Jetblue in ORD?

SiuDude

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By Mark Skertic
Tribune staff reporter
Published January 8, 2006

NEW YORK -- Up and down the East Coast, JetBlue has become a low-cost airline darling.

By offering live television programming at every seat and a hearty snack, JetBlue Airways has won the affection of a growing number of customers looking for something extra for the price of their ticket in an era when some carriers charge for a pillow or soda.

Yet, travelers from Chicago and other Midwest cities must wonder "Jet who?" when passing a JetBlue gate in an out-of-town airport.

It is the largest airline in the nation that does not serve Chicago or any of the country's midsection. It would like to, particularly at O'Hare International Airport, but the company isn't satisfied with what's available in Chicago right now.

"If we could get a couple of gates, we'd start service there," said Chief Executive David Neeleman.

JetBlue met with Mayor Richard Daley and other city officials as recently as late December but was not impressed with the access offered by the city, which appears to have few options because of long-term leases and federal limits on flights at O'Hare. "Chicago is a very valuable market, and it's something we have to be in at some point in time," Neeleman said. "But we're patient."

He can afford to wait. Like other discount airlines, JetBlue is being wooed by cities that want a low-cost airline. Southwest Airlines remains the largest, most successful in the nation. But New York-based JetBlue has carved a place for itself in the industry.

Neeleman built his airline on a simple proposition: A discount carrier does not have to mean no frills.

On every JetBlue flight there is a seat-back television with 36 channels of DirecTV programming for every passenger. Snacks include a hefty chocolate chip cookie, boxes of animal crackers and specialty chips made from blue potatoes. Extra legroom is available at more seats than on most of JetBlue's competitors.

The airline had grown quickly since its launch in 2000, becoming the largest carrier at New York's John F. Kennedy International Airport, expanding its reach up and down the East Coast, into the South and flying transcontinental routes.

At some point in the near future, it will have to add the middle of the country to its route map, Neeleman said. Chicago is a priority, but "we don't have an opportunity yet, between what's going on at Midway and what's going on at O'Hare," he said.

Top JetBlue executives have met at least twice with city officials. They are discussing four options the city has come up with:

- Use a common gate the city controls in Terminal 2 at O'Hare. But there is room for only three flights a day from that gate.

- Sublease a gate from another carrier, a difficult proposition since airlines at O'Hare are unlikely to welcome competition.

- Move into O'Hare's Terminal 5, the International Terminal. JetBlue is unwilling to do this because there are additional fees for using this terminal, and it's not close to most of the airport's traffic

- Locate at Midway. Neeleman said he prefers JetBlue be at O'Hare, noting that Midway is dominated by Southwest Airlines.

The airline needs some ability to grow in a large market like Chicago, said Dave Ulmer, vice president of planning.

"For JetBlue, it's about product awareness, spreading advertising costs and having enough activity to build our brand in a big city. It has always been our position that we would like two preferential gates, with the ability to grow into a third," Ulmer said.

The city is aware of what the airline wants, said Wendy Abrams, spokeswoman for the city's Aviation Department.

"We've made it clear to them that we want them to come to Chicago, and we'll work with them," Abrams said.

Existing gate leases make it impossible for the city to unilaterally make room for JetBlue, she said. The long-term leases guarantee a steady revenue stream for the airport, but they also give airlines exclusive rights to some gates.At present, no low-cost carrier has a significant presence at O'Hare. The first one who builds that could draw heavily from Cook County and also from the north and west suburbs. Midway remains an option, but it's not Neeleman's first choice.

"There are gates there, but O'Hare is better," he said. "Midway's closer from downtown, but people don't leave for travel from the office. They leave from home."

Gary and Rockford also have come up as possibilities, but neither is as desirable as being at O'Hare, Neeleman said.

Nor is Chicago the only market in the Midwest the airline is considering, Neeleman said, declining to name the cities on his short list. The airline has planes on order, and the size of its fleet, now at 88, is scheduled to reach 313 planes by 2011. While United and Southwest, for example, both have 440-plus planes, more than 300 would solidify JetBlue's place among the nation's largest carriers.

In many markets, the arrival of a discount carrier can push ticket prices down dramatically. When JetBlue unveiled $69 round-trip promotional fares from Boston to New York last year, American and Delta responded by cutting ticket prices that averaged more than $400.

But don't expect a repeat of that in Chicago, said airline analyst Michael Boyd.

"You already have Southwest, you already have ATA, you already have AirTran," he said, referring to the major carriers at Midway. "You already have low fares in Chicago."

`Growing pains'

For most of its short existence, JetBlue has been a moneymaker in an industry in which carriers routinely lose millions of dollars each year. However, JetBlue joined that fraternity last year, when record fuel prices wiped out its prospects for an annual profit.

Last week, JetBlue stock lost value after analyst downgrades by Merrill Lynch and Raymond James, closing Friday at $14.63 a share. The airline "may be experiencing growing pains," Merrill Lynch analyst Michael Linenberg said.

Among the challenges it faces are higher fuel prices, limited advantage over larger carriers cutting costs through bankruptcy, and transcontinental competition with the expected launch of Virgin America.

Unlike Southwest, JetBlue does not have significant fuel hedges in place, making it vulnerable to increases in oil prices.

