If you're like me, you dread the thought of flying these days. With major airlines cutting back on routes and service, flying has gone from bad to worse and become one of the worst experiences American consumers must endure. (To read about my experiences flying four airlines this week, click here.)
JetBlue (Nasdaq: JBLU ) is an exception, and because of this, will succeed in this otherwise dreadful industry. I don't own the stock (nor do I recommend it at today's nose-bleed levels), but I'm impressed enough with JetBlue to spend a few columns analyzing its model. All companies and investors can learn from what JetBlue is doing.
Key to JetBlue's model are low prices made possible by an exceptionally low cost structure (discussed in my last column). But that's just the beginning. In short, JetBlue has made great strides toward achieving what CEO David Neeleman calls "the very simple goal of bringing humanity back to air travel." Humanity. Notice Neeleman didn't say, "bringing low fares and good service back to air travel." He said, in effect, that most airlines treat their customers in an inhumane fashion and that he was determined that JetBlue would be "a different kind of airline."
So far, JetBlue is achieving his goal. Consider the following data for the full year 2002:
Metric Jet Blue Majors' Avg.Completion Factor 99.8% 98.7%On-Time Performance (1) 85.7% 82.1%Mishandled Bags (2) 2.3 3.8Customer Complaints (3) 0.4 1.2Passengers Denied Boarding (4) 0.0 0.7
Note: In 2002, JetBlue was not required to report these statistics to the U.S. Department of Transportation (DOT) so all JetBlue statistics are self-reported. Since then, JetBlue has voluntarily reported this data to the DOT. Data for the major airlines is from the DOT.
(1) Within 14 minutes
(2) Reports per 1,000 passengers
(3) Reports per 100,000 passengers
(4) Per 10,000 boardings
JetBlue's own surveys show that 94% of its customers ranked their JetBlue experience as "Much Better" (64%) or "Somewhat Better" (30%) than other airlines. while 99% said they "Definitely Would" (88%) or "Probably Would" (11%) recommend the airline to others. Normally, I'd be skeptical of an in-house survey, but my own experiences flying the airline more than 20 times convince me that JetBlue is indeed creating legions of fanatically loyal customers.
How is JetBlue doing this? Let's take a closer look at how JetBlue has addressed the complaints that really anger airline passengers today.
Smiling, motivated, enthusiastic employees are critical to customer service in any industry. Stories I've heard, plus my own observations, lead me to believe that JetBlue has a significant advantage in this area, driven by its corporate culture. How JetBlue has built this culture and whether it is sustainable is the topic of my next column.
Dingy planes, uncomfortable seats, and no legroom
Most jets in the major carriers' fleets are between five and 12 years old, and it's not uncommon to find 20- or even 30-year-old aircraft in service. In contrast, JetBlue's planes are brand spanking new and have extra-wide all-leather seats with bottoms that move for added comfort. The company just announced that it will take out an entire row of seats in every aircraft, thereby increasing the pitch on most seats from 32 to 34 inches, which makes a big difference for long-legged people like myself.
High prices, crazy pricing schemes, restrictions, and fees
JetBlue charges considerably less than just about any other airline. (See my last column for further details.) But airlines are plagued by more than high fares -- pricing schemes are absurd and unfair. If you don't book long in advance, fly round-trip between the same two cities, and stay over a Saturday night, the prices are often obscene. And heaven forbid that your plans change and you get stuck a $100 penalty or, worse yet, you lose all of your money (I got this from American Airlines (NYSE: AMR ) only two days ago).
All of JetBlue's flights are one way, so there's no ridiculous Saturday night-stay requirement, and you aren't penalized if you, for example, fly from New York to Long Beach, drive to San Diego, and then fly back from there. Nor are there standard advance-purchase requirements to get the best fares. Sure, JetBlue's prices tend to go up closer to the date of travel as the planes fill, but the simple pricing model means no nasty surprises. And if you cancel or change a flight, the fee is a reasonable $25 and you can use the credit to buy a ticket for anyone, not just yourself.
JetBlue is fanatical about on-time departures and arrivals. JetBlue's performance has actually improved this year: In Q2, its completion rate rose to 99.9% and on-time performance was 87.4%. There are countless reasons why flights get delayed, many of which are out of the control of any airline, but JetBlue's performance is not an accident. Consider the following:
- Brand new planes tend to break down less frequently.
- JetBlue, like Southwest (NYSE: LUV ) , only flies one type of aircraft, so if something goes wrong it's easy to switch planes, spare parts, pilots, and flight crews.
- The hub-and-spoke system that most airlines uses invites delays. JetBlue flies only point-to-point.
- In the New York area, JetBlue chose to base itself at John F. Kennedy Airport (JFK) rather than LaGuardia or Newark for a number of reasons (e.g., lower costs, available gates) but also because it is less congested, both in the air and on the ground, and suffers from fewer weather delays.
- While other airlines will shut down when it gets too late at night, JetBlue has a different policy: According to Dave Barger, JetBlue's President and COO, "some days we get shut down entirely, but by and large, we'll operate late on a bad weather day even if it means we finish at 2:00 a.m. People appreciate the fact that they get there." JetBlue's policy also means that crews and planes aren't starting the next day at the wrong location, which prevents the ripple effect of problems from one day affecting the next day.
