A.B. FREEMAN SCHOOL OF BUSINESS CASE STUDY

TC-610-002 Date: April 29, 2010

Raquel Hamias

JetBlue Experiences Turbulence: The Valentine’s Day Crisis “JetBlue: More Than 250 Flights in NY Cancelled Due To Ice Storm,” – Dow Jones News1 “NYC Fliers Stranded on Planes for Hours,” – Associated Press2 “10 HRS. ON JETGLUE - Fliers Get Frozen In Place On JFK Tarmac.” – New York Post3

Introduction

In February 2007, a fierce nor’easter paralyzed New York City and wrought

havoc on commercial flights. The blizzard affected the operations of all the airlines, but

JetBlue’s decisions had the most detrimental consequences. As the winter storm

subsided, JetBlue faced a flurry of bad press about the company’s inadequate response

to the storm. JetBlue had built its success on the airline’s common sense approach to

flying and its ability to deliver outstanding customer service. The airline’s goal was to

“bring humanity back to air travel.” However, the storm proved that a tightly-run and

efficient system such as JetBlue’s could break down catastrophically if any one element

went awry.

The case was prepared by Raquel Hamias under the supervision of Professor Michael Wilson and Professor James Biteman at

the A.B. Freeman School of Business, Tulane University. This case is prepared for class discussions rather than to illustrate

either effective or ineffective handling of a situation.

Copyright© 2010 by Tulane University. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system,

used in a spreadsheet, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise-

without the permission of Tulane University A.B. Freeman School of Business.

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In the few years prior to the incident, the company had the fewest cancelled

flights in the industry. This excellent record was based on the airline’s hesitation to

cancel flights and negatively affect customer satisfaction.4 On February 13 and early

February 14, 2007 the weather forecasts for Valentine’s Day predicted snow and rain,

with a limited window of ice. JetBlue pre-cancelled some flights, but left the schedule

mostly unaffected. The weather forecast was wrong; New York John F. Kennedy Airport

experienced eight hours of icing conditions. While inbound planes were landing at JFK,

outbound planes remained at their gates or on the runways unable to depart. This left

several planes taxiing or on the runway with no gates to deplane customers. In total,

four arriving flights and five departing flights had stranded customers on board for over

five hours. Out of 156 JetBlue flights scheduled to depart at JFK on February 14, 17 left

the airport.5

Although the operational disruption was complicated, the airline could solve the

problem logistically. More importantly however, the negative press coverage toward

JetBlue had the potential to destroy the brand strength the company had built over the

previous 7 years. JetBlue CEO David Neeleman needed a plan of action that would fix

the company’s short-term problems, but also regain the brand value that Neeleman and

the JetBlue employees worked so hard to achieve. David Neeleman had gained a

reputation for his hands-on in management style at JetBlue. He was now in the very

difficult position of having to decide what the company should do next to repair its

tarnished reputation.

JetBlue was founded in 1999 by David Neeleman with the intention of creating a

low-cost airline with some practical perks. By 2007, JetBlue had expanded to 50 cities

across the United States and had 8,785 full-time employees.6 With the help of a strong

leadership team and dedicated crewmembers, Neeleman realized his dream of starting

his own successful airline.

David Neeleman

Early Lessons

Everyone who knew David Neeleman from a young age thought he was

unfocused and distracted. Neeleman was born in Brazil to American parents, but his

family moved back to Salt Lake City when he was five years old. His parents and

teachers admitted that David was a bright child, but was perpetually thinking about

something other than the task at hand. In the book Flying High: How JetBlue Founder and

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CEO David Neeleman Beats the Competition, David’s father described how he acted as a

child. He said, “David hated fishing. He didn’t have the patience. He would start

fishing, and two minutes later, he was throwing rocks in the pond.”7 Nevertheless,

despite his impatience, Neeleman quickly acquired important lessons in business when

he worked at his grandfather’s convenience store. Neeleman’s grandfather emphasized

customer service, making sure that he never turned a customer away without giving

them what they were looking for. Even at age nine, Neeleman recognized the

importance of customer service and understood the value of customer loyalty.8

Although Neeleman enrolled in college, after completing his first year he

decided to become a missionary for The Church of Jesus Christ the Latter Day Saints.

The church recommended that he serve in his birth country of Brazil. There he spent

much of his time in the favelas, or slums, of Rio de Janeiro. During his time in Brazil,

Neeleman learned important lessons about his values and the prevalence of greed and

inequality in the world. During this influential time, Neeleman discovered his aptitude

for sales as he completed his missionary work.9

A Young Entrepreneur

After finishing his mission, Neeleman returned to Salt Lake City and enrolled in

the University of Utah to study accounting. True to his style of never missing an

opportunity, when Neeleman got the chance from a fellow classmate to sell time shares

in Hawaii he jumped on the opportunity. Neeleman sold several properties a day, even

while he was attending school. Neeleman became so successful selling timeshares that

he took on other properties, and eventually started packaging the rooms with flights.

