Simple David vs. Complex Goliath
Since I’m a 1K flier on United Airlines, I fly United a lot more than I do Jet Blue. I must be in the minority, because Jet Blue is thriving while much bigger and older United is trying desperately to avoid drowning. How can that be?
At a projected $1.7 billion dollars in 2005, Jet Blue is no small shakes, but it is miniscule when compared to the $16.4 billion United Airlines behemoth. But consider that over the past few years, while Jet Blue was growing in leaps and bounds without acquisition, United’s sizable debt, cost-inefficiencies, and mismanagement threw the company into bankruptcy, a fate that, according to regular newspaper headlines, periodically looms before just about every single major airline in the U.S. other than Jet Blue and Southwest Airlines.
Compare United’s sad status of multi-billion dollar annual losses with the fact that in second quarter 2005, Jet Blue achieved a 9.1% operating margin representing 18 consecutive quarters of profitability. What is remarkable is that JetBlue was profitable while growing available seat miles (the industry measure for capacity) by 33% while the other majors contracted or stood still.
Here’s the deal: while United and the other majors fly a large number of multiple types of aircraft, with multiple, complex, horrifically costly labor-management contracts and liabilities, with multiple hubs and spokes, and attempt to reach as many towns, villages and cities as possible (3,400 daily flights to 200 locations around the world)—Jet Blue focuses with a much simpler, more coherent, more limited, careful growth business model.
Simpler is better. It should be no surprise that people in the airline business have concluded that Jet Blue’s business model is the wave of the future: very selective routes with profit potential (only 33 locations served), straightforward point-to-point travel (no hub-and-spoke complexities to manage), non unionized multi-job employees, compensation built on lower wages with stock ownership, a genuinely collaborative labor-management culture, new planes only (low maintenance), one type of Airbus A320 plane only (high standardization, low maintenance, low training costs), more coast-to-coast red eyes to keep more planes in air, hands-on leadership (executives work on the planes to stay in touch), amazing productivity (all hands helping get a 50% faster turnarounds at gate, 70% of tickets through website, tech-armed agents working at home, no paper tickets, no commissions to travel agents).
And on top of everything else, Jet Blue has the reputation buzz. It’s not just the fast queues in airports (an employee told me it’s because the new technology requires only a couple strokes on the keyboard to take care of each person in line , as opposed to the endless tapping that rival agents—have you ever wondered what they’re writing?—are forced to do). It’s not just the cheerful, informal banter of the staff with passengers, or the personal service (I regularly see flight attendants help passengers put luggage up in the bins). It’s not just the 36 channel DirecTV on every leather seat. It’s not just the Conde Naste Readers’ Choice Award for Best Domestic Airline. It’s all that combined for something more intangible. As stated in the Motley Fool investment website, “By offering customers an exceptional experience, JetBlue has fostered brand loyalty in what had become a commodity industry.”
I refer back to my original question. I guess I answered it. Bigger isn’t necessarily better.
At a projected $1.7 billion dollars in 2005, Jet Blue is no small shakes, but it is miniscule when compared to the $16.4 billion United Airlines behemoth. But consider that over the past few years, while Jet Blue was growing in leaps and bounds without acquisition, United’s sizable debt, cost-inefficiencies, and mismanagement threw the company into bankruptcy, a fate that, according to regular newspaper headlines, periodically looms before just about every single major airline in the U.S. other than Jet Blue and Southwest Airlines.
Compare United’s sad status of multi-billion dollar annual losses with the fact that in second quarter 2005, Jet Blue achieved a 9.1% operating margin representing 18 consecutive quarters of profitability. What is remarkable is that JetBlue was profitable while growing available seat miles (the industry measure for capacity) by 33% while the other majors contracted or stood still.
Here’s the deal: while United and the other majors fly a large number of multiple types of aircraft, with multiple, complex, horrifically costly labor-management contracts and liabilities, with multiple hubs and spokes, and attempt to reach as many towns, villages and cities as possible (3,400 daily flights to 200 locations around the world)—Jet Blue focuses with a much simpler, more coherent, more limited, careful growth business model.
Simpler is better. It should be no surprise that people in the airline business have concluded that Jet Blue’s business model is the wave of the future: very selective routes with profit potential (only 33 locations served), straightforward point-to-point travel (no hub-and-spoke complexities to manage), non unionized multi-job employees, compensation built on lower wages with stock ownership, a genuinely collaborative labor-management culture, new planes only (low maintenance), one type of Airbus A320 plane only (high standardization, low maintenance, low training costs), more coast-to-coast red eyes to keep more planes in air, hands-on leadership (executives work on the planes to stay in touch), amazing productivity (all hands helping get a 50% faster turnarounds at gate, 70% of tickets through website, tech-armed agents working at home, no paper tickets, no commissions to travel agents).
And on top of everything else, Jet Blue has the reputation buzz. It’s not just the fast queues in airports (an employee told me it’s because the new technology requires only a couple strokes on the keyboard to take care of each person in line , as opposed to the endless tapping that rival agents—have you ever wondered what they’re writing?—are forced to do). It’s not just the cheerful, informal banter of the staff with passengers, or the personal service (I regularly see flight attendants help passengers put luggage up in the bins). It’s not just the 36 channel DirecTV on every leather seat. It’s not just the Conde Naste Readers’ Choice Award for Best Domestic Airline. It’s all that combined for something more intangible. As stated in the Motley Fool investment website, “By offering customers an exceptional experience, JetBlue has fostered brand loyalty in what had become a commodity industry.”
I refer back to my original question. I guess I answered it. Bigger isn’t necessarily better.
posted by Oren Harari at 12:00 PM
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