: Case 4 JetBlue: Bringing Humanity Back to Air Travel? Industry History In 1903, the Wright brothers‘ frst successful ight in Kity Haw, North Carolina, marked the begining ofthe aviation industry. Although bing airplanes for travel purposes did not become popular until ater WWI, a new industry was born. The fst alr transport company was The American Aviation Corporation, which largely transported goods and materials ll over the country. This would later grow into American Airlines and United Aires. A major factor inthe growth ofthe air transportation industry during this time was the develop- ment of a mall transport system by the U.S. Postal Service. The Kelly Airmail Act of 1925 gave private airlines the ‘opportunity to function as mail carriers through involvement ina competitive bidding system. These private cari- ‘ers, chrough the airmall revenue, could then expand into carrying other forms of cargo, including passengers. ‘With the United Seates' entry into World War I, commercial fleets and pilots were sent to Europe to partic- Ipate In the war effort, The war also helped to generate support for research and development of aircraft, which ‘extended beyond the war to commercial aviation. A major post-war development was the four-engine aircraft, such as the Lockheed Constellation. Ths innovation substantially cut the fing time for ocean and continent crossings. The 1950s sav dramatic improvements inthe capacity and comfort of commercial fights. Panes were modernized, and jet service was introduced in 1959, enabling even faster cross-country service. “Themost rapid change for the U Sairlineindustry came in 1976 when ths Civ Aeronautics Board asked Congress to dismantle the economic regulatory system and allow the airlines to operate under market forces. This changed the face of commercial aviation inthe United States. Congress passed the Airline Deregulation Actin 1978, easing the entry of new companies into the business and giving them freedom to set their own fares and fly whatever domestic routes they chose. And thus, the battle ofthe alin began. New entrants swarmed the market, ‘offering lower fares and new routes. However, in the late 1970s into the 1980s, afew major airlines dominated the US market. Continental, United, Delta PanAm, Eastern and American were household names. Smaller, low cost aines were having trouble breaking into the market, nd rarely survived. But change was onthe horizon. In 1988, events began to unfold which severely damaged the economic foundations of the industry. The Gulf War criss and economic recession in the United States eaused the airlines to lose bllons of dollars. The Industry experienced the first drop in passenger numbers in a decade; by the end ofthe three-year period of 1989-1992 ic had lost almost $10 billon. It became apparent that airlines would have to change radically to ‘ensure their survival and prosperity. With this revelation, the “lowcost carler* sector of the airline industry started to gin popularity Low-Cost Carriers A low-cost carrer, also known asa “no-fils” or dscount airline, offers low fares in ex- ‘change for eliminating many tradtional passenger services. These airnes have alower cost structure then comn- petitors. They often operate a single passenger clas (coach) and fleet, reducing taining and servicing costs and have simplified routes and turnaround times. They tend to fly to cheaper, less congested airports, and offer customers a simple fare scheme and unreserved seating. They also have labor costs that are 30% to 40% lower than mainline carriers, The main target ofthese alines are price-conscious consumers. Services such as complimentary food and beverages are traded forthe option to buy snacks and soft drinks, as well s alcohol at alow price, Although low-cost carriers are a relatively new offering in air travel, the concept was actualy formed and implemented in 1971, when Southwest Ailines launched its frst airplane, providing service between major cities in Texas. However, it would take 20 before the idea of low-cost carriers of ights all over ‘country would take root, mee erating igs ws Southwest Airlines remained relatively unchallenged in the U.S. low-cost carrier sector of air travel until the Inception of Jue i 1999. Unt then, Southwest wae going hend vo head with the maor US. ne carers The major carers tempted to end off Southwest ough alge antcompedtve blair an by creainglow-con subsdares suchas United Express, ContnenalUts,ané Data Expres wich everaly al fae. Even wth new competion, Southwest eae te most sucetl ow-cmt arine nthe Uied States and the mest coped inthe wor. The founders of Ryan Europe ad Jue nthe United Sater sz fet Tess observe how te copay ws ete, hs owe ie art i own ow-cotanesJetBlue Airways Founded in February of 1999, JetBlue Airines was the darling of former CEO David Necle- rman. JetBlue entered the airline industry with a multitude of advantages that even Southwest didnot have. The ‘company started with the largest inital capitalization of any airline, with over $160 milion dollars. Likewise, powerful New York politicians, upset with high intra-New York state fares, provided JetBlue with a remark: able 75 slots at JFK airport. The adine’s home base was JFK, and in 2001, ie began operatiohs out of California's Long Beach Airport. From the beginning JetBlue competed with major ar carriers on the East Coast (and later ‘West Coast) and was formidable. JetBlue hada very similar business model to that of Southwest, yet fleet wat newer and was outfitted with ive satelite TV at every leather seat. The company also did not have labor rela= ‘ons