NEW YORK -- "I have David Neeleman for you," a voice said when I picked up the phone not long ago. "OK," I replied, surprised. Days earlier, I'd asked JetBlue's PR staff for a sit-down interview with Mr. Neeleman, the airline's founder and CEO, and had expected to hear back from them -- not from their boss. Mr. Neeleman and I exchanged hellos, and I waited a second to hear what he had to say. A second only, I swear, before he snapped: "C'mon, c'mon, let's go. Am I supposed to interview you?"
Whoa! We straightened out the misunderstanding, but it was with some apprehension that, a few weeks later, I took the E train of the New York subway out to JetBlue's "Support Center" in Forest Hills, Queens.
Mr. Neeleman, a serial entrepreneur in one of the world's worst businesses, is legendarily creative; but he is also known as a hyperkinetic, supremely confident, easily bored victim of attention-deficit disorder. Used to being hailed as a hero, Mr. Neeleman slipped from his pedestal when JetBlue, hit hard by stratospheric oil prices, nosedived into the red in 2005 -- causing some Wall Street analysts to question the viability of its low-fare, point-to-point business model. Mr. Neeleman hardly folded JetBlue's wings, though. This year, so far, he's added 14 new cities to the route system. There'll be one more by year-end, raising the total to 48 and inviting even more questions about the company's growth rate, strategy and profitability. That could make a CEO testy.
I decided to arrive early.
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"Nondescript" does not begin to describe JetBlue's plain-Jane headquarters, on a stretch of Queens Boulevard lined with delis and drug stores. Mr. Neeleman's small, 8th-floor office, which overlooks the intersection of three highways, is equally barebones (a desk, table and chairs, and an overflowing bookcase more befitting an assistant vice president than a CEO). If, as Mr. Neeleman has said, JetBlue wants to dazzle its customers, it has no plans to do the same for its visitors.
But the environment suits Mr. Neeleman, who, dressed in an open-necked light blue tattersall shirt, navy slacks and loafers, met me in a nearby conference room. More than once in the course of our hour-plus discussion, he said he likes selling cheap fares so more people can fly.
In person, he turns out to be low-key, attentive and, at times, reflective. There's no bravado. He apologizes for the phone mix-up. He takes responsibility for JetBlue's losses and promises to do better. He says he can understand why JetBlue's stock has traded in the single digits, a third of its high. Before long, though, he manages to change the subject: Assuming his mantle as visionary, he outlines a Mr.-Neeleman-Goes-to-Washington plan to change the dynamics of energy supplies for the good of America and the airline business. "I wrote my first piece of legislation," he says, proudly. "I got tired of people talking about dependence on foreign oil."
But business first. "I'm upbeat," he says, answering my question about the business outlook and launching into a review of the past 12 months. "This was a really tough year for us. We wrestled with a lot of things we could have done better." He says the troubles occurred, in part, because "we had a certain euphoria from our previous successes." For most of its run, he explains, JetBlue was easily filling nine out of 10 seats, and the airline didn't have to worry much about anything. "We didn't watch costs. I take responsibility on that," he says. Then he goes further, reeling off a litany of JetBlue's other faults: "We had no great distribution system, we did not price connections competitively, we did not do a good job of revenue management, we had no package division, we weren't forced to figure out how to increase revenues . . ."
Over the past year, JetBlue has addressed those deficiencies, starting with an attack on costs. Management has identified expenses worth $100 million to $150 million that are being, or can be, cut. "Things that won't affect the brand, things that we'd gotten complacent about," he says. (Multichannel satellite TV onboard, a subject that gets Mr. Neeleman very excited, will remain free.) "We had a big hole in the first quarter, we have to make it up," he says, "and we haven't given up the possibility of making it up this year."
Naturally, JetBlue's management has also gone to work on the revenue side of the equation. The company started a package-vacation division and inked a co-branded credit-card deal with Amex. To attract more corporate bookings, JetBlue rejoined the Sabre Holdings travel distribution system; to plump its package-deal sales, it's testing a relationship with Travelocity. "These are things that other airlines have had all along," Mr. Neeleman says, in a kind of mea culpa.
Mr. Neeleman also brought in several new managers -- including the VPs for oil, for revenue management and for schedule planning. He bought advanced software designed to improve yield management. All of these moves suggest why Mr. Neeleman disagrees with the analysts who are writing epitaphs for JetBlue's business model if oil prices do not revert to pre-2005 levels. "The model does work with oil selling for $60 a barrel," Mr. Neeleman insists. Pause. "But it doesn't work as well."