Neeleman struck a relationship with the small airline carrier, The Hawaii

Express, a cost conscious but fun airline that targeted economical travelers from

California. By his junior year at the University of Utah, Neeleman had $8 million in sales

for his travel company and employed a staff of 20. When The Hawaii Express went

bankrupt, a woman named June Morris, owner of Morris Travel, invited him to work at

her agency. Neeleman signed on reluctantly and soon, the business flourished after

Neeleman struck a new deal with Hawaii Airlines. Neeleman’s high energy and

unconventional marketing strategies helped turn Morris Travel into a prominent

business. Morris Travel developed into Morris Air, and eventually flew on short routes

from Salt Lake City to Los Angeles and other nearby destinations.10

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Neeleman Ventures Out

In 1993, after rapid expansion and restructuring, Morris Air was poised to

become a public company. However, Morris Air caught the eye of Southwest Airlines. In

December 1993, Southwest purchased Morris Air for $129 Million dollars of Southwest

stock and a seat for June Morris on the Southwest board of directors. In the wake of the

sale, Neeleman’s relationship with Southwest floundered. The well-established

Southwest management hierarchy and system did not offer the right environment for

him. Neeleman felt that Southwest undervalued his ideas, which had been so valuable

in his other ventures. Founder and CEO of Southwest Herb Kelleher sensed his inability

to fit into Southwest’s culture, and fired him shortly after the Morris Air acquisition.

Bruised from the Southwest fiasco, Neeleman took on a few unsuccessful venture

capital projects, but his luck turned around when a group of executives out of Canada

who were interested in starting an airline sought him out. Neeleman’s experience and

five-year non-compete agreement with Southwest made this arrangement both exciting

and worthwhile for Neeleman. In 1996, Neeleman began to travel between Salt Lake

City and Calgary, Canada to establish WestJet, the new Canadian airline. During his

time at WestJet, Neeleman helped pioneer the first system of “ticketless travel,” that

Hewlett Packard eventually purchased for $22 million. In June of 1999, while WestJet

was preparing for an Initial Public Offering (IPO), Neeleman’s non-compete agreement

with Southwest expired. The timing was perfect for Neeleman to start up his own airline

for the first time.11

JetBlue –Success out of Thin Air

A New Beginning

When Neeleman started to make plans for his new airline, there he had to

consider several factors. On May 11, 1996, a low-cost airline called ValuJet suffered a

tragic crash that seriously hampered the opportunities available for other low-cost

airlines. This accident made many customers wary of flying on an unknown airline, and

frightened off potential investors. Neeleman realized that to make his airline succeed, he

needed a very large investment and he had to establish a strong brand identity.

After a failed attempt with Virgin Airlines to make a stylish domestic airline,

Neeleman assembled a team of highly capable and innovative professionals to start up a

new airline with its own name and style. He knew he had to do everything differently to

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succeed. This team included seasoned airline executives from across the country. Dave

Barger, a former executive at Virgin Airways became the President and Chief

Operations Officer. John Owen became the Executive Vice President and Chief Financial

Officer, and finally Ann Rhoades served as the Executive Vice President of People. With

a team in place, Neeleman began to make realistic plans for his long time dream.

This unique proposition had to start with a home. When Neeleman first sought

out a location for his new airline, he was struck by the terrible reputation of John F.

Kennedy Airport based out of Queens, NY. Though the airport was highly congested

with international overnight flights, it was the last resort airport for domestic travel out

of New York City. As a result, JFK had very little daytime traffic. Neeleman saw

opportunity there, and began to seek permission from the New York Port Authority

even before he had assembled his team. With his management team and an airport in

place, Neeleman sought out investors for his newly named airline “Taxi.” To support

the venture, Neeleman and the other key players managed to secure $130 million

dollars, the highest private financing amount ever for an airline. The investors were

excited about this new venture and impressed by Neeleman’s hand-picked team.12 As

Morgan Stanley representative, Kevin Murphy commented, “I was reminded of what

Warren Buffet says about not investing in companies, but investing in management.” 13

Getting the Details Down

With new confidence, Neeleman and his team set out to find planes. Though the

convention had been to use the popular Boeing planes, Neeleman was impressed by a

smaller company, Airbus. The Airbus A320 model competed with Boeing’s 737;

however, the Airbus was more fuel efficient and more spacious. Neeleman particularly

responded to the value proposition of Airbus’ more comfortable flight, and the lower

price per plane that the company offered.14 After he had purchased the planes,

Neeleman continued to iron out details. He and the rest of the management team hired

pilots, designed flight attendant uniforms, and installed seats on the planes. Neeleman

had notably chosen leather to upholster the seats. Although leather cost more than

upholstery, customers preferred it and flight attendants could clean it more easily than

fabric. Though many of the details were falling into place, one key feature was notably

missing – a name.

