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CASE STUDY
JetBlue: High-Flying Airline Melts Down in Ice Storm

Joe Brennan, Ph.D. , Ohio University
Felicia Morgan, Ph.D., University of West Florida

Introduction

On Wednesday, February 14, 2007, JetBlue Airways Corp. (NYSE:JBLU)
suffered the most severe service disruption in its seven-year history. A winter storm
snarled operations at the regional carriers JFK International Airport in New York, its
main East Coast hub, forcing the airline to cancel more than half of its flights. Ten planes
sat unable to move on icy runways in New York, trapping passengers inside for up to 10
hours. JetBlues ordeal continued for nearly a week. The airline had trouble resuming
normal operations when additional storms struck, leaving planes and crews out of
position. The carrier ultimately cancelled nearly 1,900 flights, affecting 130,000
travelers, before it was able to restore normal operations on February 20. The
unprecedented service failure would force the airline to grant $26 million in passenger
refunds and vouchers and to spend another $4 million on employee overtime and other
storm-related costs (Wong).

Although the massive Valentines Day storm affected every airline flying East
Coast routes, the news media focused their attention on JetBlues problems.
Commentators wondered if the company that had once promised to bring humanity back
to air travel had abandoned its commitment to stellar customer service and become yet
another uncaring airline. Stranded passengers wasted no time publicizing their complaints
on blogs and in the media, and skittish investors began unloading JBLU stock. This was
the worst crisis in the young companys history. JetBlues management had to act quickly
to regain customer loyalty, reverse a barrage of hostile press coverage, and reconfigure
operations to prevent a similar disaster from recurring.

Making flying happier and easier for everyone
The airline was founded in 1998 by 38-year-old David Neeleman, who saw
himself as bringing humanity back to air travel and making the experience of flying
happier and easier for everyone (Neeleman).

A former Mormon missionary, Neeleman started his first company, a travel
business, while a student at the University of Utah. He went on to establish a regional
carrier, Morris Air, and in 1992 sold it to Southwest, where he became executive vice
president. The entrepreneurial Neeleman lasted for six months at Southwest, where his
fast-paced style didnt suit the more cautious corporate culture. As one of his colleagues
there later said, He didnt understand the nuance of the organization. He needed to walk,
not run (Salter). Still in his 30s, Neeleman moved on to co-found WestJet, a Canadian
regional airline, and after making it profitable, he helped develop Open Skies, an
electronic ticketing system later acquired by Hewlett Packard.

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In 1998, Neeleman gathered a team of investors and seasoned airline industry
executives and founded New Air Corporation. The firm changed its name to JetBlue in
July 1999, when it announced that it would offer low-cost, high-quality service to and
from New York City, as New Yorks hometown airline. At that time, the CEO
promised that JetBlue would be a new kind of low fare airline, offering the types of
amenities reserved for pricier carriers, including wider seats, more legroom and storage
space, and 24 channels of inflight television. The companys press release promised
innovations like touch-screen check-in and fares 65 percent less than other airlines on
identical routes. JetBlue began flying in February 2000, offering non-stop service
between New York and Fort Lauderdale, Florida.

The traveling public responded favorably to Neelemans offer of excellent
customer service, upscale amenities and low fares. Thanks to its younger fleet and newer
staff, the firm enjoyed lower maintenance and labor costs than its old-school competitors.
It was also well-capitalized; the combination of lower costs and a strong balance sheet
helped JetBlue avoid the major losses its competitors incurred after September 11, 2001,
and positioned it to take market share away from them. Neeleman took the company
public in April 2002. By the end of 2004, JetBlue was flying high. Its revenues had
quadrupled - and the company had made a profit every year of its life thus far. It had
climbed to 11th place in revenue passenger miles generated, and had done so with fewer
planes than many of its bigger competitors (Air Transport Association). Exhibits A, B, C
and D provide data about the airlines growth and performance.

Flying high in a turbulent industry
By 2005, Neeleman was leading one of the few successful start-ups in the highly
competitive U.S. airline business. More than 100 airlines had been launched since the
industry was deregulated in 1978, but only a handful had survived the tremendous
competitive pressures in this mature industry (Salter). The events of September 11, 2001,
had a significant impact on the U.S. economy in general and on the airlines in particular.
In 2000, the industry generated total sales of $120 billion; over the next two years,
revenues plummeted to $105 billion, and it would be five years before sales recovered
(see Exhibit E). The airlines also faced strongly rising fuel prices, heavy debt loads and
increasing pension liabilities related to their aging workforces (Weber and Freed). By
September, 2005, four major carriers (United, US Airways, Delta and Northwest),
representing 40 percent of the industrys total capacity, were operating under Chapter 11
protection (Weber and Freed; Carpenter).

During this period, JetBlue had effectively established a powerful brand and
carved out a distinct and profitable position as a low-cost airline offering a high level of
service. The firm strove to provide every customer with the JetBlue Experience, which
combined value, service and style. Passengers enjoyed free co-branded amenities,
including brand name snacks, Dunkin Donuts coffee, XM satellite radio, DIRECTV
satellite television and Bliss Spa comfort kits. Passengers could watch live television,
listen to satellite radio, purchase 20
th
Century Fox inflight movies and sip wines chosen
by low fare sommelier Josh Wesson of Best Cellars, a value-oriented chain of retail
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wine shops. The JetBlue Experience also includes innovation. From its inception, all
JetBlue travel has been ticketless, all fares one-way and all seats assigned. It was the first
airline to deploy the new Embraer 190 regional jet and the first to offer free live
television; in 2002 it acquired inflight television provider Live TV LLC and began
marketing the service to other airlines.

