience every time
• Creates a friendly environment where taking risks
  is OK

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Passion

• Celebrates diverse needs of co-workers and
  customers
• Champions team spirit
• Craves and delivers superior performance
• Shows excitement and eagerness of break down and
  eliminates barriers to service
• Colors outside the lines to solve business issues

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Video Clip Jet Blue Video- Ann Rhodes Live your
Values
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jetBlue HR Practices

• Conscious decision to avoid unions
• Keep employees happy, and unions wont be a
  problem
• Hiring new employees based on 5 values
• Targeted selection process, with values
  translated into specific behaviors
• Emphasis on new employee orientation, with talks
  from David Neeleman, Dave Barger, and Ann Rhoades

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jetBlue HR Practices

• Customized employee benefits/compensation
• Stock options for pilots, dispatchers,
  technicians
• Higher starting pay, with increases not based on
  seniority
• Flight attendant options include schedules for
  college students, job sharing, and fulltime
  workers
• Reservation agents telecommute
• Medical, 401(k), etc. for part-time as well as
  fulltime employees
• People dont complain when given a choice.

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Discussion Question

• What are the key success factors from a Human
  Resources (HR) perspective?

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Discussion Question

• Will jetBlue be an attractive employer to
  pilots?
• Why or why not?

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Video Clip Jet Blue Video- Pilot Commercial
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Pilot Employment

• Research showed that pilots were more interested
  in retirement, so stock options were introduced
  while pay is industry average
• Contracts are negotiated each time a new group of
  pilots is hired, so only a small number of
  contracts are up at any given time
• Pilots are hired not only for their skill, but
  also for their comfort level with technology and
  their culture fit

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Discussion Question

• Will jetBlue be an attractive employer to
  flight attendants?
• Why or why not?

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Flight Attendant Employment

• Different schedules based on different employee
  needs
• Higher than industry average pay
• View that some flight attendant positions are
  short-term

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Strengths and Weakness

• Resources financial, intellectual, location
• Cost advantages from proprietary know-how and/or
  location
• Creativity (ability to develop new ideas)
• Valuable intangible assets intellectual capital
• Competitive capabilities
• Effective recruitment of talented individuals

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Opportunities and Threats

• Expansion or down-sizing of competitors
• Market trends
• Economic conditions
• Expectations of stakeholders
• Technology
• Public expectations
• All other activities or inactivities by
  competitors
• Criticisms by outsiders
• All other environmental conditions

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Factors

• Extremely competitive industry
• Increase in fuel prices
• Rising maintenance cost, interest rates,
  insurance costs
• Attract and maintain qualified personnel
• Reliance on high daily aircraft utilization
• Dependence on NY metropolitan Market

• Reliance on Automated systems and technology
• Potential Unionization
• Limited number of suppliers
• Change in government regulations
• Changes due to other airline financial Conditions
• External geopolitical events and conditions

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Biggest Competitors to jetBlue

• AirTran
• Southwest
• Frontier
• Delta SONG
• Virgin America
• and 6 six biggest other airlines such as
• Uniteds TED, Continental, American etc

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vs.

• JetBlue started in 1999, barely 8 years old.
  
• Its the most Tech savvy airline. Offers
  in-flight entertainment
• Average age of its fleet is 20 months
• Use Airbus A320s which are fuel efficient
  planes.
• More automated from ticketing to flight manuals.

• Started in the 70s
• more than 30 yrs old
• Not tech savvy but focuses on customer
  satisfaction
• Average age of its fleet is 8 years
• Use Boeing 737s which burn more fuel.
• Less automated

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Discussion Question

• What makes jetBlue different from these
  competitors?
• How do they stand out?

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Entrepreneurial Strategy Matrix
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Innovation and Risk

• Matrix combines factors of both Innovation and
  Risk.
• Innovation A change in method or technology a
  positive, useful departure from previous ways of
  doing things.
• Risk The state that exists when the probability
  of success is less than 100 percent, and losses
  may occur. (Probability of major financial loss)
• Risk levels can be different for different
  entrepreneurs. Depends on entrepreneurs
  financial condition.
• Examples Procter Gambles Olestra,
  Interneuron Pharmaceuticals Redux
• What was innovative about Neelemans idea?

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What was innovative about David Neelemans
original idea?

• Just another low-cost airline?
• Rewards vouchers
• No transfers, fewer lost bags
• Union-free
• Customizable employee packages
• Purchased all aircraft
• Technology
• First paperless airline
• Computerized flight planning
• E-tickets
• Satellite T.V.
• Look at how innovation can increase risk.

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• With that in mind, where do you think JB sits on
  the matrix?
• What can we do with that knowledge?

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How is this information useful to an entrepreneur?

• Look at what box you want your business to be in.
• Ask yourself how you can get there.
• Desirable to increase innovation and decrease
  risk.
• Benefits to each cell.
• What are some ways that Neeleman decreased his
  risk?

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Decreasing Risk

• Its a really risky business to take on these
  eight-hundred pound gorillas. You have to be a
  little nuts to want to do this.
• Raising funds - 130 million
• Hiring experienced executive team

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Entrepreneurial Hazards

• Can include mortality, inadequate delegation,
  misuse of funds, and poor planning and controls.
• How did Neeleman avoid these?
• Misuse of funds?

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What is Happening at jetBlue Now?

• Dave Barger now CEO, with Russell Chew elected
  President by Board of Directors in September
• David Neeleman now Chairman of the Board
• Continuing to innovate with technology
• Cashless Cabins
• Interview Direct
• Still expanding, although at a slower pace
• Service recently added from Buffalo and White
  Plains, NY to Fort Myers, FL
• Plans to add additional service to the Caribbean
• Discontinuing service in unprofitable markets
• Nashville, TN and Columbus, OH

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What is Happening at jetBlue Now?

• Sold 3 of its Airbus A320 jets and deferred
  delivery of 16 Embraer 190 jets.
• Facing increased low-fare competition from Virgin
  America and Delta for coast-to-coast flights
• Capacity issues at JFK airport
• Surprised Wall Street analysts by doubling profit
  expectations for the 3rd quarter of 2007
• In spite of 18 increase in wages/benefits and
  17.5 increase in fuel costs
• Controlled Growth

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Discussion Question

• As a venture capitalist would you invest in
  jetBlue? Why or why not?
• In answering this question, consider the
  potential success of the jetBlue business
  strategy with respect to competitors like
  Southwest Airlines

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Video Clip Jet Blue Video- SNL Skit