Neeleman’s investors had confidence about the management team and the

airline’s revenue prospects, but they felt the name “Taxi” would be too evocative of

negative experiences New Yorkers often felt when trying to catch a cab. Amy Curtis-

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McIntyre, Vice President of Sales and Marketing, struggled to find an appropriate name.

Several people became involved in the process, suggesting names like, “egg,” “Air Hop”

and even “Dairy Air”. After coming quite close to choosing “It,” Neeleman and Curtis-

McIntyre came back to the word blue, that Neeleman had taken notice of early on in the

naming process. The name JetBlue struck both Neeleman and Curtis-McIntyre because it

communicated a different type of flying experience. This name was what they were

looking for as a way to let customers know that the airline would offer something totally

different than ordinary air travel. 15

In order to operate with low-costs but also provide comfortable travel for

customers, JetBlue came up with creative compromises that offered real value to

customers. JetBlue used several tactics to keep costs low. These tactics included high

aircraft utilization rates, low distribution costs, high workforce productivity and high

aircraft efficiency. Neeleman realized that most customers did not enjoy low quality in-

flight meals that were expensive to airlines. Instead, he decided JetBlue would offer

tastier snacks that cost less for the airline. Entertainment was another aspect of air travel

that Neeleman recognized was sub-par. Although management knew that providing

television for every seat via LiveTV16 would be expensive, they realized that JetBlue

would need something different and exciting to stand out from its competitors (Exhibit

6). Finally, JetBlue debuted with a simple online reservation system, which made

booking easier for customers, but also less costly to the airline.17

Getting off the Ground

On February 3, 2000, JetBlue had finally managed to get the necessary approval

from the Department of Transportation, and received a Certificate of Public

Convenience and Necessity.18 The airline had official clearance to take flight. JetBlue’s

inaugural flight would be to Fort Lauderdale, FL on February 11, 2000, targeting a

typical “fun weekend” destination for New York customers. JetBlue also premiered with

flights to Buffalo, NY and quickly added additional locations, including Tampa and

Orlando, FL.19

Though JetBlue had made no plans to charter any long distance flights, an

opportunity arose when Tower Air shut down. Tower Air offered low cost flights from

New York to Los Angeles, causing price competition among the larger airlines. When

Tower Air went bankrupt, JetBlue acted on the new opening in the market, and

launched an overnight flight from New York to Ontario, California, approximately 30

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minutes from Los Angeles20. By 2002, JetBlue had expanded to 20 cities, with

unprecedented success.21

Marketing

In JetBlue’s first three years of operations, the company only spent $31.8 million

on measured media marketing, a tiny amount compared to what other airlines typically

spent in their premiere years. Neeleman’s emphasis on using the company’s website,

www.jetblue.com, contributed, in part, to low marketing costs. However, much of the

reason that media marketing costs were so low stemmed from Neeleman’s emphasis on

customer service. He realized that word-of-mouth marketing was the most powerful

way to promote his brand. Neeleman realized that with excellent customer service and

positive experiences, customers would promote JetBlue themselves.22

JetBlue’s emphasis on customer service was certainly noticeable. Ad Age

magazine noted similarities between JetBlue and Starbucks in this regard; both

companies emphasized the customer experience. JetBlue’s emphasis on customer

experience has led to customer loyalty, in addition to recognition from the Advertising

world. By focusing on smart public relations and marketing efforts, JetBlue received

Advertising Age’s “Marketer of the Year” by in 2001. VP of Sales and Marketing Amy

Curtis-McIntyre noted, "If you don't shake things up, then you really haven't done a

very good job marketing. “23

Public Relations

Though JetBlue placed high emphasis on customer loyalty, it also put significant

effort into creating innovative ads that reached customers and created response. Each

time the company expanded to a new city, targeted press releases used local-friendly

phrases to make the brand seem more approachable. These included headlines like the

following:

“JetBlue Passengers Join the Mile High (City) Club with New Nonstop Service Between

Denver and NYC” 05/17/200124

“JetBlue Launches Additional Nonstop Flight from 'The Big Apple' to 'The Big Easy':

Sale Fare From $69(a) Each Way” 01/05/200625

“JetBlue's Arrival in Rochester Marks the End of Sky-High Fares” 08/03/ 200026

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In addition to creating its own innovative press releases, much of JetBlue’s fame,

especially early on, came from other media sources that noticed the new airline. For

example, in 2001 the Fashion Institute of Technology recognized JetBlue for its

“utilitarian style” uniforms.27 Even before the airline took its first flight, they received

the equivalent of 5 million dollars in free press because of the high interest in JetBlue’s

unique style.28

Partnerships

In addition to well-placed press releases, JetBlue capitalizes on smart

partnerships with a diverse list of companies. Because of JetBlue’s popularity with

customers, many other companies spotted the benefits of associating with the brand.