Service excellence
JetBlue has sought to provide what it calls the best customer service in the
business, and it has won dozens of top awards for its performance
(http://www.jetblue.com/about/ourcompany/history/about_ourhistory.html). In 2007, it
was named the #3 most admired airline by Fortune and best in customer satisfaction by
Market Metrix. In 2006, it was picked as the best domestic airline by both Conde Nast
Traveler and Travel + Leisure, the best low cost/no frills airline by OAG, and the best
U.S. airline in the annual quality ranking survey conducted by the University of
Nebraska-Omaha and Wichita State University. In 2006, JetBlue enjoyed the second-
lowest rate of customer complaints among the 10 largest U.S. airlines (see Exhibit F).

Neelemans vision of a new category of airline, one that would make flying more
fun and more civilized, was as compelling for employees as it was for passengers. A
former missionary to Brazil, Neeleman had an extraordinary ability to connect with
people and to inspire them, like the pilot who told Fast Company, I would walk through
fire for him (Salter). He traveled frequently on JetBlue flights, working alongside
employees, talking with pilots in the cockpit, visiting with customers about their
experiences, and asking how the airline could better serve them. Neeleman and his
executive team placed a high value on involving employees in all aspects of the business
and cultivating a sense of team work. All employees are called crewmembers, and
supervisors attend Jet Blue University for a course in the companys principles of
leadership taught by Neeleman and Barger. Al Spain, senior vice president of operations,
said, There is no 'they' here. It's 'we' and 'us.' We succeed together or we fail together
(Salter).

Even after the ice storm, employees defended the airline. On February 19,
someone who identified him or herself as a JetBlue employee posted a response to a
blogger who had been critical of the companys handling of the situation:

Had you booked a ticket on Delta or American, your flight would
have been cancelled and you wouldn't have gotten a refund. You
would have had to fly at another time, but you wouldn't have
been compensated for your delay -- at all... in no way. In fact,
they wouldn't have apologized... at all... EVER!

What happened to all of you (including my fellow pilots and flight
attendants that were stuck right along with you and just as
miserable as you were) was awful, not cool, uncomfortable, a
huge pain in the ass and a really, really, really bad day.

That's about it though. See, when you travel it's like buying a
lottery ticket: if you get to your destination hassle free -- you win!
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If you have issues along the way... that's life! But if you get a
refund for your troubles... that's amazing!
I'm sorry you went through what you went through on Valentine's
Day, and I want you to come back to jetBlue so I can give you
the jetBlue Experience you've grown accustomed to and we do
our best to deliver every day (www.jetbluehostage.com).

Warning lights in the cockpit
In May 2004, Fast Company profiled the young CEO, praising his hands-on
approach and warning that it would be increasingly hard to maintain as JetBlue got
bigger:

Much that's distinctive about this airline--from the enthusiasm of
its employees to its relentless customer focus to its hip, slightly
countercultural image--is precisely the sort of thing you can pull
off when youre small, and that becomes far tougher the bigger
you get. Can JetBlue maintain those qualities as it morphs from
nimble startup into the bureaucracy that's required to manage a
vastly more complex operation?

It's a question that applies to many truly innovative companies
these days. Call them postmodern corporations, perhaps. If they
pull off this transition, they become big, but remain in important
ways the antithesis of bigness-think Starbucks, Dell, and
Amazon. Like JetBlue, they depend on flexibility, speed, and a
sense of intimacy with employees and customers alike. Put
another-way, the challenge JetBlue now faces is this: Is small
scalable? (Salter)

Neeleman began flying into turbulence in 2005. At the same time as Fast
Company was pondering his ability to save his company from the fate of People Express,
a similar concept which failed in the 1980s, rivals Delta and United were launching Song
and Ted, low-cost/high-frills offerings meant to directly compete with JetBlue. Labor and
maintenance expenses began to creep up as JetBlues people and planes got older; the
company experienced problems with the introduction of a brand-new aircraft type, the
Embraer 190; and on-time performance eroded. In addition, Florida and the Gulf Coast,
important markets for JetBlue, were ravaged by Hurricanes Rita, Wilma and Katrina in
the summer of 2005. The demand for air travel to the affected regions fell, petroleum
refineries were closed, and JetBlues fuel costs
soared 52 percent. At the end of 2005, the company reported its first-ever
operating loss, $20 million (JetBlue Airways Corp. Annual Report 2005).

Neeleman and Chief Operating Officer Dave Barger discussed these challenges in
the companys 2005 Annual Report and offered a plan for recovery. They planned to
grow revenues by raising average fares, using capacity more efficiently and adding
service to small and medium-sized cities where a relative lack of competition would
allow JetBlue to command a price premium. They also reiterated the airlines
commitment to reliable service, which meant operating flights even with a delay rather
than canceling the flight for the schedules convenience. To manage costs, they
promised to improve workforce productivity through better training, smarter business
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processes, and more extensive use of automation, and they said they would control the
risk of rising fuel prices through financial hedging strategies. The executive team also
refused bonuses, and Neeleman delayed the delivery of 36 new aircraft (Foust).