issues to deal with, as its workforce is non-unionized. “The months following the September 11, 2001, terrorist atacks proved to be the most profitable for the ‘company. JetBlue was one of only a few USS. airlines that made a proft during the sharp downturn in airline ‘rave following the attack. The stock price was growing and so were profits Financlal results were strong for the airline throughout the 2002-2004 years, but they would not last. In October 2005, JetBlue announced that ts quarterly profit had plunged from $8.1 milion to $2.7 milion largely due to rising fuel costs and "growing pains.” “The growth rate for the company was becoming unsustainable, yet despite this, JetBlue kept expanding, buying ‘new alrerafts and adding routes. It was this rapid grow2h that le JetBlue into one ofthe most embarrassing and unforgettable fazcos in the company’ lifetime, one that would raise questions about customers’ rights and the ‘ethical and moral bligations of companies In this Industry. Ie was known as the "Valentine's Day Nightmare.” ‘The Valentine’s Day “Customer Disaster” On February 14,2007, a severe ice-storm hit the New York area. Many airlines had cancelled fights ahead of time as a precaution for passengers ad aircrafts. One airine that did not cancel fights was JetBlue. The company thought the weather would break and it would beable to fy, keeping its revenue flowing and its customers happy. This decision was a costly error. As the storm progressed, 10 eeBlue airplanes found themselves fl of passengers and unable to take of. Planes tral became frozen to the tarmac and could not get back tothe gates. Information from ar trafic controllers was not coming in and the pilots had no in- struction Some planes sat for more than 10 hours on the runvray.Tollets onthe planes began to back up, overflow Ing into the aisles, ar ventilation was stopped, and passengers had litle to no food. Many ofthese passengers were families with young children who were on thelr way to numerous destinations forthe school vacation week. The fight crew gave no answers, and there were no buses dispatched to rescue the passengers. Frustration and anger began to mount. For some, this ordeal would end short ofthe record, held by Northwest Anes, who in 1999 held thee passengers on board for I hours. The situation inside the airport wai not much better. Hundeeds of passen- gers walted in hours-ong ines for information on ther fights. There were not enough JetBlue associates to direct and inform the mass of people, and Jetlue's 1-800 number could not handle the flood of cals. Passengers who had rot yet boarded planes were stranded, and slept in the airport. Most fights had been cancelled, It was chaes. ‘When it was all ver, JetBlue was let to deal with rae customers, overwhelmed employees, more than 1,000 cancelled fights (23% of overal fights as a result ofthe February 14 event), $30 milion in losses for refunds and travel vouchers fsued to passengers, and incremental costs such as hiring overtime crews, JetBlue also had fone very large blemish on its reputation, The company had some answering to do. It was @ corporate and public relations nightmare. “The Aftermath Then-CEO David Necleman immediatly took responsi forthe eit, apologizing ia 2 formal letter, stating that he was “humiiated and more” by the Breakdown nthe airne's operation, and thatthe company had “earned a huge lesson” and vowed todo right by the companys customers. Neelman called the fallout ofthe ce storm a “efning moment forthe airine and sad the company we implementing now polices and adding management to improve operations. One of there new policies was the “Customer Bill of Rights,” which sated that JetBlue, among other thing, vowed to reimburse passengers impacted by ground delays and to remove passengers rom planes laf on tha runway for more than 5 hotrs. The company also reviewed and published its code of ethics, Necleran stated that “This gong tobe a ferent company because of this” Yet, some customers and members ofthe public fel thi admsion and implementation of new poles ‘vas too lite, t00 ate. Some called for Neclemans resignation, but he tated he had no intention of topping town rom his pest. So, what exact led to this darter for Jets? There are many theories, but the company admited that it had made mistakes, erpeil in regards to is communications sytem, Nesloman stated that “the companys rvanagement was not strong enough to hard the faso largely duet the “shoestring convictions system {hatlet pilot and fight sendans nthe dark, and to an ndersized reseratin system” This syst became ‘overwhelmed, with customers Unable o get through to human agetsto check ona fight." Additonal, the Company admitted tat Tacked the trained staf to find al ofthe atendans and plots and tll them where to 1p JetBlue was often ceed aa favorite among passengers and had expanded rap, bute systems to del with the consequences of bad weather didnot Keep up with the growth. The company's low-cost operating structure, 2 source of great pride, ay have utinatl led otis unfortunate ever. Sine the Valine’ Day Nightmare, eB has followed though with ts promises, raning exiting corporate office employees to werk mn operational modes during an emergency. basing up the compar’ management and “forcing the Customer Bil of Rights. Ye, one yer later, question sil remain about the obligations hat ines have to thlr customers. In exirem stations, co sirines havea moral or ethical obligation t thee passengers? How cana company ike Jee bring hurnanty back to al travel,” when the bottom ne and cing costs and fares in this indity i paramour?