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JetBlue sets its sights on more Caribbean destinations
The San Juan Star / July 19, 2004

By Larry Luxner

SANTO DOMINGO — Now that JetBlue Airways qualifies as an international carrier with seven flights a day from New York JFK to Puerto Rico and three flights a day to the Dominican Republic, it's only a matter of time before the brash startup becomes what American Airlines has been for years: a household name throughout the Caribbean.

So hopes David E. Neeleman, chairman and CEO of JetBlue.

"San Juan and Aguadilla have been very profitable for us. We've gone from a couple of flights a day, all the way up to six and even seven flights a day during certain holiday times," Neeleman told The STAR. "Our costs are so low that we can charge really low fares and still make a profit."

Neeleman was interviewed aboard a recent flight from New York to Santiago, the Dominican Republic's second-largest city —but only after the CEO finished passing out Blue Chips, Animal Crackers and other snacks to surprised passengers.

But that — and picking up trash along with flight attendants and pilots after the passengers have deplaned — is all in a day's work for Neeleman, an accounting major who dropped out of the University of Utah to start his own business,

At age 44, Neeleman — the son of a Mormon missionary who was born in Brazil and now has nine children of his own — has become one of the most successful airline executives in modern U.S. history.

"I love creating a company that people love to work at," he said, explaining how he came to be the CEO of JetBlue. "I had my own airline in Salt Lake City, Morris Air. I liked Southwest, and I thought it was a great airline, so I sold Morris to Southwest and intended to go and work there. But after five months, I got fired, so I didn't have a choice and was out of the business. I had always dreamed about having an airline on the East Coast, so when my five-year noncompete contract was up, I got to work."

Neeleman knew exactly what he was up against. The history of discount airlines didn't bode well for the new JetBlue, given the rise and fall of Midway Airlines (1979-2002), People's Express (1980-86); Kiwi International (1992-99) and Valujet (1993-96). Only Southwest, which has been around for 33 years, is still flying strong and making money.

"Structurally, we're a different airline than Southwest," said Neeleman. "Southwest has been in business since 1971, and they didn't end up like Delta. The have a market cap of $14 billion. It's possible to do it, but you have to do it right. People think that you'll eventually fail in this business, but that's not true."

Starting with a pile of money also helps. JetBlue took off in February 2000 with $130 million in equity financing from five outside investors. According to Forbes magazine, Neeleman put in $5 million of his savings and still holds 8% of JetBlue's stock, recently worth $144 million.

"In order to get financing, you got to have a track record," he said. "No startup airline has ever made as much as we have. Last year, we made over $100 million."

After expanding rapidly to 246 flights a day, serving 23 destinations in 11 states and Puerto Rico, the four-year-old airline decided to go international earlier this year. Its service to the Dominican Republic commenced last month with two flights a day between JFK and Santiago, and one flight a day between JFK and Santo Domingo, the capital.

JetBlue has proven to be a hugely popular airline, thanks to its informal style, brand-new Airbus jets, comfortable leather seats and 24 channels of free cable TV available from every seat. Its flight attendants and pilots are noticeably friendly, and the airline seems to thrive on word-of-mouth and repeat business.

"We try to hire good people, train them well and pay them well," said the boss. "We know that it all starts with our people. If they're happy and satisfied with their jobs, they'll do better. We also give them great tools to work with, such as great planes and extra leg room."

So far, JetBlue seems to be doing things right, with 2003 revenues of $998 million. Profits in the first quarter of 2004 came to $15.2 million. That's down from net income of $17.4 million in the first quarter of 2003, though revenues for the quarter totaled $289 million, a 33.2% jump over the $217.1 million in sales recorded in the year-ago period.

In an attempt to boost passenger load on its Caribbean routes, JetBlue last week began offering one-way fares this fall starting as low as $69 for flights from JFK to either San Juan or Aguadilla, and fares as low as $78 each way (not including international taxes) between JFK and either Santo Domingo.

"The Caribbean is definitely where we want to expand," said JetBlue spokesman Bryan Baldwin. "A few weeks ago, David was at Merrill Lynch and presented investors a map with potential cities that JetBlue could fly to one day."

Places on that list, said Baldwin, include the Mexican resort of Cancún as well as the Bahamas, Bermuda and Jamaica.

