JetBlue Case 2: Mint in a Cocktail of Change?

By Dr. David Webb

While exhilarated by the prospect of his new role, for Robin Hayes this was not an easy time to be taking
over as CEO of JetBlue. It was November 2014 and a crucial investor day, where Hayes would present on
the progress of significant strategic changes, was just days away. While the outgoing CEO would introduce
the sessions, the spotlight was on Hayes. Today he would step through the presentation with the board
knowing there were still some concerns over the impact the new strategy would have on customers, and
even on JetBlue’s unique culture.

The strategic changes were a response to continuing concerns from shareholders regarding the firm’s
performance relative to other US low cost airlines. In September 2014 this had led to the announcement that
Dave Barger would be stepping down as CEO. An airline veteran, Barger had been with the company since
its formation in 1998. He first served as chief operating officer (COO) but following problems in the winter of
2006/7 became CEO when David Neeleman, the founder, stepped down.

Barger had been under pressure to make significant changes to the firm for some time. While its customers
loved JetBlue’s brand and service, investors increasingly questioned JetBlue’s financial performance and
strategic position. The airline had been struggling to attract customers on its US transcontinental routes. At
the same time lower cost providers such as Sprint and South West Airlines (SWA) were increasingly
challenging JetBlue on its east coast routes. With lower revenue and higher costs per mile than its peers,
some analysts felt JetBlue had become ‘stuck in the middle’. They were calling for JetBlue to make changes,
including increasing the number of seats on each flight – reducing passenger legroom – and to charge a fee
for ‘first bag’. Both were key differentiating elements of the firm’s offering. With the firm seemingly reluctant
to make changes, Barger’s leadership was questioned and the share price was depressed.

Despite the challenges from Wall Street and some operational issues, regular JetBlue customer continued to
love the airline. Its pro-customer attitude, spacious seating and fee-free fares made the airline a passenger
and media favourite. For 9 years in a row J.D. Power had consistently ranked the firm highest in customer
satisfaction among low cost carriers in North America. For staff, customer service was in the DNA of the
company: they found the egalitarian approach and freedom highly motivating.

Against this backdrop Hayes, who joined JetBlue from British Airways in 2008, knew he had to respond to
investor concerns. But he had also seen how the firm’s culture would be resistive of major change. Indeed,
even the board had been split on what was planned.

JetBlue in the 2000s

Before starting JetBlue in 2000 as a low-fare domestic carrier, David Neeleman had briefly worked at SWA,
and seen how they kept prices low. He adopted many elements of SWA’s business model: flying point-to-
point, quick turn-around, a single type of aircraft to standardise on spares, maintenance and training (Airbus
A320s rather than Boeing 737s), high plane utilisation, ticketless booking, fuel price hedging, no baggage
transfers and rigorous staff recruitment. However, he wanted JetBlue ‘to bring humanity back to air travel and
make flying more enjoyable’. Accordingly more frills were added to differentiate the firm – roomy leather
seats, seat-back TV screens and ‘all you can eat’ gourmet snacks. In addition, the company took neglected
opportunities to operate from supposedly challenging airports (e.g. JFK in New York and Long Beach in
California) and, enabled by the A320s, to offer longer routes than other low cost carriers.

As it grew JetBlue continually made changes to enhance its operating model and its customer proposition.
The firm rapidly grew its fleet of Airbus planes but from 2005, it also started buying planes from manufacturer
Embraer. This opened up new less competitive routes to smaller regional cities. However the new Embraer
planes required significant variation in training, staffing and operations. The new routes also brought a
greater proportion of business passengers with different expectations than its leisure travellers.

Despite stiff competition from both the major carriers (e.g. American and Delta) and low cost operators (e.g.
South West Airlines and AirTran) the firm grew rapidly in the early 2000s. However by 2005, in the face of
high fuel costs, the firm began to experience profitability challenges and investors wondered if JetBlue had
over-stretched itself. These questions were compounded in Feb 2007 when snowstorms threw airline
operations into chaos. Dubbed the ‘Valentines Day Weekend Meltdown’, the company was badly impacted
and is estimated to have lost $30m through the cancellation of 1,700 flights. In the aftermath and in the face
of investor concerns, JetBlue’s board replaced Neeleman with Barger as CEO.