By the end of 2006, Neeleman and Bargers plan to grow their way out of trouble
seemed to be working. Revenues rose 39 percent in 2006, to $2.36 billion. The firm
enjoyed three successive profitable quarters, ending the year just $1 million in the red. In
January 2007, David Neeleman told investors, I'm tremendously proud of the efforts our
crewmembers have made in advancing our plan to institutionalize low-cost carrier
spending habits and improve revenue overall. Dave Barger said that the airlines
performance in 2006 positions us well for 2007, a year in which we plan to grow
capacity 11 to 14 percent, while continuing to enhance the JetBlue Experience. Investors
appeared to share managements confidence. Towards the end of 2006, analysts began to
upgrade their recommendations, and by mid-January, the stock price had soared to a new
52-week high. No one knew the turbulence that lay just ahead.

Stormy weather
On its seventh anniversary, February 11, 2007, JetBlue was operating some 500
flights a day to 50 cities in the U.S., Mexico and the Caribbean. David Neeleman had
built one of the very few successful major new airlines since the industry was deregulated
nearly 30 years before. The companys prospects seemed bright. And then, three days
later, JetBlue was hit with the worst crisis in its history.

February 14 began as a normal day at JetBlues Forest Hills, New York
headquarters, near John F. Kennedy International Airport. The company had issued a
routine news release shortly after 9 a.m., announcing that it had formed a partnership
with Cape Air to offer service to four communities on Cape Cod. The day before, a front
had moved into the New York City region from the west, dropping one-tenth of an inch
of snow. Heavy snow was in the forecast for upstate, but it appeared that the city would
be spared the brunt of the storm. At the airports weather station, the barometer started
falling at midnight. By dawn, what had been light snow in the early morning hours had
become ice pellets and light freezing rain, with temperatures hovering in the upper 20s.
No one seemed to know that by lunchtime, barometric pressure would drop nearly an
inch and a full blown noreaster would be raking the airport with winds gusting up to 40
miles per hour, coating planes and runways with ice. Early that morning, in keeping with
the airlines desire to avoid cancellations, JetBlue gate agents loaded passengers onto six
planes, in hopes that they could get out during a break in the weather. These planes
remained stuck at the gate; while over the course of the morning, four more JetBlue
aircraft arrived and remained on the tarmac, unable to reach the terminal because all gates
were occupied, and ground equipment used to tow planes was frozen in place.

As the hours crept by for the passengers and crewmembers stuck onboard the 10
airliners, JetBlues operations appeared to have become paralyzed. The problems at JFK,
its East Coast hub, rippled throughout JetBlues system. Its 800 number, staffed by home-
based workers in Utah, was overwhelmed by the crush of calls from customers seeking
information or trying to rebook delayed flights. Its New York-based 20-person crew
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services department, which handles the scheduling of crewmembers, was also
overwhelmed.

The storm showed signs of relenting by early afternoon, as freezing snow changed
into light snow, and JetBlue officials kept the loaded planes in place, apparently still
hoping to salvage some of the flights. By 3 p.m., however, theyd admitted defeat and
asked the Port Authority of New York and New Jersey for help in rescuing stranded
passengers. The last passengers entered the terminal after 7 p.m., having sat onboard for
six to 10 hours.
Television news crews were waiting for the passengers in the terminal. WABC-
TV interviewed some of the 134 passengers on Flight 751, which had been bound for
Cancun, Mexico. There was no power and it was hot. There was no air. They kept
having to open the actual plane doors so we could breathe, said one passenger.
Nobody gave us any answers. They kept telling us we know as much as you do.
And I said, I don't work here, you work here, give me answers, another passenger said.
Everybody is incredibly tired and frustrated and we didn't expect to be in New
York tonight, so it's ridiculous. Just sitting there and sitting there and them saying they
were going to pull us into the gate and they never did. There was very little food. It was
just a nightmare," a third passenger was quoted as saying (Lipoff).
JetBlues problems quickly became national headline news. Yossi Glieberman, a
41-year-old Brooklyn man who came in on a flight from Nashville that could not make it
to the gate, told Newsday that the pilots provided frequent updates and flight attendants
distributed snacks liberally, allowed passengers to recharge cell phones and let children
help push the service carts (Strickler). It could have been worse, he said of the nine-
hour ordeal. Other fliers were less complimentary. An unnamed man told ABC World
News, My vacation is canceled. No flights out. I can't go anywhere. They can't get me
out on vacation. My kids are home in four-degree weather when we're supposed to be on
a beach with 90-degree weather (Gibson). Cheryl Chesner, a bride who had to cancel her
honeymoon trip to Aruba, told the San Francisco Chronicle, It was the worst. It was
horrific (Armstrong).

One customer, a New York resident who was angry about missing a much-
anticipated Valentines Day trip home to Los Angeles with her new boyfriend, started a
blog called www.jetbluehostage.com. Using the screen name Gen Starchild, she wrote,
Nothing says I love you like being held hostage on a frozen plane with the man you
love, 99 strangers, 4 other people you happen to know, 4 screaming babies and 3
rambunctious kids running about, nothing but chips and soda for sustenance, faulty
power, unreliable direct TV and an overfilled sewage system for 11 hours.

The blog became well-known and led to an interview for Gen and her boyfriend
on CNN. JetBlues public relations department asked her to meet with David Neeleman.
She recapped the March 5 meeting on her blog:
It went a lot like this.
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Canned answer
Canned answer
Were sorry
Itll never happen again
I dont have the answer, this is who you need to talk to.
Im sorry.
Etc.