Even Southwest would have lost money if not for its hedges, Neeleman said, noting that fuel remains a problem for the entire industry.

If oil reaches $100 a barrel, "you have a much different industry," he said. "Because we're going to charge a lot more for airfares, and if we charge a lot more, a lot fewer people are going to travel. It's the law of economics."

The carrier also posted one of the worst on-time arrival rates in the industry in 2005. JetBlue blames delays at JFK, as well as the challenge of integrating a new aircraft, the Embraer 190, into its fleet starting in December.

The airline is working to reduce delays, but the arrival rate is pushed downward by a commitment to not cancel flights, said spokesman Brandon Hamm. Canceling flights and combining them with later flights would boost the arrival time performance but would not serve customers, he said.

JetBlue has succeeded in bringing in new passengers each year. A standard unit of measure in the airline industry is revenue passenger miles, or the number of paying passengers flying one mile. JetBlue reported flying 20.2 billion revenue passenger miles in 2005, up about 25 percent from the year before.

A man of innovations

Sitting in his office in an office building in Queens, Neeleman can see JFK off in the distance. He's unlike most of his peers in the industry. Instead of a tailored suit, Neeleman comes to the office in a black pull-over shirt and brown corduroys. His office is modest, just big enough for his desk and a small conference table.

When he talks, he tends to look off in the distance or glance out the window. Ask a question and he'll answer it, then hopscotch to two or three other topics. Neeleman has attention deficit disorder, an affliction for which he does not take medication for fear it would dull his creative instincts.

His innovations have become legendary. Neeleman, 46, co-founded Morris Air in Utah in 1984. The airline pioneered electronic ticketing. It also was where a reservation system that JetBlue still uses was created. People working out of their homes handle all calls to the company's reservation center.

Morris Air was sold to Southwest Airlines, making Neeleman a multimillionaire while still in is early 30s. He also moved to the executive offices at Southwest, but his career there was short and tumultuous. He never fit into the Southwest culture.

In 1999, when a non-compete agreement with Southwest expired, he decided to try bringing a discount airline to New York. Investors provided $130 million to bankroll the startup.

Dallas-based Southwest, the gold standard for how to run a discount carrier, has long avoided being in New York City because airlines don't make money when they're sitting on the ground--and planes sit in New York.
 

SiuDude

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Neeleman also recently deviated from the Southwest model in other respects. JetBlue flies two different aircraft--the Airbus A320 and Embraer 190s--while Southwest flies only Boeing 737s.

The smaller, 100-seat Embraer makes possible some routes that the 156-set Airbus would be too expensive to offer, Neeleman said. That makes up for the cost of maintaining parts inventory for two different airplanes.

Having part-time workers at the gate makes it economical to enter some markets with just a few flights. Ground workers can be outsourced, so the only full-time workers are the crew. The 9,600-member workforce is all non-union. All are eligible for the airline's profit-sharing plan.

In a competitive industry, those who succeed have to be innovative, Neeleman said. The airline decided to put seats with extra legroom in the rear and back of the plane, not the front as on most airlines.

Onboard spending on amenities is another example he cites.

"We could of come up with some kind of meal service on the airplane that would have been unremarkable, not memorable," Neeleman said. "We could have come up with a chicken sandwich or something, and people would not have appreciated that it's logistically very difficult to do.

"Instead, we decided to take a fraction of the cost and put a TV onboard," he said. "People remember that as something remarkable."
 

holdon

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I think you'll see B6 in MKE, Gary, Rockford etc... Surronding ORD first to introduce the product and when the time is right, jump into ORD. IMHO. In addition, STL would be a great city;)
 

K-Mart

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Cool! I don't live in PDX but I'll have to recomend it to my folks. If they connect the dot to chicago they would give United a run for the there money on those flights to PDX.
 

BLUE BAYOU

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So far the only thing Chicago has used Jetblue for is negotiating to make sure United continues to pay for their gates. After 9/11 and UAL's bankruptcy, Mayor Daley and his cronies negotiated with Jetblue and threatened our arrival to UAL if they didn't pay for their gates... Soon after, UAL paid up and Jetblue got offered the International gates at international rates!!! Needless to say, we didn't take their offer, and haven't pursued ORD until just recently. Maybe we can rebuild Meigs...
 

SiuDude

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I would think that GYY (Gary) is a viable option: very low lease rates, free car parking, about 30 minutes to downtown, don't have to put up with Da Mer's B.S.. Of course I don't get paid the big bucks, so I may be missing something here. I think GYY only has a few gates as of now, but the terminal is expandable. As far as Midway, I don't believe they have gates available, plus they're already saturated with LCCs.
 

Dizel8

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Huh?
Gary is an option, but I doubt it is a viable one. Not the greatest location and doubt people will drive further south. Midway might have gates, I believe some of ATAs reverted to the city, I could be mistaken on that, but I think jetblue intended routes would overlap SWA, so not much to gain there.

ORD is still the place to be, maybe one day......
 

CitationLover

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GYY will work, but you must "bullet hole" entries into the CDL if they are not already there.
 

Dizel8

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Huh?
CitationLover said:
GYY will work, but you must "bullet hole" entries into the CDL if they are not already there.

I think that is called the DET exemption!
 
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