Under Barger, although growth was slower, JetBlue continued to evolve its operations. It formed a code
sharing partnership with Lufthansa, introduced free Wi-Fi on flights and continued to expand the number of
destinations served, including international flights to the Caribbean and Central America. JetBlue continually
looked to improve its services, seeing problems as learning opportunities: for example following the
‘Valentines Day Weekend Meltdown’ it introduced a customer bill of rights. It is estimated that, on the basis
of the better experience received by customers, JetBlue continued to be able to charge a $10-15 premium on
‘leisure routes’. By 2010 and the celebration of its 10th anniversary, the firm felt the issues highlighted by the
2007 storms had been resolved. However, competitive pressures continued to grow, and the financial
concerns of investors had not gone away.

The ‘Egalitarian’ Airline

The core of JetBlue’s brand was its passenger-friendly design of the cabin, the extra frills and the approach
of staff. Customers adored the more human touches the airline provided compared to other low cost airlines:
more leg room, no extra fees, seat-back TV screens, free snacks and its ‘True Blue’ reward system that
produced free tickets relatively quickly. Customers also appreciated the egalitarian manner in which JetBlue
treated passengers. As one business customer put it: ‘with only one class there was no walk of shame to the
back of the plane [to economy]’. This egalitarian approach was also evident in JetBlue boarding passengers
by time of check-in rather than ticket category.

Successfully delivering JetBlue’s standout service was underpinned by the firm’s culture and its treatment of
staff. The firm was founded with the mission of ‘bringing humanity back to air travel’ and has 5 core values:
safety, caring, integrity, passion and fun. While any firm can adopt a set of values, JetBlue made them the
foundation of its business. As one employee stated, ‘the culture at JetBlue is like no other … they live it!
They really value their employees and their customers’. In the firm staff talk about a down-to-earth family feel
among colleagues, a dedication to diversity and the sense of loyalty and pride they have for the firm.

A sense of egalitarianism is a big part of the culture. All staff are seen as crewmembers – with executives
(‘crew-leaders’) expected to keep in close contact with customers and other crewmembers. Cabin crew are
given exceptional freedom to do their job with ‘everyone empowered to do what it takes to keep customers
happy’. Leaders, including the CEO, regularly take shifts on flights, check bags and pick rubbish. As a
crewmember comments, ‘It doesn’t matter what level you are in the company, the expectation is we all pitch
in as a team. So, everyone cleans the plane’.

This egalitarian approach extends to the firm’s mostly open plan HQ with executives being ‘more the servant
of the team rather than the boss’. The few individual offices that exist are positioned in the centre of the floor
so the team get the window seats so prized in more hierarchical companies.

The recruitment and training of 14,500 staff are fundamental to enacting JetBlue’s customer-orientated
culture. The firm receives over 100,000 applicants each year, which are screened to fill around 2,500
vacancies. The focus in selection is on ‘motivational fit’. As the VP of Talent comments: ‘you can train skills
but you can’t teach people to be passionate, sincere and … well … nice … You’ve either got it or you don’t’.

Once hired all ‘Baby Blues’ are trained at the JetBlue University campus in Orlando. This includes a day and
a half of cultural immersion sessions. Often senior executives, including the CEO, will attend, tell stories and
discuss the firm’s history and its customer service culture. Baby Blues are often surprised at the honesty and
transparency on strategy and issues that would in other airlines be confidential and carefully guarded. The
Executive will take the new recruits through the ‘Be’s’ of ‘Our Jettitude’ – the cornerstones of the JetBlue
Culture. The Be’s include: ‘Be thankful to customers’, ‘Be the answer’ and ‘Be in Blue – always’. The process
is described as ‘drinking the Blue Juice’ - a term used with pride rather than suggesting cynicism.