Some of these companies include Travelocity29, and other popular, but seemingly

unrelated companies like Fox Media. Fox Media designated JetBlue as the “official

airline of Springfield” for the enormously popular Simpsons television franchise.30

Campaigns

When Neeleman set aside a budget to create ad campaigns, he focused on

maximizing the message while minimizing JetBlue’s advertising expenditures. JetBlue’s

advertisements were consistent with JetBlue’s innovative and customer focused

strategies. Barbara Reilly, Senior Vice President of Arnold Worldwide, JetBlue’s

advertising agency at the time, commented on a campaign the agency created for

JetBlue. She stated:

We felt that with customer advocacy and human courtesy as its foundations,

JetBlue needed a tag that focused on the people - passengers and employees - not

the airline. And 'Somebody Up There Likes You' sums up what everyone we

interviewed in our research told us: that JetBlue takes care of its customers and

sees things from their perspective.31

JetBlue’s biggest marketing strength was in the airline’s ability to point out other

airlines’ weaknesses in order to highlight its comparative strengths. The “Somebody Up

There Likes You” Campaign was one of JetBlue’s first successful print and multimedia

campaigns. JetBlue used the campaign to launch the bi-coastal flight the company was

promoting at the time. With less than a $5 million dollar budget, the company used

radio spots to playfully make fun of other airlines, and emphasized the company’s

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ability to get customers to their destinations on time and provide in-flight

entertainment32. In 2004, the company updated its advertising campaigns by creating

outdoor and television ads that incorporated the theme, “We Like You, Too.” The new

campaign highlighted many of JetBlue’s amenities and emphasized the company’s

commitment to customer service (Exhibit 4).

In 2003, JetBlue launched a series of ads in the “mockumentary” style,

showing employees making funny claims that emphasized the

convenience of flying JetBlue. Some of these ads included the following

lines:

"Sometimes people want to sit together, so I seat them next to each other,"

one ticket agent says.

"When people fly, they expect their bags to go with them," a baggage

handler points out.

"We had just taken off, and a woman asked for a soda. So I gave it to her--

with ice," a stewardess recounts.

Another stewardess shares, "I fly to California about fourteen times a

month."

"Why?" asks the mockumentarian. "Because that's where the plane goes,"

she responds. 33

These ads ended with overly dramatized music that reminded customers of

JetBlue’s relative strengths and secured the brand’s reliability. JetBlue never meant to

target all audiences with these ads. Instead, JetBlue hoped that potential customers in

the ads’ targeted markets would find the commercials funny and have positive

associations with the brand.

Customer Loyalty Program

TrueBlue, JetBlue’s customer loyalty program was an important element of the

customer experience. Established in June 2002, TrueBlue rewarded customers who flew

with JetBlue by allowing them to accumulate points for each flight, and redeem those

points for free flights. Tim Claydon, Vice President of Sales and Distribution for JetBlue

spoke about the loyalty program:

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"In our 30 months of operation, JetBlue has already attracted an incredibly

loyal customer base, and TrueBlue is our way of saying thanks to them. We

think of it as a gratitude program which recognizes and rewards customers'

business but also offers individual customers the opportunity to build a

more personal relationship with JetBlue."34

Finances

As Exhibit 3 illustrates, JetBlue’s revenues have steadily increased from 2003 –

2007. However, despite these increases, rising costs have resulted in a disappointing $18

million net income in 2007 and net losses in both 2005 and 2006. The entire airline

industry took a particularly hard hit during those years, resulting in several

bankruptcies and consolidations. JetBlue’s increase in revenue from 2006 to 2007 was

due, in part, to the airline’s emphasis on online reservations, the lowest cost reservation

method. To deemphasize telephone reservations, jetBlue levied and additional $10

charge for each reservation customers booked over the phone. JetBlue also purchased

the EMBRAER 190 planes to develop thinner markets with more cost efficient aircrafts.35

Although fuel remained the highest cost for the airline (Exhibit 9), JetBlue saved a little

over $35 million in annual fuel expenses by using effective fuel hedging purchasing

methods. As Exhibit 1 shows, since the airline’s IPO in April 2002, JetBlue’s stock

performance had for the most part declined, along with the rest of the AMEX Airline

Index.

