JetBlue's Fiasco Could Improve Flying

As the discount airline scrambles to repair its business and retain customers, new service efforts put rivals on notice: Changes are needed

It's the new must-share video for airline executives. In a two-minute clip posted Feb. 20 on his company's home page, a contrite and fatigued JetBlue Airways (JBLU) Chief Executive David Neeleman apologizes to passengers for the airline's six-day meltdown and vows that such an operational disaster will "never again" befall the company and its passengers. Packed planes sat near empty gates, in some cases for 8, 9, and 10 hours. Irate passengers screamed at workers and security guards. A few JetBlue employees started to cry, according to media reports. It was the sort of operational catastrophe that no traveler or airline wants.

Neeleman, in the clip, said the company was going through "the most difficult time in our history." He added, "I wanted to assure you as the CEO of this company that the events that transpired last week, and the way that they transpired, will never happen again." In a later press release, Neeleman also apologized to employees, and promised "to get the right resources, tools, and support for them."

PR Offensive

So what exactly went wrong at a business that bills itself as a "customer service" company that just happens to fly airplanes? In a word, everything. An organizational bias against flight cancellations—JetBlue scrubs the fewest flights in the industry—collided with an infrastructure too lean to manage the mix of poor weather and cascading flight delays and cancellations.

Now the New York-based company is jumping into a high-profile public relations campaign, hiring new staff, doling out refunds and free flights, and hoping the public doesn't turn away from what once was a runaway success story. Still, despite the shrill feel of its new "customer bill of rights" and no shortage of skeptics, JetBlue has a good shot at fulfilling Neeleman's pledge. What turned into a $30 million February disaster for JetBlue could, in the end, make the U.S. airline industry a more hospitable environment for passengers.

Why? Fear and fortuity. The airlines are petrified that politicians, itching to jump on the service issue, will try to impose new government mandates, so they may be more motivated than ever to make real changes. Neeleman looks like just the person to push for changes and make them industry practice. He's an industry outsider with a successful track record, the CEO most closely associated with a U.S. airline since Herb Kelleher of Southwest Airlines (LUV). The impatient, hands-on, get-'er-done CEO grasped the severity of the situation immediately and has, with a high-profile response, helped keep the issue in the public eye. He emitted a flood of daily apologies, declaring himself "mortified" by the operations and declining to defend his company's performance.

Cash Refunds

The airlines' trade group, the Air Transport Assn., opposes any new regulation, even as it concedes problems and promises changes. "We appreciate that Congress, responding to public concerns, will want to know more about the airlines' plans. We look forward to substantive discussions," ATA President and CEO James May said in a Feb. 19 statement. "One thing we all want to avoid is the imposition of inflexible government standards, which could unintentionally result in greater customer inconvenience."

For its part, JetBlue claims not to care whether Congress wades into the issue. "From the start, our customer bill of rights was designed to be broader, deeper, and more meaningful for our customers than anything that will come out of Congress," says JetBlue spokesman Don Usselman. JetBlue will deplane passengers on flights that have been sitting at least five hours, unless the pilot has been notified of a pending "wheels up" time. After arrival, passengers will get a refund, from $25 to the full amount of their round-trip ticket, if a flight waits for an open gate for more than 30 minutes.

The airline's tab is $100 for departing flights delayed three to four hours, and for longer delays, a voucher for the full amount spent.

So far, the company has spent $14 million for refunds and chartering other airplanes to fly passengers and has committed $16 million in future free flights for affected customers. It will also spend heavily on newspaper ads, apologizing for the problems.

Domino Effect

The scope of the problems prompted Morgan Stanley (MS) and others to downgrade JetBlue shares Feb. 20, citing an estimated cost of $25 million to $30 million in pretax profits. The airline is likely to embark on "dramatic steps to improve its brand image," Morgan Stanley analyst William Greene wrote in a research report that declared the stock "dead money for now." JetBlue shares fell nearly 5% to close at 12.90 on the Nasdaq, recovering somewhat from an early dip that sent the stock down more than 7%.

Canceled flights are a treacherous problem for airlines such as JetBlue. They tip off a series of costly events for hub-and-spoke carriers, like dominos toppling one after another. First, passengers need to be rebooked on later flights or, in certain cases, on other airlines that charge more expensive fares. Then jets aren't in the cities they need to be in, and are unable to collect additional groups of passengers that will not get to their final destination at the time they expected to arrive. Crew members don't get to the airport where they're needed for either another flight or for a return leg that must happen within employees' federally mandated work schedules. On top of that, the paying customer has been inconvenienced and is usually irritable, anxious, and exhausted.

Promises, Promises

Still, many observers consider linking delays with penalty payments to be a very bad idea. If airline workers feel pressure to get a plane off the ground, saving their company a few bucks, it could set a troubling precedent in an industry where safety must be paramount. "It is supreme hubris to think that Congress could divine a set of passenger service standards that would deliver intended benefits without risking safety margins," Kevin Mitchell, chairman of the Business Travel Coalition, wrote on the group's site in response to JetBlue's troubles.

Chris Collins, the senior vice-president of operations at Denver-based Frontier Airlines (FRNT) and a former JetBlue operations manager, says, "It's the unintended consequences of forcing airlines to do something that really scares a lot of us in the industry. It has to be really thought out and understood." Whatever happens in Washington, Neeleman says JetBlue's bare-bones crew and customer-management systems will be corrected and augmented within 30 days, and its new customer bill of rights has been made retroactive to Feb. 14.

But customer-service fiascos are not a new phenomenon, and the industry will face new pressure to adopt policies to ameliorate the worst situations. Recall the 1999 incident with a Northwest Airlines jet arriving nearly a day late in Detroit from the Caribbean and sitting on the tarmac near a gate for nine hours. Conditions onboard quickly deteriorated from bad to unspeakable, and Congress made noises as if regulation would soon arrive to address such situations. That never happened. Airlines pledged to clean up their act without legislative oversight.

But have they?

More Delays

In December, American Airlines (AMR) had passengers trapped on a jet for nine hours in Austin, Tex., after it was diverted from Dallas due to thunderstorms. The company then implemented a new limit: After a delay of four hours, passengers will be let off.

And on Dec. 21, two United Express flights left Cheyenne, Wyo., empty. The jets left behind passengers who had been diverted there when a blizzard shut down the Denver airport a day before, USA Today reported Feb. 20, detailing a situation that received little notice amid the severe snow that struck Denver around the holidays. Officials at United (UAUA), the nation's second-largest airline, said the planes were needed elsewhere and that flying the passengers out would not have helped get them to their final destinations because so many flights were sold out due to the Christmas holidays.

Many airlines may scoff at JetBlue's new policies and go to great lengths to explain why they don't make business sense. Forget the rhetoric. Look for more airlines to come out with their own versions of a "customer bill of rights." It's a small price to pay to keep the politicians at bay.

Click here to see a slide show of airlines' worst customer-service catastrophes.

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