JetBlue’s employee costs-per-available-seat-mile (a standard industry measure) are lower than its peers – a
result of a combination of operational decisions, non-unionisation and lower wage rates. The firm tried to
ensure lower salaries were offset by higher job security, the family atmosphere and a profit sharing plan that
all ‘crewmembers’ are enrolled on. Pilots could expect faster promotion and flight attendants could earn time-
and-a-half overtime. In keeping with JetBlue’s egalitarian approach, for flight attendants there is no pay
increase by seniority and the firm accepted the resulting staff turnover. As the VP for Talent commented,
JetBlue ‘believed in taking care of people … but some jobs are short term. We have designed the flight
attendant role to be from 1 to 5 years in duration’.
The firm had been non-unionised from the start, with Neeleman believing that not having unions created a
more equal team environment. For Barger, if people felt they needed a union then the firm had failed them.
However, this was set to change with pilots planning another vote on union affiliation and other employee
groups considering it. Unionisation and incoming regulatory changes potentially meant JetBlue would no
longer benefit from the lowest salary costs in the industry.

JetBlue’s executive team (‘executive crew’) were equally immersed in the culture. Almost all joined the
company while Neeleman had been CEO – the exception being Hayes who had joined in 2008. The board
had a more mixed longevity. Four of the eleven directors, including the Chairman, had been there since
JetBlue started, while another four had joined since 2007. As such there was a strong commitment to
maintain JetBlue’s culture, although also recognition of the financial pressures. Wall Street analysts
suggested there was a resulting reluctance to change among senior ranks and that ‘management had not
historically been the most committed to capital returns’.

Mint and Other Planned Changes

Against the backdrop of shareholder and analyst pressure, at the beginning of 2014, Hayes had been
promoted to the position of President (previously Barger had been both CEO and President). In this new role,
Hayes had responsibility for both commercial and operational activities. He was also tasked with evolving ‘a
business plan that would expand margins and improve returns’ while ‘preserving JetBlue’s unique culture’.
For some time in his previous role as Chief Commercial Officer, Hayes had been an early champion of a
need to renew JetBlue.

The change that had caused most disagreement within the board was Mint, a proposed change to target the
premium air travel segment. Analysis of the relative performance of JetBlue on US transcontinental flights
(e.g. New York to Los Angeles) consistently showed that for economy passengers, the firm generated higher
revenue per flight compared to peers such as Virgin America. However, the lack of a premium class on its
flights meant that total revenue per flight was 10%+ lower and so the firm was at a ‘significant unit revenue
disadvantage’. Hayes explains that this meant the company ‘had two paths: pull down a lot of that [East to
West] flying and focus on JetBlue’s traditional Northeast to Florida and Caribbean routes, or to find a way of
winning in the transcon markets’. He goes on ‘more North South was fine but part of what a growing airline
has to do is diversify, and so we had to come up with a way to win in the premium segment’. This lead to the
creation of the Mint concept.

Mint introduced 16 fully lie-flat seats on its A321 planes - including four ‘suites’ with sliding doors. Mint
passengers also get much large flat screens, priority security screening, flight amenity kits, drinks and dinner
service and a signature mint cocktail. The airline was expecting the 16 Mint seats to more than make up for
revenue lost in removing 47 coach seats (core seats as the airline insisted on calling them). While keen to
underplay the move, it was clear that the JetBlue was expecting to expand Mint to other routes.

The move was highly controversial with some customers seeing it as a betrayal of JetBlue’s egalitarian
approach. Among ‘crewmembers’ and in the board many saw it as a step too far away from the values of the
firm, and as such a threat to its brand. Hayes and the management team had had to spend a lot of time
trying to ensure that Mint was seen as part of a wider set of changes that would benefit the existing ‘core
experience’. The design of the A321 meant JetBlue could avoid the curtaining off of a business class section
usual on many flights. It made use of this to insert a help-yourself kiosk for soft drinks and snacks that
anyone could use. Seat back screens in the rear cabin also got a size upgrade – although smaller than in
Mint.