Start-up Investment and IPO

When Neeleman was set with the task of finding investors for his startup airline,

he used his charming personality and impressive team of executives to procure $130

million in private investments. These investments gave Neeleman the ability to purchase

new planes, acquire hire an advertising agency, and assure that his airline would indeed

premiere with a strong presence. JetBlue’s initial performance was impressive. The

airline was profitable after only one year in service, and was one of only three airlines

that year to be profitable at all. The company turned $320 million in revenues into $38.5

million in profits, roughly a 12 percent margin. In 2002, sales increased to $635 million

with a profit of $49 million.36 That year, JetBlue issued an Initial Public Offering. By

going public, the company was able to raise enough revenue to purchase additional

planes from Airbus and therefore, expand at a more rapid rate. JetBlue’s IPO was

extraordinary, given the dangerous state of the airline industry in the months after the

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World Trade Center attack on September 11, 2001. With lead underwriters Merrill Lynch

and Morgan Stanley, the stock premiered at $27 per share, an adjustment from the

original estimate of $22-24. By the end of the day, buyers had purchased 5.87 million

shares and the stock price rose 67% to closing price of $45.37

Low-Cost Structure

When Neeleman created a low-cost airline, he understood that keeping costs low

meant creating a unified structure that would work to maintain profitability on all

fronts. The low-cost structure included four major components:

High Aircraft Utilization: By creating an efficient schedule, JetBlue was

able to spread fixed costs over more miles in the air, therefore achieving

lower overall costs. The company maintained the highest aircraft

operation time per day of all airlines. Additionally, JetBlue had arranged

airport operations to follow its highly productive schedule.

Low Distribution Costs: To maintain low distribution costs, JetBlue

premiered with paperless travel, meaning the company had no paper or

postage costs. JetBlue customers purchased a high percentage of their

tickets on www.jetblue.com, which is the method of purchase with the

lowest cost to the airline. JetBlue encouraged online purchases by offering

lower fares on the website.

Productive Workforce: JetBlue established a unique staffing system that

utilized part-time employees, often allowing employees to fly for the day

and end up in their home locations at night. JetBlue does not schedule

flights to land after 2 am. Additionally, ticketing agents who operate

phones work from home, giving JetBlue employees more flexible work

hours.

New and Efficient Aircrafts: When Neeleman set out to purchase planes, he

was particularly interested in the less popular French Airbus company

because its planes were both more fuel efficient and allowed for more

comfortable travel. JetBlue’s planes are typically less than one year old,

and therefore, more efficient and more technologically advanced that

many competitors’. Even after JetBlue expanded to operating the slightly

smaller aircraft, the EMBRAER 190, the company maintained that it

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would operate only two types of aircrafts to allow operations and

maintenance to be as efficient as possible.38

Airline Industry

The airline industry has always been a highly competitive, challenging industry.

Airlines competed in several business areas, including price, customer service, route

availability, reputation, and more recently in-flight entertainment. Several external

factors affect the success of all competitors in the industry, and all competitors have

great difficulty retaining profit margins.

Fuel prices pose a major threat to all airlines. Companies will negotiate fuel

contracts that fix fuel prices for several years. When the contract runs out, most

companies are forced to accept large increases in their expenses and therefore suffer

large decreases in profitability. The domestic airline industry is also particularly

vulnerable to dips in the overall economy: when consumers’ discretionary income

decreases, they are less likely to take vacations, particularly trips that involve flying.

Additionally, the government regulates the industry tightly and airlines are susceptible

to regulatory changes that can directly affect their strategies.

High consumer power creates more pressure for lower average fares, putting

further constraints on the airline industry. Price competition for airlines in some markets

can become so intense that margins may become insignificant and sometimes

nonexistent. The concept of the “low-cost carrier” certainly grew in popularity since the

glamour of the airline industry diminished. While Southwest remained one of the only

functional and sustained low-cost national carriers since the 1970s, the barriers for other

low cost carriers decreased and the demand for these carriers grew.

Southwest Airlines

In 1971, Southwest began service in Texas from its hub, Dallas, to San Antonio

and Houston. The company premiered with three Boeing 737 planes. In 2007, the airline

had over 500 planes and flew to 68 cities in the United States. Southwest embarked on

over 3,100 flights a day, making the airline the largest U.S. domestic carrier. Southwest

managed to remain a highly successful low-cost carrier by simultaneously emphasizing

excellent customer service and a “no frills” attitude. As stated on the Southwest website,

“If you get your passengers to their destinations when they want to get there, on time, at

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the lowest possible fares, and make darn sure they have a good time doing it, people

will fly your airline.” 39

Herb Kelleher, founder and former CEO of Southwest Airlines was legendary in

the airline industry and American business. Even before the company’s first flight on

June 18, 1971, Kelleher had thoroughly engrained customer service into the company

culture. Kelleher instituted a no-nonsense approach to operations that had remained

effective throughout Southwest’s history. Between 2003 and 2007, Southwest increased

profitability, increasing net income from $372 million to $675 million (Exhibit 7). Despite

a decrease in revenue growth from 2006 to 2007, Southwest avoided an enormous fuel

price hike in 2007 with a successful fuel hedge that allowed it to continue to purchase

fuel at $51/barrel.40 A highly efficient point-to-point strategy allowed Southwest to

successfully pinpoint potentially profitable markets, thus sustaining gradual growth

over time. Kelleher’s strategy delineated routes including stops in several cities that

allowed the airline to serve both small and large markets. The airline’s focused strategy

and emphasis on customer service made Southwest profitable in one of the most

competitive industries.41

AirTran

The original AirTran Airways began in 1994, operating out of Orlando, FL.