- JetBlue keeps a spare plane at each of its major East and West coast hubs, JFK, and Long Beach. Other airlines use spare planes as well, but JetBlue's 22.5:1 ratio of active-vs.-spare planes is markedly better than the industry standard of approximately 50:1.
- JetBlue flies dozens of flights daily between New York and five Florida cities -- an Eastern seaboard route that is often closed due to congestion or thunderstorms. To improve the odds that its flights can operate on time, all JetBlue planes are equipped with life rafts and vests so they have the option of using flight paths over the Atlantic.
- Fast turnaround times at the gate, averaging 35 minutes vs. an hour or more at the major carriers, keeps JetBlue's planes on time and in the air for an industry-leading 13 hours per day.
Dealing with delays
Some levels of delays are inevitable, of course, but how an airline handles them can make a big difference in customer satisfaction. Too often, I feel that airlines are treating me like a mushroom: kept in the dark and fed manure. In contrast, my experience with JetBlue is that the airline and its employees go out of their way to give excellent service, empathize with passengers when things go wrong, and do their best to treat them well -- and, when the situation calls for it, compensate them.
Most airlines overbook their flights, which means that, on occasion, passengers with a ticket can't get on. This policy infuriates customers and creates delays, as gate agents attempt to bribe passengers to give up their seats. And the problem is getting worse: The Wall Street Journal reported last week that "about 10,200 passengers on the 14 largest U.S. airlines were denied boarding during the first quarter of this year because plane seats were oversold, according to a Department of Transportation survey released earlier this month. That's up 16% from last year -- and the highest percentage of people involuntarily kicked off planes in three years." JetBlue does not overbook its flights -- hence the 0.0 figure above for "Passengers Denied Boarding."
I actually look forward to long flights to catch up on my reading, but many people are bored (or desperate to entertain their children), so JetBlue's 24 channels of live TV is a huge plus. One airline executive I spoke with acknowledged "it's the biggest step forward in in-flight entertainment in 25 years." JetBlue was the first airline in the world to offer live TV and, to maintain this advantage as long as possible, actually bought the company that supplied it with the technology (which JetBlue has now licensed to Frontier Airlines (Nasdaq: FRNT ) and Canada's WestJet (TSA: WJA))."
Long lines to check in
When you go to check in, have you ever watched the person behind the counter type all of that crazy gibberish into the computer? This process is slow and prone to error. In contrast, JetBlue uses the Open Skies software system, which means that agents can process a passenger without checked luggage in less than one minute.
Long lines to go through security
Am I the only person who thinks it's really silly to slow down the processing of passengers through a security checkpoint by randomly selecting people for an intensive security screening, or using a crude method such as checking whether a passenger has a one-way or round trip ticket? Neeleman is unabashed in stating that JetBlue uses profiling, however politically incorrect that might be, to target high-risk passengers for extra scrutiny.
JetBlue has a lower rate of mishandled bags than any major carrier. However, with the company carrying nearly 30,000 passengers per day, 2.3 mishandled bags per 1,000 (which rose to 3.4 in Q2) translates into roughly 70-100 unhappy customers daily. Barger described how JetBlue handles these "moments of truth" customer service situations:
"First of all, we don't only look at mishandled bags: for example, we want the first bag at the carousel within 10 minutes of arrival and the last one out within 20 minutes. What gets measured, gets managed. Our performance should be good because we don't have a hub and spoke system.
"When we do have a problem, we start right off the bat by giving the passenger a $25 voucher. It's empathy -- a gesture of goodwill. When you go into a traditional baggage service, you have to stand up at a podium and can't see computer. With us, customers can sit down at a desk, get a cup of free coffee, and see the screen. We try to get away from being baggage cops and give the customer the benefit of the doubt. It's a mindset -- we're in the service business."
No room in overhead compartments
With airlines removing so much capacity, flights are nearly always full these days, which means that there often isn't enough room in overhead compartments. The result is that late-arriving passengers are often clogging the aisle, looking for room for their bag (delaying departure), or are forced to check their bag, which means they have to sit around waiting at the baggage carousel upon arrival (one of my pet peeves). To minimize these problems, JetBlue's new planes have extra-large overhead bins.
Airline food hasn't been much to write home about for some time, but my perception is that it's getting worse. JetBlue gets around this potential problem in a simple way: It doesn't serve any meals -- only snacks and drinks -- even on its longest cross-country flights. Instead, JetBlue encourages passengers to buy food in the gate area (or bring it from home) and take it on the flight.
Customer satisfaction is less a function of reality, but rather the gap between expectations and reality. By removing any expectations for food, JetBlue's customers are, I suspect, more satisfied than passengers on other airlines who expect a meal and are then served a lousy one.
Consistently delivering an exceptionally positive customer experience is the key to long-term business success in any industry. Doing so, however, is extremely complex and difficult. Yet once achieved, it can feed on itself, creating a virtuous cycle and becoming a powerful competitive advantage -- one that can be very difficult for competitors to match. JetBlue clearly understands this and the results show. Other companies should be looking to take a page from JetBlue's book.
[For more on the best ways to travel, visit The Motley Fool's Travel Center.]
Whitney Tilson is a longtime guest columnist for The Motley Fool. He did not own shares of the companies mentioned in this article at press time, though positions may change at any time. Under no circumstances does this information represent a recommendation to buy, sell, or hold any security. Mr. Tilson appreciates your feedback on the Fool on the Hill discussion board or at Tilson@Tilsonfunds.com. The Motley Fool is investors writing for investors.