JetBlue Girds for New Competition as Its Founder Prepares to Start a New U.S. Airline

If JetBlue Airways founder David Neeleman soon starts the first new U.S. airline in more than a decade — indications suggest he’s serious — he may give his former employer fits, considering he created almost everything JetBlue’s loyal customers love about the airline.

But the two executives running the company now, CEO Robin Hayes and President and COO Joanna Geraghty, said in an interview they welcome competition from Neeleman, who reportedly is raising $100 million for a U.S. low-cost carrier that could fly by 2020. In addition to taking some JetBlue customers, Neeleman might also poach some of its employees, as many still idolize him more than a decade after he left.

Neeleman, a serial airline industry entrepreneur, was replaced as JetBlue CEO in 2007, seven years after the airline’s first flight, with the carrier struggling operationally. He left as chairman the following year, and went on to start a similar airline in Brazil called Azul, before buying a controlling interest in Tap Air Portugal. Early in his career, he co-founded Morris Air, which Southwest Airlines bought in 1993 for roughly $129 million.

“I think David will be successful in whatever he turns his hand to,” Hayes said. “If he sets up an airline in the U.S., we’ll compete with it just as we do with other airlines.”

It’s not clear how much JetBlue will be affected. While the new airline is expected to roughly copy JetBlue’s customer-facing model — Neeleman often prefers his airlines to offer comfortable seats, free snacks, live television and reasonable fares —it may not often compete directly with JetBlue on routes, at least at first.

In June, the trade journal Airline Weekly reported Neeleman’s startup initially will fly point-to-point from smaller airports, such as Providence, Rhode Island, Burbank, California and Trenton, New Jersey. JetBlue is mainly focused on bigger U.S. airports, such as New York JFK and Boston, though there likely will be some overlap, perhaps in California, where JetBlue is relatively strong in Burbank and Long Beach.

Bigger Airlines Are Likely Targets

In the United States, Neeleman’s initial targets are probably American Airlines, Delta Air Lines and United Airlines, as all earn significant revenue flying passengers from smaller airports. Those customers must connect through major airline hubs to reach their destinations, and often pay high fares.

Passengers flying Neeleman’s proposed airline — now named Moxy, according to Airline Weekly — might be able to fly nonstop, bypassing a hub, while paying lower prices.

“It is actually less of a concern for JetBlue than it is for other carriers,” said Samuel Engel, a senior vice president and leader of the aviation group at ICF, a consulting firm. “If it plays out the way it has been reported and the focus is on secondary cities, then it is more of an attack on network carriers than JetBlue.”

On the margins, though, JetBlue could be affected. It flies to some smaller markets, and has a fleet of 100-seat Embraer E190s that are similar, though a little smaller, to the Bombardier CS300s Neeleman’s airline reportedly will fly. Neeleman’s CS300s and JetBlue’s E190s could end up flying some similar route on the East Coast.

And while Neeleman plans to start with smaller airports, most airlines fly to larger ones eventually, because revenues are usually higher at popular airports. Southwest Airlines, as it grew, reduced flights at some secondary airports, preferring Boston to Providence. Even Allegiant Air, which long preferred the tiniest airports, is adding flights to Newark, and Austin, Texas.

Because upstarts can change models over time, established carriers usually view new entrants as competition, even if the newbies have different models or route structures. As a result, Engel said, carriers generally like to try to wound a new airlinebefore it can be a major threat.

Big airlines may drop their prices on competitive routes, or block Moxy’s access to constrained airports, where gates or slots are tough to get.

“There is no question that in this industry you attack the new entrant quickly before they can grow,” Engel said. “The single most important success criterion for a startup airline is whether they have a enough cash to weather this competition.”

Sometimes, established airlines can put the new entrant out of business. But more often, a big carrier like United, American and Delta can simply persuade an entrepreneur Neeleman to grow outside of the large airline’s sphere of influence.

“[You can] discourage that new entrant form playing in your sandbox,” Engel said. “You want to signal to that competitor there is more fertile turf for them somewhere else.

Competition ‘a Very Good Thing’

But JetBlue, which has had its own trouble getting access to key airports, won’t try to keep out Neeleman or any other new entrant from its markets, Hayes said.

“It’s one of the biggest challenges we face in the U.S. in terms of a sound and robust competition policy,” Hayes said. “Consumers benefit when fares come down and fares come down when you have more competition and to have competition in congested airports, you need access. Absolutely, we think that should apply to everybody. ”

Of course, behind the scenes, JetBlue may prefer Neeleman not re-enter the market. But publicly, Geraghty said another new entrant — the first since Virgin America started flying in 2007 — is important for the U.S. airline industry.

“We generally view competition as a very good thing,” she said. “In an industry that is dominated by a few very large carriers, it’s so important for customers to have a choice. The impact that airlines like JetBlue have on driving prices lower and forcing others to up their game on a service perspective is so important.”

The top JetBlue executives may not mind Neeleman’s reappearance because they always expected it. Almost since Neeleman was pushed out, there have been whispers he would return.

“It didn’t surprise me,” Hayes said.

Added Geraghty, “I don’t think he ever left.”