However, in 2007, AirTran Airlines, a part of AirTran Holdings, is an amalgamation of

several airlines, including the former ValuJet Airlines. ValuJet had significant success as

a low-cost airline, but because of several safety issues and a tragic plane crash, AirTran

Holdings acquired ValuJet in 1997 and began operating as AirTran. As a result of the

merger, AirTran relocated its hub to the Hartsfield -Jackson Atlanta Airport, but

retained its headquarters in Orlando. In 1999, Joe Leonard of Eastern Airlines and Bob

Fornaro of US Airways took over as AirTran Chairman and CEO, and President and

COO, respectively.

While Leonard concentrated on improving operating efficiencies, Fornaro

focused on building a strong route network. In 2007, AirTran operated over 700 flights a

day to 56 destinations and employed 9,000 “crewmembers.” The airline focused on

business travelers, providing assigned seating and low fares to last-minute travelers.

AirTran was the second largest carrier in the Hartsfield-Jackson Atlanta Airport, which

was the world’s busiest airport by passenger volume (www.airtran.com).Though

AirTran was significantly smaller than both Southwest and JetBlue, it had grown

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significantly from 2004 to 2007 (Exhibit 8). Net Income had increased from roughly $9

million to over $52 million during that period, despite rising costs in fuel.42

Bumps in the Road

On September 21, 2005, JetBlue Flight 292 became the airline’s first major test of

the public’s trust in the brand. Flight 292 was scheduled to fly out of Burbank, CA and

land in New York JFK Airport later that day. However, a mechanical problem caused

the front landing wheel of the plane to be stuck at a 90 degree rotation from its normal

position. The plane spent three hours in the air burning off fuel while passengers

watched coverage of the event from their in-flight cable TVs. The plane made an

emergency landing at LAX Airport without any reported injuries for the 140 passengers

and six crewmembers. Despite the mechanical failure, the plane landed safely, but not

without some major sparks and damage to the front wheel (Exhibit 5). Soon after the

landing gear failure, David Barger, President and COO, commented on the fragility of

the JetBlue brand at a Wharton School of Business lecture. He stated, “We have worked

so hard to develop this brand, and you can almost lose it in a minute.”43

JetBlue released a statement the evening of September 21 explaining the incident

in detail, and also stating that “JetBlue is working with the Federal Aviation

Administration, the National Transportation Safety Board and the aircraft manufacturer,

Airbus, in the investigation of this incident.”44 The airline also provided “immediate

travel accommodations” and “other assistance” for those customers affected by the

incident. On September 22, David Neeleman released a statement to address the

customers of JetBlue and the passengers of Flight 292. He extended his gratitude to the

crewmembers and pilots of the flight as well as the customers and business partners

who had acknowledged the crewmembers’ courage and skill. In this statement,

Neeleman also emphasized JetBlue’s continued support for the passengers aboard the

flight. Exhibit 10 includes the full text of the press release.

Conclusion

The incident of Flight 292 was merely a hiccup compared to the public relations

nightmare the Valentine’s Day incident had caused. In addition to the incessant

coverage of the incident by the press, many of the passengers had taken the coverage of

the brand into their own hands. Exhibit 11 provides an example of one MySpace page

titled, “JetBlue Hostage.” This woman’s page as well as many other pages on social

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media sites such as MySpace, Facebook and YouTube proved that customers were not

going to let this incident go unnoticed.

Neeleman and the rest of JetBlue’s leadership had to find a way to address the

many customers who were affected by the storm, as well as the airline’s existing and

potential customers who were assessing the airline’s claim that it provided superior

customer service. JetBlue’s unconventional history and successful marketing strategies

in the past meant that the company’s response had to be equally innovative and

effective. The reputation and future of the company was riding on Neeleman’s decision.

He wondered, how was the company going to respond to the press? How could JetBlue

ameliorate the problems the Valentine’s Day incident caused the passengers aboard the

planes? How could the company regain the trust of the public and rebuild its

reputation?