Then he hit a wall and I could actually see the change in him.
From the beginning of the meeting, he was playing these passive
aggressive youre not important games, by taking FOUR
PHONE CALLS, on his mobile at that. Not from JetBlue
employees concerned about the weather cancellations. Calls
from his wife. Calls from his neighbor. Im the queen of mind
games, you cant pull that on me.

Gen Starchild and her fellow hostages werent the only travelers
inconvenienced by the events of February 14, though they may have been the most
visible. And JetBlue wasnt the only carrier grounded by the storm. Between February
13 and 15, American cancelled 914 flights, or 13.4 percent of its schedule; United
grounded 865 flights (17.1 percent); US Airways 728 (19.6 percent); and Contintental
119 (3.7 percent). By comparison, JetBlues 634 cancelled flights represented 39.6
percent of its schedule (Carey and Pasztor).

In all, some 250 flights, nearly half of JetBlues entire schedule, were cancelled
on Valentines Day. The following days were also plagued by problems, because the ice
storm had left airplanes and crews out of position and additional winter weather created
more headaches. Internal communications and coordination between airline staff seemed
to be a problem. A woman who took a JetBlue flight from California to New York on
Feb. 17 posted this report on jetbluehostage.com: JetBlue's system was completely
overloaded. The staff at Burbank had no clue what was going on - the lack of pilots was a
total shock to them - and there were so few staff actually at JFK that no passengers could
get answers. A man with a bullhorn finally came out (because the baggage carousel board
was completely inaccurate) to tell people which flights were coming out on which
carousels.

In an effort to restore order, the airline cancelled some of its flights on February
15 and 16, but problems persisted, so managers took the unprecedented step of
precancelling 23 percent of all flights over the next two days in order to reposition
planes and allow pilots and crews to rest. Announcing the move on February 17,
spokeswoman Jenny Dervin told The New York Times: Sometime in the afternoon, it just
fell apart. The folks running the operation are just exhausted. We said, Lets stop the
madness (Bailey). We ran into an operational death spiral, Dervin told Newsweek
(Sloan). The pre-cancellations, which fell over the Presidents Day long weekend,
worked, and by Monday, February 20 JetBlue was back to normal.

JetBlue works to rebuild public trust
As the airlines executives struggled to climb out of the operational death spiral,
its public relations staff got busy trying to repair the firms damaged image. On the
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evening of February 14, JetBlue issued a public apology and announced that it would
give a full refund and a free roundtrip ticket to any passenger detained onboard for more
than three hours; it would also give refunds to any passenger whose flight was cancelled.
Over the next few days, the airline announced that it was relaxing its policies about
rebooking so that customers who were affected by the storm would not be penalized for
re-booking new flights. Throughout the ordeal, top executives practiced their
commitment to visible leadership. Dave Barger went to JFK on the 14
th
to oversee the
operational response and speak with passengers and crewmembers. David Neeleman
became the companys public face, granting dozens of media interviews, in which he
accepted responsibility, expressed remorse and pledged to prevent this kind of problem
from happening again. In a front-page New York Times story on Sunday, February 19,
Neeleman said he was humiliated and mortified and promised that JetBlue would pay
penalties to customers if they were the victims of mistakes by the airline (Bailey).

One week after the Valentines Day ice storm, the operations were finally back to
normal. Neeleman had issued a personal apology, which appeared in his blog and in full-
page ads in major newspapers (see Exhibit G). The airline also published a Customers
Bill of Rights, specifying how and when it would compensate passengers for delays and
other problems (see Exhibit H). Reactions to Neelemans apology and the Bill of Rights
were generally positive. On February 21, USA Today published an editorial calling
JetBlues service failure inexcusable but praising its response. The paper contrasted
JetBlues handling of the Valentines Day snafu to similar, smaller-scale strandings by
American and United in December and wrote that it hoped this would touch off a round
of competition over customer-service guarantees, instead of the usual cost-cutting.

The business press, however, was far less kind. In a stinging rebuke, Business
Week struck JetBlue from its list of customer service champs. The magazines March 5
cover (see Exhibit I) was headlined Our first-ever ranking of companies where the
consumer is king. Heres the magnificent 25 and one extraordinary stumble. The cover
graphic was a numbered list of the top four companies, with a squiggly blue line drawn
through JetBlues name. The editors said kicking the airline off the list was a tough
call. Despite Neelemans candid, public apologies, the road to recovery isnt paved
with TV appearances, the magazine cautioned.

What matters most is execution doing the deep, hard
organizational work to ensure the crisis never happens again.
While JetBlue recognizes that fact, it still has plenty to prove
JetBlue has piled up service accolades faster than most airlines
collect complaints plus JetBlues trumpeting of its own
customer-friendly approach, means its passengers expectations
are inevitably higher. Other airlines, after all, had long waits at
JFK but interminable delays, cancellations and service
snafus, says UNC Kenan-Flagler Business School professor
Valarie Zeithaml, can be more detrimental [to JetBlue] than to a
larger airline. It runs totally counter to who they are coming out
and saying they are and what they live (McGregor).

