VirginBlue? It Could Have Happened…

Over the past couple of decades, I’ve had the good fortune to meet some of the senior leaders in the airline industry. Their backgrounds are all different but, to a person, they’ve all had one thing in common: They are extraordinarily intelligent. You really have to be in this industry, given how tough it is to manage. Your success depends on the global economy and the cost of oil. Your costs are heavily influenced by labor, much of which is unionized. On the revenue side, it is next to impossible to differentiate yourself on service, meaning that you are competing entirely on price. And while it is very easy to launch an airline (Boeing and Airbus will happily provide funding.), it is next to impossible to dissolve an unsuccessful carrier (They are usually picked up by a competitor.). And if you are fortunate enough to generate a profit, the money usually needs to be invested in new planes. In other words, your chances of failure are far greater than your chances of success. Don’t believe me? Check out this list of defunct airlines.

An Airline Entrepreneur

There are few individuals (or, dare I say, “characters”) in the industry more intelligent, interesting and entrepreneurial than David Neeleman, best known as the founder of JetBlue. But his history goes beyond the JFK-based carrier: He also had a part in founding Morris Air, WestJet and, most recently, Brazilian low-cost carrier Azul. His first airline, Morris Air, was a low-cost carrier based in Salt Lake City that he eventually sold to Southwest in 1993. Mr. Neeleman became restless at Southwest, though, and lasted a whopping five months there. He was bound by a non-compete, so he couldn’t start another airline, but he did provide some assistance with the birth of Canadian low-cost carrier WestJet.

Source: Wikipedia

Source: Wikipedia

What Mr. Neeleman is best known for, however, is having founded JetBlue. The idea for JetBlue may have been simple, but it made no sense to those who had been in the industry for decades (which is why it worked): Use the underserved slots at JFK to fly to upstate New York and leisure destinations around the country. Executives had always viewed JFK as an international airport that was inconvenient for New York domestic customers. No one had wanted to do much there during the day, when international flights weren’t coming and going. But that negligence meant that there were a lot of cheap daytime slots available for Mr. Neeleman. JFK also had no perimeter restrictions, unlike La Guardia, which prohibit flights shorter than 1,500 miles, opening up the transcontinental market. The low-cost carrier that was the first with TVs at every seat (The other option that they had considered was fancy meals. They chose wisely.) caught on quickly and became the JetBlue that we see today. After being pushed out of JetBlue in 2007, Mr. Neeleman returned to Brazil, where he was born, and founded Azul (Portugese for “blue”). Apparently, he’s on his way to another successful venture:

 

Item 2010 2011 2012 2013 2014
Passengers Transported 4 million 8 million 12 million 20 million 21 million
Aircraft in service 26 49 118 133 138
Destinations 28 42 100 103 105
Market share 7,48% almost 10% 15% 17% 17%

 

I bring up Mr. Neeleman not only because he is so important to the industry but also because of an excellent Bloomberg article today discussing how Virgin America almost began as JetBlue. Apparently, Sir Richard wanted more control and money for the use of his name than Mr. Neeleman was willing to provide but, with rumors abounding that JetBlue might buy VA, it is interesting to see how the industry has come full circle. JetBlue took the New York slots, leaving the west coast for VA’s eventual creation, but JetBlue would be in a very powerful position now if it controlled both. The airlines are even similar onboard, with the emphasis on good service, low costs and free in-flight entertainment.

Bottom Line

The more things change, the more things stay the same.

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