Is JetBlue’s competitive advantage sustainable?

JetBlue was a domestic airline in the United States with a geographically diversified flight schedule that included both short-haul and long-haul routes. The mission of the company, according to founder David Neeleman, was “to bring humanity back to air travel.” To stimulate demand, the airline focused on underserved markets and large metropolitan areas that had high average fares. JetBlue was positioned as a low-fare alternative, an airline that offered customers a differentiated product with high-quality customer service on point-to-point routes.

The differentiation strategy had been intended to provide a unique “JetBlue Experience” through excellent customer service, new aircraft, greater comfort (wider legroom), and entertainment through free LiveTV. With virtually no incidences of passengers being denied boarding; high completion factors (99.6 percent as compared to 98.3 percent at other major airlines); the lowest incidence of delayed, mishandled, or lost bags; and the third-lowest number of customer complaints, the company was indeed setting standards for low-cost operations in the industry. The company had been voted the best domestic airline in the Conde Nast Traveler’s Readers’ Choice Awards for five consecutive years.

As JetBlue grew, it made some changes, signing “interline,” or code-share agreements, with many global carriers. However, high fuel prices, the competitive pricing environment, and other cost increases had made it difficult to fund JetBlue’s growth and maintain profitability. In 2005, JetBlue had suffered its first losses since its IPO in 2002. Losses continued through 2008, with profitability finally returning in 2009, and remaining so through 2016.

This turnaround was welcome. A disastrous storm on Valentine’s Day 2007 had exposed many weaknesses in JetBlue’s operations and had a negative impact on the airlines’ reputation as well as its financial performance. Founder and CEO David Neeleman had made a public apology and published JetBlue’s Customer Bill of Rights in an attempt to restore customer confidence. However, in May 2007, Neeleman was replaced as CEO by president Dave Barger. Barger added several new services and expanded capacity, but by 2014 JetBlue’s low-fare business model was being threatened as its costs continued to go up.

In 2014, the JetBlue board asked Dave Barger to step down to allow JetBlue’s current president, Robin Hayes, to replace him. During Barger’s tenure, JetBlue was known for its customer service but operating margins had continued to be among the lowest of the U.S. carriers. Analysts viewed Barger’s concern for customer service as counter to the needs of the stockholders, so the promotion of Hayes seemed to signal to shareholders that the airline was ready to focus on investor-friendly changes. Given that the airline had been founded on a promise to be a low-fare airline that offered customers a differentiated product with high-quality customer service, could this promise still hold? Would the needs of JetBlue loyal customers still be met? Was JetBlue moving away from its original strategy?

JetBlue was in a niche positioned between the ultra-low-cost and full-service network air carriers. By concentrating on markets where it could become the top carrier, JetBlue was acting more and more like the big carriers it once set out to disrupt. Would JetBlue be able to hold onto its core mission and still be able to make its shareholders happy? Or, with too many complexities being introduced into its simple model of success, will JetBlue sink into the blues once again?