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Other observers raised questions about Neelemans leadership. On February 20, Larry
Kudlow, host of CNBCs Kudlow and Co., said:

The guy's a great entrepreneur. He created and built and grew
this company. OK, no question about it. But how many times in
the past do we know that entrepreneurial CEOs are not
necessarily the ones that take these companies to the next stage
where management and administration are really the keys? He
clearly struck out on management, information, communications,
where's this equipment, where were the pilots, how to get in
touch with one another, where are the flight attendants? And I
know he's made a lot of mea culpas, and I appreciate his
character in doing that, but the fact remains: Can he manage a
large airline company?

Earlier that day, the embattled CEO held a news conference at which said he had no
intention of stepping down from his post. "I'm the founder of the company, I'm the CEO,
and I think I'm uniquely qualified to deal with these issues" (Wong).

The incident also spurred calls by passenger advocates for tougher oversight by
the federal government. The Coalition for Airline Passengers' Bill of Rights, a newly
formed group, used JetBlues woes to again demand relief. The coalition was formed by
Tim and Kate Hanni, a Napa, California couple who were trapped on the ground for nine
hours in Austin, Texas by American Airlines in late December 2006. The Hannis
described their experience in a February 4 letter to the Mobile (Ala.) Press-Register (see
Exhibit J). These angry, frustrated travelers demanded that Congress pass new laws to
force airlines to refund 150 percent of the ticket price to passengers stranded more than
three hours and inform passengers about whats going on within 10 minutes of a
prolonged delay. They launched a web site, strandedpassengers.blogspot.com, and within
its first month reportedly collected 4,200 signatures on a petition (Martinez).

A similar incident in 1999, when Northwest Airlines detained passengers for
seven hours on a snow-covered runway in Detroit, had sparked calls for action by
Congress. The airline industry staved off new regulations then by promising to take care
of the problem. Now, in the wake of the Hannis experience and the JetBlue debacle, it
appeared that federal lawmakers were ready to act. Over the Presidents Day weekend,
before JetBlue issued its own Bill of Rights, U.S. Senators Barbara Boxer (D-Calif.) and
Olympia Snow (R-Maine) proposed a new law to prevent airlines from holding
passengers onboard for more than three hours and to require them to provide food, water
and clean toilets. Congressman Mike Thompson, a Democrat who represented the
Hannis district, promised to introduce a similar bill in the House. Sen. Boxer told
National Public Radio:

We have to protect the people of the United States of America.
We have to protect their families. We have to protect our
children. And now, post-9/11, its very difficult for passengers to
complain about anything because of the seriousness of what
happened on 9/11. Passengers who cause any trouble at all can
get themselves in a lot of trouble. So when youre on an aircraft,
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youre pretty much - have to comply with everything. And here
youre in a situation where youre in a lock-down, almost a
hostage situation. Its just unacceptable. This is a very simple
thing were talking about. Its common sense. The airlines, I
think, will benefit from it, and I hope we can get it done. Im not
naive about it. Every single time theres a regulation we propose,
theres an outcry. The automobile industry didnt want to do
seatbelts. They didnt want to do airbags. Now they take credit
for it. So, you know, there is a role for the government, since we
are really responsible for licensing these airlines (Block).

Aviation experts warned that the proposed new regulations could actually make things
worse for passengers by depriving the airlines of flexibility. Daryl Jenkins, a consultant
who teaches airline management, told USA Today that the proposal was totally
impractical What if a plane is ordered after three hours to go back to the terminal when
they are second in line to take off? That doesn't make sense. John Cox, a former airline
pilot, said that it would reduce the reliability of the system because airlines need to keep
flights ready to take off as soon as the weather permits. Returning them to the terminal
could increase delays (Levin).

Whats ahead for JetBlue?
Three weeks after the crisis, Neeleman was still communicating with customers
about the companys response. It appeared that some customers were confused by the
conditions for when the company would and would not offer compensation for delays.
Neeleman explained the differences between controllable and uncontrollable delays
on his blog, Davids Flight Log.

On March 8, the company announced that John Owen, executive vice president
supply chain and information technology, had resigned but would remain with the
company as a senior advisor through the end of 2008, and that Russell Chew had been
hired to serve as chief operating officer. Chew, a veteran of American Airlines and the
Federal Aviation Agency, brings a big-airline perspective to JetBlue Russ will be in
charge of making sure our operations run on time and as scheduled, so that you don't
have to rely on our Bill of Rights for compensation, Neeleman told customers. Because
let's face it getting a $25 voucher or more is nice, but it's better to arrive or depart on
time. Chew will report to Dave Barger, who would remain with the company as
President and Founding Crew Member. See Exhibit K for executive biographies.

The press continued to raise questions about JetBlues long term viability,
however. On March 12, Business Week cited unnamed industry sources as saying that,
as part of its 2006 cost cutting moves, the company had sacrificed needed upgrades to its
reservations, call center and crew scheduling systems. It also warned that the market may
be tapped out, quoting a consultant who said, there arent too many markets you can
throw 150-seat airplanes into, and raised the specter of a unionization drive among pilots
who have watched the value of their stock options fall.

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The market appeared to have lost confidence in the once high-flying company. By
March 14, JetBlues stock price had fallen to $11.75, 11 percent below its February 14
closing price of $13.23.

One month after the ice storm, JetBlues management team was still digging out.