However, alone a premium service would not address the performance concerns of shareholders. At the
investor day Hayes and his team would also update analysts on a range of other changes that they expected
to boost revenue and reduce costs. Significantly these included: fare families that introduced a first bag fee,
more core seating on the A320s (which meant a reduction in leg room although remaining just ahead of
JetBlue’s peers), and the ‘even more space’ option (for an additional fee passengers gained extra leg room
and priority boarding). Other changes included reductions and closures of routes, a slowing in delivery of
new aircraft to reduce capital commitments and a range of operational efficiency measures.

Together the changes were expected to increase annual revenues by $450m, keep rises in cost per seat-
mile below 2% p.a. and reduce year-on-year capital expenditure by around $1bn.
As well as developing and implementing the planned changes, Hayes and his team had put an enormous
effort into internal and external stakeholder management. Consequently, while the planned move had
already attracted negative headlines in the consumer press, he hoped that the package would ultimately
keep both customers and investors on board. Going forward, he knew that as CEO his big challenge would
be to maintain the firm’s brand image and culture, while gently diluting the differentiated and classy product
to gain investor support. In the meantime his task today was to get the board to sign off the material for the
investor day.


 The strategic changes were a response to continuing concerns from
shareholders regarding the firm’s performance relative to other US low
cost airlines
 investors increasingly questioned JetBlue’s financial performance and
strategic position.
 been struggling to attract customers on its US transcontinental routes
 Sprint and South West Airlines (SWA) were increasingly challenging
JetBlue on its east coast routes. With lower revenue and higher costs per
mile than its peers, some analysts felt JetBlue had become ‘stuck in the
middle’. They were calling for JetBlue to make changes, including
increasing the number of seats on each flight – reducing passenger
legroom – and to charge a fee for ‘first bag
 , regular JetBlue customer continued to love the airline.
 Its pro-customer attitude, spacious seating and fee-free fares made the
airline a passenger and media favourite
 highest in customer satisfaction among low cost carriers in North America.
For staff, customer service was in the DNA of the company: they found the
egalitarian approach and freedom highly motivating.
 firm’s culture would be resistive of major change
 He adopted many elements of SWA’s business model: flying point-to-point,
quick turn-around, a single type of aircraft to standardise on spares,
maintenance and training (Airbus A320s rather than Boeing 737s), high
plane utilisation, ticketless booking, fuel price hedging, no baggage
transfers and rigorous staff recruitment. However, he wanted JetBlue ‘to
bring humanity back to air travel and make flying more enjoyable’.
Accordingly, more frills were added to differentiate the firm – roomy
leather seats, seat-back TV screens and ‘all you can eat’ gourmet snacks. In
addition, the company took neglected opportunities to operate from
supposedly challenging airports (e.g. JFK in New York and Long Beach in
California) and, enabled by the A320s, to offer longer routes than other
low cost carriers.
 The firm rapidly grew its fleet of Airbus planes but from 2005, it also
started buying planes from manufacturer Embraer. This opened up new
less competitive routes to smaller regional cities. However, the new
Embraer planes required significant variation in training, staffing and
 operations. The new routes also brought a greater proportion of business
passengers with different expectations than its leisure travellers.
 . However, by 2005, in the face of high fuel costs, the firm began to
experience profitability challenges
 Under Barger, although growth was slower, JetBlue continued to evolve its
operations. It formed a code sharing partnership with Lufthansa,
introduced free Wi-Fi on flights and continued to expand the number of
destinations served, including international flights to the Caribbean and
Central America
 Valentine’s Day Weekend Meltdown’ it introduced a customer bill of
rights. It is estimated that, on the basis of the better experience received
by customers, JetBlue continued to be able to charge a $10-15 premium on
‘leisure routes’
 The core of JetBlue’s brand was its passenger-friendly design of the cabin,
the extra frills and the approach of staff. Customers adored the more
human touches the airline provided compared to other low cost airlines:
