Jet Blue: Flying Higher?

Neeleman Leads The Way

With most of the major airlines cutting back or even going bankrupt, Jet Blue, the new guy on the block, keeps turning a profit and expanding.

Just last week, the three-year-old airline announced plans to buy billions of dollars of new airplanes so it can ratchet up the competition with the bigger companies.

The only fear on Wall Street is that Jet Blue is expanding too fast. But CEO David Neeleman doesn't think so.

Neeleman is an unlikely CEO, a restless multi-millionaire who admits that because of a learning disability, he has the attention span of a gnat and has trouble concentrating long enough to even read a book.

But Neeleman has surprisingly strong opinions about everything from airline security to airline service - and when he talks, lots of people listen.

Dan Rather updates a report on this unusual success story that was first broadcast last fall.

When's the last time you saw the head of an airline show up on one of his flights, not only to talk to his passengers, but treat them like people?

With the survival of the big airlines being severely tested on Wall Street, Jet Blue stock went on the market in April 2002. The stock soared, then dropped, but is holding its own. Now, he says, Jet Blue is making money.

Neeleman believes the airlines have to make a personal connection with their passengers - that's the only chance airlines have to survive. He does that himself by flying his airline once a week - checking in with customers and checking up on his crew.

"I hope you realize we're trying a little harder than the other lines to treat our customers well," says Neeleman to passengers on one of his flights.

Neeleman, who thinks most airlines are like freight trains or cattle cars, says he wants Jet Blue to be different.

“[We want to] set out with a mission to, to really treat customers like customers, passengers like customers," he says. "I think people see passengers as an annoyance. 'Man, if we just didn’t have these people, my job would be a lot easier.' We realize that they pay our way every day.”

The fares for Jet Blue are relatively low. But passengers get all-leather seats and live, 24-channel satellite TV. That’s been such a hit that Neeleman bought the satellite company, which means other airlines will have to buy the service from him.

On Jet Blue, the headsets are free, but forget about getting a sandwich, even on transcontinental flights. This helps keep expenses down, and so does flying just one kind of airplane -- European Airbus A-320s, which reduces scheduling and maintenance problems.

The reservations system is also very efficient. Most tickets are purchased over the Internet, and the airline offers only e-tickets.

"Being ticketless, you don't need to take anything to the airport with you," says Neeleman. "You can just show up and give them a number."

So far, Jet Blue has concentrated its service in the Northeast, the West Coast and Florida. But Neeleman’s plan, when he starts to make money on a route, is to add more flights rather than raise prices.

"We're adding about a plane a month," he says.

Right now, Jet Blue has fewer than 50 planes. By comparison, the major airlines each have hundreds of planes. And they’ve started to move some of them, and slash fares, to cities where Jet Blue is making money.

However, Jet Blue is fighting back, especially in the New York-Florida market, where not long ago there were only three flights a day. Now, it's up to 42.

Neeleman was in his 20s when he started his first, small airline, Morris Air, in the west. He sold it to Southwest Airlines, made $20 million, and tried to work for Southwest, but was too restless.

Eventually, he got fired and went on to invent an electronic ticketing system which he sold to Hewlett Packard. He now says he is worth more than $150 million.

Neeleman, who is married and has nine children, draws a modest CEO salary of $200,000 -- but he says that money is not what drives him to success.

“I always ask the question, how much is too much?” says Neeleman. “Is all that money going to go to your kids and grandkids and you’re going to create a generation of deadbeats that don’t know how to earn their own money and go to college and what it’s like to make it on their own.”

Neeleman, who was a Mormon missionary in Brazil when he was a teen, says there was a time when he doubted whether he could make it on his own because of a learning disability that took him years to come to terms with.

“I discovered when I was a young man that I had attention deficit disorder,” says Neeleman. “And, you know, it has some positive things with it, with creativity and other things. But there is this dark side is that you know you’re completely disorganized. And being able to just sit down and read a book with my kids and work with them on their homework is drudgery to me.”

He was afraid he wouldn’t be able to make a living. He worried about whether anyone would hire him, so he decided to start his own company.

Neeleman says he does his best to take care of his employees, but he doesn't have union members working for him - which helps Jet Blue keep its costs down.

Plus, everyone, even the CEO, pitches in for cleanup duty. After they land the plane, the pilots emerge from the cockpit to help pick up the trash.

Other airlines are critical of Jet Blue and view it as a cheap start-up airline.

But Neeleman says Jet Blue is different: “It’s different with Jet Blue. And people feel different. They don’t feel like they’re flying on a start-up airline."

Neeleman knows that he's in a vulnerable position because Jet Blue is a start-up airline. And he doesn’t like it when the bigger airlines go to Washington looking for bailouts and loan guarantees.

“You should let the invisible hand of the economy take its natural course. Because I think it hurts everybody when winners and losers are picked,” says Neeleman.

But because 9/11 and the war with Iraq devastated the airlines, Neeleman agrees with the move by the federal government to reimburse them for higher security costs. He says, however, that airlines need to get smarter and more realistic about security procedures.

“I think the biggest change is that we are looking for needles in a haystack. And we look in a lot of hay,” says Neeleman about changes in airport security procedures.

“The retired Queens schoolteachers, 70 years old going to Florida, let’s leave them alone. And we’re going to be much more effective identifying those people that we have a concern with.”

He's not talking about racial profiling, but he says, “We need to know who you are and we need to know where you’ve come from. And we need to be comfortable with that. And, you know, racial profiling’s a dirty word in society. But, you know, there are certain, there was a profile of those that, you know, did the horrible events of Sept. 11.”

As a security measure, Jet Blue was the first airline to install cameras in its planes so that pilots, from behind their locked titanium-bolted doors, could see what was happening in the passenger cabins.

But Neeleman disagrees with President Bush and Congressional leaders about giving pilots guns to protect themselves and their passengers.

“I know it’s an emotional issue with the public. But when you have a cockpit door thing taken care of, then there’s no need to, you don’t need to, arm pilots,” says Neeleman.

As you’ve probably gathered, Neeleman is not afraid to say what he thinks. These days, lots of people are impressed. But he knows rough landings could be coming.

For now, his employees, who get fairly generous stock options and profit sharing, seem content not to have a union. But that could change. Neeleman’s new planes will one day need more costly maintenance. And Neeleman keeps telling himself and his employees that the competition will get even more brutal.

“Jet Blue has been put together like no airline has ever been put together before. It has the most capital. It has the best product. So now the question is, can you continue it? And that’s what worries me. That’s what keeps me up at night. How can we continue what we’ve started?”