Conclusion
JetBlue was confronted with some serious issues as it continued to try to recover
from its Valentines Day meltdown. Although operations had returned to normal, the
company had spent millions of dollars on passenger refunds and vouchers, employee
overtime, and other storm-related costs. JetBlue executives had spent countless hours
practicing visible leadership and David Neeleman, the public face of the airline, had
accepted responsibility, expressed remorse repeatedly, and promised that this type of
problem would never happen again. But, could JetBlue depend on Neeleman to lead the
company out of trouble? Did the executives at JetBlue learn enough from their service
failure to fix what was wrong and prevent it from happening again? If not, what further
action should be taken? What, if any, strategic and operational changes should be made to
ensure the companys full recovery?

NOTE: This case is based entirely on published sources and has been prepared for
teaching purposes.
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SOURCES

Air Transport Association. 2004 Economic Report. www.airlines.org, accessed
March 10, 2007.

Armstrong, David. Beleaguered air passengers want new laws. San Francisco
Chronicle, Feb. 16, 2007.

Associated Press. JetBlue to have customer bill of rights. AFX.com, Feb. 20, 2007.

Bailey, Jeff. JetBlue Cancels More Flights in Storms Wake. The New York Times,
Feb. 18, 2007.

_____. Chief Mortified by JetBlue Crisis. The New York Times, Feb. 19, 2007.

Block, Melissa. Air Passengers Rights Bill Introduced in Senate. National Public
Radio, Feb. 20 , 2007.

Boessenkool, Antonie and Michael Reid. JetBlue sings the blues: Its stock is
unlikely to soar to previous levels because it no longer has a big cost advantage
over its rivals. The National Post (Canada), Feb. 27, 2007.

Carey, Susan and Andrew Pasztor. Behind Travel Mess: New Rules for Sleet. The
Wall Street Journal, March 23, 2007.

Carpenter, Dave. Leaner United might be bankruptcy model for Delta, Northwest.
Associated Press, Sept. 18, 2005.

Datamonitor. Airlines in the United States: Industry Profile. December, 2006.

Elsasser, John. True Blue: After a customer relations crisis, lessons learned at
JetBlue. The Public Relations Strategist, Summer 2007, 14-19.

Farrell, Andrew. Chew New COO at JetBlue. Forbes.com, Mar. 8, 2007.

Foust, Dean. Is JetBlue the Next People Express? Business Week, Mar. 12, 2007.

Gibson, Charles. JetBlues Airline Meltdown. ABC World News Now, Feb. 19,
2007.

Hanni, Tim and Kate. Family Endures 57-hour Journey from San Francisco to
Mobile. Mobile Press-Register, Feb. 4, 2007.

Jet Blue Airways Corporation. Corporate and financial information.
www.jetblue.com. Accessed March 10, 2007.

13

Koenig, David. Air Travel Returns Almost to Normal. The Associated Press, Feb.
15, 2007.

Levin, Alan. Bill of Rights for Fliers Questioned. USA Today, Feb. 22, 2007.

Lipoff, Phil. A Nightmare for JetBlue: Planes ran out of food and water as they sat
for over 8 hours. WABC-TV, New York, Feb. 14, 2007.

Martinez, Michael. Boxer to Introduce Airline Passengers Bill of Rights: Crusade
picks up steam after this weeks JetBlue delays. San Jose Mercury News, Feb.
15, 2007.

McCartney, Scott. Stuck on a Plane: Why nightmare delays happen. The Wall
Street Journal, Feb. 20, 2007.

McGregor, Jena. An Extraordinary Stumble at JetBlue. Business Week, Mar. 5,
2007.

Neeleman, David. Dear JetBlue Customers. Davids Log, www.jetblue.com, Feb.
22, 2007.

Salter, Chuck. And Now the Hard Part. Fast Company 82, May 2004.

Standard & Poors Net Advantage. Corporate and financial information. Proprietary
database accessed online March 10, 2007.

Schneiderman, R.M. Neelemans True-Blue Atonement? Forbes.com, Feb. 19,
2007.

Sloan, Allan and Temma Ehrenfeld. Skies Were Cloudy Before Jet Blew It.
Newsweek 149:10, Mar. 5, 2007.

Smith, Robert. JetBlue CEO Promises to Improve Cancellation Plans. National
Public Radio, February 19, 2007.

Stickler, Andrew. Stormy Weather: Waiting til they're blue;
Jet Blue passengers stranded on planes for hours amid icy snarl at JFK gates.
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USA Today. Crisis Management Says a Lot About an Airline. Feb. 21, 2007.

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March 10, 2007.
14


Weber, Harry R. and Joshua Freed. Delta, Northwest file for Chapter 11 bankruptcy
protection. Associated Press, Sept. 14, 2005.

Wong, Grace. JetBlue fiasco: $30M price tag: CEO Neeleman pledges reforms,
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Zimmerman, Martin. A contrite JetBlue offers a plan: After nearly a week of
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15

APPENDIX

Exhibit A. Jet Blue Financial Data

JetBlue Airways Corp. Nasdaq:JBLU
Source: Standard & Poor's Net Advantage Company Profiles, 3/10/07

Revenues (Million $) for Fiscal Year Ending Dec.

2006 2005 2004 2003 2002 2001
1Q 490 374.2 289 217.1 133.4 63.85
2Q 612 429.1 319.7 244.7 149.3 78.4
3Q 628 452.9 323.2 273.6 165.3 82.61
4Q 633 446 334 262.9 187.3 95.56
Year 2,363 1,701 1,266 998.4 635.2 320.4

Earnings Per Share ($) for Fiscal Year Ending Dec.