more leg room, no extra fees, seat-back TV screens, free snacks and its
‘True Blue’ reward system that produced free tickets relatively quickly
 appreciated the egalitarian manner in which JetBlue treated passengers
 JetBlue boarding passengers by time of check-in rather than ticket
category
 Successfully delivering JetBlue’s standout service was underpinned by the
firm’s culture and its treatment of staff
 ‘bringing humanity back to air travel’ and has 5 core values: safety, caring,
integrity, passion and fun
 In the firm staff talk about a down-to-earth family feel among colleagues, a
dedication to diversity and the sense of loyalty and pride they have for the
firm
 A sense of egalitarianism is a big part of the culture. All staff are seen as
crewmembers – with executives (‘crew-leaders’) expected to keep in close
contact with customers and other crewmembers. Cabin crew are given
exceptional freedom to do their job with ‘everyone empowered to do what
it takes to keep customers happy’
 CEO, regularly take shifts on flights, check bags and pick rubbish
 This egalitarian approach extends to the firm’s mostly open plan HQ with
executives being ‘more the servant of the team rather than the boss’. The
few individual offices that exist are positioned in the centre of the floor so
the team get the window seats so prized in more hierarchical companies
 . The focus in selection is on ‘motivational fit’.
 JetBlue University campus in Orlando
 surprised at the honesty and transparency on strategy and issues that
would in other airlines be confidential and carefully guarded
 . The Be’s include: ‘Be thankful to customers’, ‘Be the answer’ and ‘Be in
Blue – always’
 are lower than its peers – a result of a combination of operational
decisions, non-unionisation and lower wage rates. The firm tried to ensure
lower salaries were offset by higher job security, the family atmosphere
and a profit sharing plan that all ‘crewmembers’ are enrolled on. Pilots
could expect faster promotion and flight attendants could earn time-and-
a-half overtime. In keeping with JetBlue’s egalitarian approach, for flight
attendants there is no pay increase by seniority and the firm accepted the
resulting staff turnover. As the VP for Talent commented, JetBlue ‘believed
in taking care of people … but some jobs are short term. We have designed
the flight attendant role to be from 1 to 5 years in duration’.
 . Unionisation and incoming regulatory changes potentially meant JetBlue
would no longer benefit from the lowest salary costs in the induct
 As such there was a strong commitment to maintain JetBlue’s culture,
 , a proposed change to target the premium air travel segment
 ) consistently showed that for economy passengers, the firm generated
higher revenue per flight compared to peers such as Virgin America.
However, the lack of a premium class on its flights meant that total
revenue per flight was 10%+ lower and so the firm was at a ‘significant
unit revenue disadvantage’. Hayes explains that this meant the company
‘had two paths: pull down a lot of that [East to West] flying and focus on
JetBlue’s traditional Northeast to Florida and Caribbean routes, or to find a
way of winning in the transcon markets’. He goes on ‘more North South
was fine but part of what a growing airline has to do is diversify, and so we
had to come up with a way to win in the premium segment’. This lead to
the creation of the Mint concept
 16 fully lie-flat seats on its A321 planes - including four ‘suites’ with
sliding doors. Mint passengers also get much large flat screens, priority
security screening, flight amenity kits, drinks and dinner service and a
signature mint cocktail
 The move was highly controversial with some customers seeing it as a
betrayal of JetBlue’s egalitarian approach
 the A321 meant JetBlue could avoid the curtaining off of a business class
section usual on many flights. It made use of this to insert a help-yourself
kiosk for soft drinks and snacks that anyone could use. Seat back screens
in the rear cabin also got a size upgrade – although smaller than in Mint.
 Significantly these included: fare families that introduced a first bag fee,
more core seating on the A320s (which meant a reduction in leg room
although remaining just ahead of JetBlue’s peers), and the ‘even more
space’ option (for an additional fee passengers gained extra leg room and
priority boarding). Other changes included reductions and closures of
 routes, a slowing in delivery of new aircraft to reduce capital
commitments and a range of operational efficiency measures
 CEO his big challenge would be to maintain the firm’s brand image and
culture, while gently diluting the differentiated and classy product to gain
investor support