Here's an illustration: Jet fuel that once cost $20 per person on a transcontinental flight has over the past year required $65 per person, Mr. Neeleman explains. Since, like most airlines, JetBlue had not adequately hedged its fuel purchases, it had to raise prices. There were big, $50 jumps on some routes, which annoyed some fliers. Mr. Neeleman maintains that "the average increase is only $10 or $15 per flight, and most customers understand that."
But Mr. Neeleman says, "Make no mistake, we're still a growth airline." In September, 32% of JetBlue's seats were in new markets: "That's the highest it's been in five years, at least." Overall expansion during 2006 will come to about 20% this year -- down from 28% to 30% in JetBlue's glory days, but still a hefty total compared with most other airlines. If oil prices remain high, Mr. Neeleman says JetBlue's growth will slow to a percentage in the mid-teens. "We want to sustain our cash without adding equity, so the amount of debt we can add will be our growth rate," he says.
Rather than halt expansion, high fuel costs have instigated a rethinking of JetBlue's route system. Cross-country flights are out of favor; shorter flights are in. JetBlue's new routes link cities like New York and Boston with places like Columbus, Tucson, Houston and Nashville. "In 2007, we'll connect the dots more," he adds, while declining to name the new destinations, lest he give competitors time to gear up for a fight. But he concedes that service to Chicago, JetBlue's most-requested destination, will begin on Jan 4. from New York and Long Beach.
What's providing this route flexibility is a controversial decision Mr. Neeleman made a few years ago to order 100 Embraer 190 jets -- 100-seat planes with a 2,000-mile range. Instead of undermining JetBlue's business model, which originally assumed a fleet of only Airbus A320s, the 190 is saving it -- for now. If oil prices shoot skyward again, fares will have to rise and fewer people will travel; JetBlue might have to cancel deliveries or sell planes, which he says is no problem given the global demand for jets. In any case, Mr. Neeleman does not believe that the high oil prices of last summer are sustainable. He thinks oil is in a bubble, candidly adding, "I also need to believe in lower oil prices."
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Ever the activist, Mr. Neeleman decided he could not sit idly by and wait for that to happen. Hence his new career phase. "I spend a lot of time focusing on alternative energy," he says. "I was born in Brazil, so I have a natural interest in ethanol." Ethanol, even cellulosic ethanol, which is more environmentally favorable than the corn-based stuff, isn't the answer for JetBlue, however. It can't be used in jets -- or trucks and trains, for that matter. But America's vast coal reserves can be turned into transportation fuel using the technology pioneered decades ago by Germany and, later, by Sasol in South Africa. (To minimize the environmental impact, Mr. Neeleman supports the sequestration of carbon dioxide emitted in the process.)
Mr. Neeleman in recent months started drafting a bill that would authorize the government to provide economic underpinning for private efforts to build coal-to-transportation fuel plants. The legislation, introduced in late September by Reps. John Shimkus and Rick Boucher, would enable the Energy Dept. to guarantee viable prices -- paying the plant owner if crude oil fell below $40 a barrel and collecting a fee if crude rose above a certain, to-be-negotiated price. The bill calls for support for six plants, each producing 80,000 barrels a day, each costing about $5 billion. "I envisioned 70 of these plants," Mr. Neeleman volunteers, ebulliently revealing his ambition. "I've always been a person with big ideas." The current, smaller version is the product of his collaboration with an Illinois-based group backing coal-to-liquids plants.
The whole idea is a no-brainer to him: Even if government pays out money, the cost would be small compared to the economic benefit of lower oil prices. "Each one would create 3,000 jobs to build it, and 1,500 jobs to run," he predicts. The plants, built near mine-mouths, would be unlikely to incur Nimby objections. "It would turn Montana into Dubai," he says.
With Washington often, umm, unable to focus -- "It took 10 years to get an energy bill passed that has had little effect," Mr. Neeleman interjects -- he sought counsel on the capital's ways. As a result, he got professional help on the bill's language and learned about the legislative process. "The advice I got was to go get RAND and other thinkers to write about it -- those are the guys that they listen to," Mr. Neeleman says. He has spoken with RAND about doing an economic impact study, but has not commissioned one. And, as he put it, "I got a couple professors" -- names of people he might enlist in the cause. Who? -- I ask. "From the American Enterprise Institute and Brookings Institution," is his reply.
Mr. Neeleman has also visited the White House seeking support. "They're looking at it," he says, but were noncommittal. He believes "it should sail through Congress," and would be happy to "testify for my country and for our industry." This earnestness, along with his resolve, is obvious throughout the interview. As I'm leaving, Mr. Neeleman stops me to point out -- no, to declaim -- a framed quote on the wall outside his office. It's from Teddy Roosevelt, and reads, in part: It is not the critic who counts, not the man who points out how the strong man stumbled or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena . . . who -- at the worst -- if he fails, at least fails while daring greatly.
Who said guys like him don't pay attention to detail?