2007 2006 2005 2004 2003 2002
1Q E-0.15 -0.18 0.04 0.09 0.11 0.1
2Q E0.22 0.08 0.08 0.13 0.24 0.1
3Q E0.20 NI 0.01 0.05 0.17 0.08
4Q E0.16 0.1 -0.25 0.01 0.11 0.1
Year E0.43 NI -0.13 0.29 0.65 0.37

Income Statement (Million $).

2006 2005 2004 2003 2002 2001
Net Inc. -1 -20 47.5 104 54.9 38.5
Depr. 154 117 77.4 50.4 26.9 10.4
Int. Exp. 146 91 44.6 23.7 15.7 6.1
Eff. Tax
Rate NM NM 38% 41% 42% 8.10%
Pretax Inc. 9 -24 76.8 175 95 41.9
Oper. Inc. 281 165 190 219 132 37.2
Revs. 2,363 1,701 1,266 998 635 320

Other Financial Data (Million $).

2006 2005 2004 2003 2002 2001
Cash 10 6 410 571 247 263
Curr. Liab. 854 676 486 370 270 0
LT Debt 2,626 2,103 1,396 1,012 639 291
% Ret. on
Equity NM NM 6.7 19.1 25.6
Total Cap. 3,714 3,130 2,275 1,782 1,093 615
Total
Assets 4,843 3,892 2,799 2,186 1,379 820
16

% Net
Inc.of Revs. NM NM 3.7 10.4 8.6 12
% LT Debt
of Cap. 70.7 67.2 61.4 56.8 58.5 47.3
Curr.
Assets 927 635 515 646 283 0
Curr. Ratio 1.1 0.9 1.1 1.7 1 0
Cash Flow 153 97 125 154 75.9 32
Cap. Exp. 996 941 617 573 544 0
% Ret. on
Assets NM NM 1.9 5.8 5.3 0
Common
Equity 952 911 756 671 415 324

Data as originally reported; before results of discontinued operations and/or specific
items.
Per share data adjusted for stock dividends as of ex-dividend date.
E - Estimated. N/A - Not Available. NM - Not Meaningful. NR - Not Ranked.


Exhibit B. JetBlues Growth


Revenue
Passengers
(000s)
Revenue
Passenger
Miles
(millions)
Operating
Revenues
(million $)
Employees
(full- and
part-time)
Operating
Aircraft Destinations
2000 1,144 1,005 320.4 1,174 10 12
2001 3,117 3,282 320.4 2,361 21 18
2002 5,752 6,836 635.2 4,011 37 20
2003 9,012 11,527 998.4 5,433 53 21
2004 11,783 15,730 1,266 7,211 69 30
2005 14,729 20,200 1,701 9,021 93 33
2006 18,565 23,320 2,363 10,377 119 49

Sources: Jet Blue 10K reports, Air Transport Association of America, Standard & Poor's.
Revenue passengers represents the total number of paying passengers on all flight segments
flown.
Revenue passenger miles represents the number of miles flown by revenue passengers.
Employee count does not include LiveTV LLC employees.

17

Exhibit C. Passengers per Employee

Passenger to employee ratio
0
200
400
600
800
1000
1200
1400
1600
1800
2000
2000 2001 2002 2003 2004 2005 2006
R
e
v
e
n
u
e

P
a
s
s
e
n
g
e
r
s

Source: authors calculations

Exhibit D. Top 25 U.S. Airlines, 2003


Source: Air Transport Association of America Annual Report, 2004.



Exhibit E. Total Revenues, U.S. Airlines

Year $ billion % Growth
2000 120.0
2001 111.9 -6.8%
2002 105.0 -6.1%
2003 110.2 4.9%
2004 116.3 5.6%
2005 125.0 7.5%

Source: Datamonitor Industry Profiles, 2005, 2006
18

Exhibit F. Customer Complaint Rates For the 10 Largest U.S. Airlines (2006)

Airline Complaints per 1 million passenger emplanements
United Airlines 13.60
US Airways 13.59
American Airlines 10.87
Delta 10.35
Northwest Airlines 8.84
Continental Airlines 8.83
AirTran Airways 6.24
Alaska Airlines 5.24
JetBlue Airways 3.98
Southwest Airlines 1.82

Average of all airlines 8.67

Source: U.S. Department of Transportation Air Travel Consumer Report, Feb. 2007; Wall
Street Journal, March 27, 2007.
19

Exhibit G. David Neelemans Apology

Dear JetBlue Customers,

We are sorry and embarrassed. But most of all, we are deeply sorry.
Last week was the worst operational week in JetBlues seven year history. Many
of you were either stranded, delayed or had flights cancelled following the severe
winter ice storm in the Northeast. The storm disrupted the movement of aircraft,
and, more importantly, disrupted the movement of JetBlue's pilot and inflight
crewmembers who were depending on those planes to get them to the airports
where they were scheduled to serve you. With the busy Presidents Day
weekend upon us, rebooking opportunities were scarce and hold times at 1-800-
JETBLUE were unusually long or not even available, further hindering our
recovery efforts.

Words cannot express how truly sorry we are for the anxiety, frustration and
inconvenience that you, your family, friends and colleagues experienced. This is
especially saddening because JetBlue was founded on the promise of bringing
humanity back to air travel, and making the experience of flying happier and
easier for everyone who chooses to fly with us. We know we failed to deliver on
this promise last week.