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Exhibits

Exhibit 1

JetBlue Stock Performance from 2003 to 2008

12/31/03 12/31/04 12/31/05 12/31/06 12/31/07 12/31/08

JetBlue Airways Corporation $ 100 $ 88 $ 87 $ 80 $ 33 $ 38 S&P 500 Stock Index 100 109 112 128 132 81 AMEX Airline Index(1) 100 98 89 95 56 40

(1) As of December 31, 2008, the AMEX Airline Index consisted of Alaska Air Group Inc., AMR Corporation, Continental Airlines Inc., Delta Air Lines, Inc., Gol Linhas Aereas Inteligentes, JetBlue Airways Corporation, US Airways Group Inc., Lan Airlines SA, SkyWest Inc., Southwest Airlines Co., Ryanair Holdings plc., Tam S.A., and UAL Corporation. 45

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Exhibit 2

JetBlue’s Income Statement 2003 - 2007

Provided by JetBlue 2007 Annual Report46

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Exhibit 3 Cost per Available Seat Mile, In Cents. U.S. Major Carriers Comparison, 200247

US Airways 11.0¢ United 10.4¢ American 9.2¢ Delta 8.4¢ Northwest 8.2¢ Continental 7.9¢ Southwest 6.3¢ JetBlue 5.3¢

Source: Reference List, “The Airline’s New Deal

0 1 2 3 4 5 6 7 8 9 10 11 12

AIRLINES

Cost per seat/mile in Cents

COST PER SEAT MILE OF US AIRLINES

Southwest

Continental

Northwest

Delta

American

United

US Airways

JetBlue

19

Exhibit 4

Ads from JetBlue’s Print Ad Campaign, “We Like You, Too” 3 Ads from JetBlue’s AdStream on Flickr48

20

Exhibit 5

Picture from JetBlue Flight 292 Landing49

Exhibit 6

Photo of LiveTV Television provided at each seat on JetBlue50

21

Exhibit 7

Southwest Performance from 2003 - 2007

Charts collected from Southwest’s 2007 Annual Report for Investors, page 151

Exhibit 8

AirTran Financial Data 2003 -2007

Collected from AirTran’s 2007 Annual Report for Investors, Page 2452

Exhibit 9

JetBlue Fuel Cost 2005 – 2007

Collected from JetBlue’s 2007 Annual Report, page p. 2153

22

Exhibit 10

JetBlue Press Release, September 22, 2005 Statement by JetBlue CEO David Neeleman Regarding Flight 292

NEW YORK, Sept. 22, 2005 (PRIMEZONE) -- JetBlue Airways' Chief Executive Officer David Neeleman today issued the following statement regarding the emergency landing of Flight 292 in Los Angeles yesterday:

"On behalf of JetBlue's 9,000 crewmembers, I would like to express my personal admiration and deep appreciation to the pilots and flight attendants of Flight 292 for their professionalism and skill in handling yesterday's incident. "I would also like to thank the thousands of customers and business partners who took the time to acknowledge the crew for taking care of our customers on board the flight and for what many have described as a perfectly executed emergency landing. "We continue to offer support to customers from Flight 292, including securing travel arrangements and any other assistance they require. "The crew of Flight 292 has asked us to communicate their appreciation to the 140 customers on board for their cooperation, and they are also grateful for the messages of support sent to JetBlue by thousands of people. The crew looks forward to returning to their families and loved ones, and to their normal lives as quickly as possible. "I join all JetBlue crewmembers in thanking Los Angeles International Airport, the Federal Aviation Administration and local authorities for their assistance in the successful outcome of this incident."

The National Transportation Safety Board (the independent Federal agency charged by Congress to investigate civil aviation accidents or incidents in the United States) will field all further questions regarding the investigation of Flight 292. 54

23

Exhibit 11

“JetBlue Hostage” MySpace page created in February 200755

24

Endnotes 1 Dow Jones News Service (February 14 2007). JetBlue: More than 250 Flights Cancelled Due to

Ice Storm. Retrieved via Factiva 2 Associated Press (February 15 2007). NYC Fliers Stranded on Planes for Hours. Retrieved via

Factiva 3Gittens, Hasani, Jeremy Olshan & Tom Liddy (February 15 2007). 10 HOURS ON JETGLUE –

FLIERS GET FROZEN IN PLACE ON JFK TARMAC. New York Post. Retrieved via Factiva 4 U.S. Senate Committee on Transportation and Infrastructure, Subcommittee on Aviation,

testimony of David Neeleman, Chief Executive Officer, JetBlue Airways Corporation, April 20,

2007, page 3 5 U.S. Senate Committee Testimony, April 20, 2007, page 4 6 JetBlue’s 2007 Annual Report on Form 10-K, page 20

7 Wybrandt, James (2004). Flying High: how JetBlue founder and CEO David Neeleman beats the

competition. Hoboken, NJ: John Wiley and Sons, page 10 8 Flying High, 5-14 9 Flying High, 11-16 10 Flying High, 23-55 11 Flying High, 57-64 12 Peterson, Barbara S. (2004). BlueStreak: Inside JetBlue, the Upstart that Rocked the Industry.

