Once-Domestic Startup JetBlue Spreads Its Wings to Caribbean by Larry Luxner SANTO DOMINGO, Dominican RepublicóNow that JetBlue Airways qualifies as an international carrier with seven flights a day from New Yorkís John F. Kennedy International Airport to Puerto Rico and three flights a day to the Dominican Republic, itís only a matter of time before the brash U.S. startup becomes what American Airlines has been for years: a household name throughout the Caribbean. So hopes David E. Neeleman, chairman and chief executive officer of JetBlue. ìPuerto Rico has been very profitable for us. Weíve gone from a couple of flights a day, all the way up to six and even seven flights a day during certain holiday times,î Neeleman said. ìOur costs are so low that we can charge really low fares and still make a profit.î Neeleman was interviewed aboard a recent flight from New York to Santiago, the Dominican Republicís second-largest city, as the CEO passed out blue chips, animal crackers and other snacks to surprised passengers. But thatóalong with picking up trash with flight attendants and pilots after the passengers have deplanedóis all in a dayís work for Neeleman, an accounting major who dropped out of the University of Utah to start his own business. At 44, Neeleman has nine children and has become one of the most successful airline executives in modern U.S. history. ìI love creating a company that people love to work at,î he said, explaining how he came to be the CEO of JetBlue. ìI 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 didnít 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 non-compete contract was up, I got to work.î Neeleman knew exactly what he was up against. The history of discount airlines didnít bode well for the new JetBlue, given the rise and fall of Midway Airlines, Peoples Express, Kiwi International and ValuJet. Only Southwest Airlines, which has been around for 33 years, is still flying strong and making money. ìStructurally, weíre a different airline than Southwest,î said Neeleman. ìSouthwest has been in business since 1971, and they didnít end up like Delta. The have a market cap of $14 billion. Itís possible to do it, but you have to do it right. People think that youíll eventually fail in this business, but thatís not true.î 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 own savings and still holds 8 percent of JetBlueís stock, recently estimated to be worth $144 million. ìIn order to get financing, you got to have a track record,î he said. ìNo startup airline has ever made as much as we have. Last year, we made over $100 million.î JetBlue expanded rapidly to 246 flights a day, serving 23 destinations in 11 states and Puerto Rico. From Washingtonís Dulles International Airport, the carrier flies nonstop to Fort Lauderdale, Las Vegas and three California destinations: Long Beach, Oakland and Sacramento. In June, JetBlue decided to go international, commencing service to the Dominican Republic with two flights a day between JFK and Santiago, and one flight a day between JFK and Santo Domingo. 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 television 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. ìWe try to hire good people, train them well, and pay them well,î said the boss. ìWe know that it all starts with our people. If theyíre happy and satisfied with their jobs, theyíll do better. We also give them great tools to work with, such as great planes and extra leg room.î 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. Thatís down from a net income of $17.4 million in the first quarter of 2003, although revenues for the quarter totaled $289 million, a 33.2 percent 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 in mid-July began offering one-way fares this fall starting as low as $69 for flights from JFK to either San Juan or Aguadilla, Puerto Rico, and fares as low as $78 each way (not including international taxes) between JFK and either Santo Domingo or Santiago. ìThe Caribbean is definitely where we want to expand,î said JetBlue spokesman Bryan Baldwin. ìA few weeks ago, David [Neeleman] was at Merrill Lynch and presented investors a map with potential cities that JetBlue could fly to one day.î Places on that list, said Baldwin, include the Mexican resort of Cancun as well as the Bahamas, Bermuda and Jamaica. ìWe unfortunately donít have a timetable for this,î Baldwin told The Washington Diplomat. ìWeíre 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 canít really look that far forward because with all the market changes going on in the industry, itís really not that practical.î 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. ìWeíre a New York-based airline, the only one, and thereís a large Puerto Rican and Dominican community in New York. We donít think you can be a New York airline and not serve Puerto Rico or the Dominican Republic,î he said. ìPuerto Rico is a very large market, and when American Airlines bought TWA, they were serving Puerto Rico together from New York,î said Neeleman. ìAs soon as they combined forces, there was no longer any competition. It was probably the largest market in the U.S. that didnít have competition.î In April, after careful study and analysis, JetBlue commenced service to Aguadilla. ìItís a two-hour drive from San Juan, and we knew there was a great airport there,î Neeleman said. ìThat 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. Itís cheaper for us, because the plane flies all day.î As is the case with Puerto Rico, said Neeleman, between 80 percent and 90 percent of JetBlueís business to the Dominican Republic has proven to be ethnic traffic. ìPart of the problem in the D.R. is that their taxes are really high. Itís like $75 of the total ticket price,î he explained, adding that ìflying to the Dominican Republic adds a layer of complexityî in customs, immigration and other issues that all domestic airlines never have to deal with. In addition, Neeleman 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. JetBlueís entry into the Dominican market also comes at a time when the countryís economy is in a slump. After growing 6 percent to 7 percent a year for the last decade, no gross domestic product growth is expected in the country at all in 2004. On the other hand, Neeleman said, ìIf the Dominican economy is not good, that doesnít necessarily mean business wonít be good, because people will still want to travel. Maybe theyíll spend more time there.î 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 said itís likely that American will quickly try to match JetBlueís newly announced fares. ìCompetition is a way of life in our business. But Americanís costs are not good because the 50-seat airplanes donít offer economies of scale,î he said. ìWe 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.î Neeleman said that to capture the Dominican immigrant market, JetBlue has been running print ads in both the Dominican Republic and New York, although he conceded that ìitíll take a little while to get the word out.î Larry Luxner is a contributing writer for The Washington Diplomat.