We are committed to you, our valued customers, and are taking immediate
corrective steps to regain your confidence in us. We have begun putting a
comprehensive plan in place to provide better and more timely information to
you, more tools and resources for our crewmembers and improved procedures
for handling operational difficulties. Most importantly, we have published the
JetBlue Airways Customer Bill of Rights our official commitment to you of how
we will handle operational interruptions going forward including details of
compensation. We invite you to learn more at jetblue.com/promise.

You deserved better - a lot better - from us last week and we let you down.
Nothing is more important than regaining your trust and all of us here hope you
will give us the opportunity to once again welcome you onboard and provide you
the positive JetBlue Experience you have come to expect from us.

Sincerely,


David Neeleman
Founder and CEO

20

Exhibit H. JetBlue Customer Bill of Rights


21

Exhibit I. Cover of BusinessWeek, March 5, 2005



Exhibit J. Letter to Mobile Press-Register by Kate and Tim Hanni

Traveling with our two sons, we were trying to make it from Napa
Valley, Calif., to Mobile for a business trip coupled with a family
vacation. But after being diverted to Austin, Texas, because of
heavy storms in Dallas (where we had our connecting flight), we
waited on the plane for nearly nine hours on the tarmac in
Austin. At first, we hoped that we could get to Dallas. Eventually,
we wished we simply would be cleared to go to an open gate.
The only food on the plane was a few snack bags of pretzels.
Gradually, cell phones and music players slowly went dead. The
air became stale and later polluted when the toilets overflowed.
When we finally got off the plane in Austin after 9 p.m. that day,
we had hardly eaten a bite since we'd left home at 3 a.m.
Everyone was famished. But as we stepped into the terminal, the
last of the restaurants were rolling down their metal security
cages and refused to serve us food. Then, after waiting another
frustrating two hours to find out that our luggage would not be
unloaded, the line for a measly $10 discount on a hotel room
was impossibly long and all of the hotel shuttle services were
done for the night. We gave up and checked into a cheap hotel,
ending a 22-hour day of travel. We slept for only four hours so
that we could be back at the airport at 6 a.m. We boarded a flight
for Dallas 21/2 hours later. But when we reached Dallas, we
were told by one gate assistant that we wouldn't be able to get
on the next flight to Mobile "unless you're the Queen of
22

England." Four and a half hours later, we check into another
airport hotel - still without toiletries and clean clothes. We had left
Napa Valley at dawn on Friday, Dec. 29. We did not make it to
Mobile until Sunday afternoon, Dec. 31 - 21/2 days late, angry,
frustrated, exhausted and grimy.

Source: Mobile Press-Register, Feb. 4, 2007.


Exhibit K. Executive Biographies

David Neeleman, Chief Executive Officer and Director
David Neeleman is our Chief Executive Officer and a member of our board of directors.
He has served in both capacities since August 1998. Mr. Neeleman was a co-founder of
WestJet and from 1996 to 1999 served as a member of WestJet's board of directors.
From October 1995 to October 1998, Mr. Neeleman served as the Chief Executive
Officer and a member of the board of directors of Open Skies, a company that develops
and implements airline reservation systems and which was acquired by the Hewlett
Packard Company. From 1988 to 1994, Mr. Neeleman served as President and was a
member of the board of directors of Morris Air Corporation, a low-fare airline that was
acquired by Southwest Airlines. For a brief period, in connection with the acquisition, he
served on the Executive Planning Committee at Southwest Airlines. From 1984 to 1988,
Mr. Neeleman was an Executive Vice President of Morris Air. Mr. Neeleman attended the
University of Utah.

David Barger, President, Chief Operating Officer and Director
David Barger joined our board of directors in September 2001. Mr. Barger is our
President and Chief Operating Officer and has served in this capacity since August 1998.
From 1992 to 1998, Mr. Barger served in various management positions with Continental
Airlines, including Vice President, Newark hub. He held various director level positions at
Continental Airlines from 1988 to 1995. From 1982 to 1988, Mr. Barger served in various
positions with New York Air, including Director of Stations. Mr. Barger attended the
University of Michigan.

Thomas Kelly, Executive Vice President and Secretary
Thomas Kelly, age 50, is our Executive Vice President and Secretary and has served in
this capacity since August 1998. From August 1998 until February 2003, he was also our
General Counsel. From December 1995 to October 1998, Mr. Kelly served as the
Executive Vice President, General Counsel and a member of the board of directors of
Open Skies. From 1990 to 1994, Mr. Kelly served as the Executive Vice President and
General Counsel of Morris Air Corporation and served as a member of the board of
directors of Morris Air from 1991 to 1993. Mr. Kelly received his Bachelor of Arts degree
in University Studies from Brigham Young University and a Juris Doctorate degree from
Harvard Law School.

John Owen, Executive Vice President Supply Chain & Information Technology
John Owen is our Executive Vice President Supply Chain & Information Technology
and has served in this capacity since January 1999. From August 1998 to December
1998, Mr. Owen served as the Vice President for Operations Planning and Analysis for
Southwest Airlines. From October 1984 to August 1998, Mr. Owen served as the
Treasurer for Southwest Airlines. Mr. Owen received his Bachelor of Arts degree in
Economics from Southern Methodist University and a Master of Business Administration
degree from the Wharton School at the University of Pennsylvania.

Source: www.jetblue.com, accessed March 19, 2007