New York: Penguin Publishing Group, pages 37-67 13 A comment by Kevin Murphy of Morgan Stanley, excerpted from Blue Streak, page 67 14 Blue Streak, 60-70 15 Blue Streak, 71-83 16 Live TV is a product that offers cable television services on airplanes. A LiveTV screen is

installed at each seat and provides live television broadcasting 17 Blue Streak, 85-89 18 Blue Streak, 96 19 Blue Streak, 126 20 Blue streak, 128 21 JetBlue’s 2002 Annual Report on 10-K, page 34

http://library.corporate-ir.net/library/13/131/131045/items/73246/2002_10K.pdf 22 Arlyn Tobias Gahilan. (2003, May). The amazing Jetblue. FSB : Fortune Small Business, 13(4), 50-

60. Retrieved April 23, 2010, from ABI/INFORM Global. 23 Beirne, Mike (2006). Strategy. Brandweek. 24 JetBlue Press Release, May 17, 2001. Retrieved from JetBlue website:

http://www.jetblue.com/about/pressroom/pressreleases/pr.asp?year=2001&news=05172001_den 25 JetBlue Press Release, January 5, 2006. Retrieved from JetBlue website:

http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-newsArticle&ID=800708&highlight= 26 JetBlue Press Release, August 3, 2000. Retrieved from JetBlue website:

http://www.jetblue.com/about/pressroom/pressreleases/pr.asp?year=2000&news=08032000_roc 27 JetBlue Press Release, March 28, 2001. Retrieved from JetBlue website:

http://www.jetblue.com/about/pressroom/pressreleases/pr.asp?year=2001&news=03282001_style 28 Flying High, 183-185 29 JetBlue,Travelocity make a marketing deal (August 2001). The Record. Retrieved via ProQuest

25

30

JetBlue Press Release, July 3, 2007. Retrieved from JetBlue website:

http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-newsArticle&ID=1022436&highlight 31

JetBlue Press Release, June 11, 2001. Retrieved from JetBlue website:

http://www.jetbluecities.com/about/pressroom/pressreleases/pr.asp?year=2001&news=06112001_l

ikesyou 32

Beirne, Mike (June 2001). Bi-Coastal Market Push has JetBlue Flying High. Brandweek. Volume

42, issue 43. 33

Champagne, Christine. Plane Funny: Paul Cappelli Pilots New JetBlue Spot. SHOOT;

10/10/2003, Vol. 44 Issue 35, p10-12,

34 JetBlue Press Release, June 18, 2002. Retrieved from JetBlue website:

http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol-newsArticle&ID=306794&highlight= 35

JetBlue’s 2007 Annual Report on 10-K, page 4 36

Triant Flouris, & Thomas Walker. (2005). Confidence In Airline Performance In Difficult Market

Conditions: An Analysis Of Jetblue's Financial Market Results. Journal of Air

Transportation, 10(1), page 39. Retrieved April 25, 2010, from ABI/INFORM Global, 37 Confidence In Airline Performance in Difficult Market Conditions, page 39 38 JetBlue’s Annual Report on 10-K, pages 28-29 39 Southwest Airlines Website, Company History, Retrieved at

http://www.southwest.com/about_swa/airborne.html 40 Southwest Airlines Co. Annual Report to Shareholders, 2007, page 6 41

Southwest Airlines Co. Annual Report to Shareholders 2007, pages 10-12 42 AirTran Holdings, Inc, Annual Report to Shareholders, 2007, page 30 43 The Steady, Strategic Ascent of JetBlue Airways (December 2005). Knowledge@Wharton 44 JetBlue Press Release, September 21, 2005. 45

JetBlue’s 2007 Annual Report on 10-K, page 34 46 JetBlue’s 2007 Annual Report on 10-K, page 35 47Tully, Shawn. 2003. "The Airlines' New Deal." Fortune 147, no. 8: 79. MAS Ultra - School

Edition, EBSCOhost (accessed January 30, 2010) 48 JetBlue Flickr Ad Stream. Retrieved at http://www.flickr.com/photos/jetblue/ 49 Photo of Flight 292 landing, Courtesy of Alison Anderson, www.alison-

anderson.com/.../securely-fastened/ 50 Photo of LiveTV television, Courtesy of prblog.typepad.com/.../02/my_favorite_jet.html 51 Charts collected from Southwest’s 2007 Annual Report for Investors, page 1 52 Charts Collected from AirTran’s 2007 Annual Report for Investors, page 24 53 Chart collected from JetBlue’s 2007 Annual Report on 10-K, page 21 54 JetBlue Press Release, September 22, 2005 55 MySpace Page titled “JetBlueHostage.” Retrieved at www.myspace.com/jetbluehostage