"We unfortunately don't have a timetable for this," Baldwin told The STAR. "We're constantly getting new aircraft, though it depends on whether we add frequencies to the routes we already serve or look for new locations to place those aircraft. We can't really look that far forward because with all the market changes going on in the industry, it's really not that practical."

Neeleman said he decided to expand JetBlue to the Caribbean because of the huge numbers of Puerto Ricans and Dominicans in the New York metro area.

"We're a New York-based airline, the only one, and there's a large Puerto Rican and Dominican community in New York. We don't think you can be a New York airline and not serve Puerto Rico or the Dominican Republic," he said.

JetBlue began flying to San Juan's Luís Muñoz Marín International Airport in 2002, and now operates six flights a day between JFK and San Juan.

"Puerto Rico is a very large market, and when American Airlines bought TWA, they were serving Puerto Rico together from New York," said Neeleman. "As soon as they combined forces, there was no longer any competition. It was probably the largest market in the U.S. that didn't have competition."

In April, after careful study and analysis, JetBlue commenced service to Aguadilla.

"It's a two-hour drive from San Juan, and we knew there was a great airport there," he said. "That flight leaves JFK after midnight, gets to Aguadilla at 4:30 a.m., then leaves at 6 a.m. for the flight back to JFK. It's cheaper for us, because the plane flies all day."

As is the case with Puerto Rico, said Neeleman, between 80% and 90% of JetBlue's business to the Dominican Republic has proven to be ethnic traffic.

"Part of the problem in the D.R. is that their taxes are really high; it's like $75 of the total ticket price," he explained, adding that "flying to the Dominican Republic adds a layer of complexity" in terms of customs, immigration and other issues which 100% domestic airlines never have to deal with.

In addition, he noted that JetBlue began flying to Santiago and Santo Domingo in the midst of Dominican national elections, and only a few weeks after devastating floods killed an estimated 3,000 people along the Dominican-Haitian border.

JetBlue's entry into the Dominican market also comes at a time when the country's economy is in a slump. After growing 6-7% a year for the last decade, no GDP growth is expected here at all in 2004.

On the other hand, said Neeleman, "if the Dominican economy is not good, that doesn't necessarily mean business won't be good, because people will still want to travel. Maybe they'll spend more time there."

At present, JetBlue offers to flights a day to Santiago's new Cibao International Airport (see related story). The first leaves JFK at 6:50 a.m., arriving in Santiago at 10:25 a.m. The second flight departs JFK at 9:45 p.m., arriving in Santiago at 1:20 a.m. Return flights leave Santiago at 2:20 a.m. and 11:25 a.m., arriving in JFK at 5:55 a.m. and 3 p.m. respectively.

JetBlue's flights to Santo Domingo's José Francisco Peña Gómez International Airport depart JFK at 9:05 p.m., arriving in the capital city at 12:50 a.m. Return flights leave Santo Domingo at 1:50 a.m., arriving into JFK at 5:35 a.m.

American Airlines offers five flights a day between JFK and Santo Domingo, and four flights a day between JFK and Santiago, with round-trip tickets for future travel starting at $260.90 including taxes. Neeleman says it's likely that American will quickly try to match JetBlue's newly announced fares.

"Competition is a way of life in our business. But American's costs are not good because the 50-seat airplanes don't offer economies of scale," he said. "We utilize our planes better. American has been around for 50 years, and they have a lot of embedded costs. In this business, you have to have the best product at the best cost."

Neeleman said that in order to capture the Dominican immigrant market, JetBlue has been running print ads in both the Dominican Republic and New York, though he conceded that "it'll take a little while to get the word out."

JetBlue's current fleet consists of 58 new Airbus A320 aircraft; the airline plans to add another 11 A320s to its fleet this year. The carrier also has over 120 A320s on firm order backlog, with options for a further 50 new aircraft. JetBlue expects to take delivery of these A320s at a rate of up to 17 aircraft per year until 2012.

As if that's not enough, in May, JetBlue ordered 100 new Brazilian-built Embraer E190 jets, with options for an additional 100 planes. Embraer values the contract at $3 billion, with a potential value of $6 billion if all options are exercised.

"That'll open up places like Casa del Campo and Punta Cana," said Neeleman. "St. Thomas and St. Croix [in the Virgin Islands] are markets we could do in peak season with A320s, and off-season with an E190. All the Caribbean islands are potential markets."

Asked when such flights could begin, Neeleman said: "We don't really give timetables on such stuff, but the E190 will give us a lot more flexibility."

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