JetBlue CEO in hot seat as airline lags rivals
Staking the middle ground between full-service and ultra-discount carriers is tough.
Chief Executive Dave Barger (pictured) has helmed JetBlue for seven years, during which time the discount carrier has earned passenger awards for good service, but its stock has fallen.
Creeping costs are jeopardizing its low-fare strategy, and the nation's No. 5 airline by traffic performed poorly during this winter's bad weather.
Last month, JetBlue unveiled a sweeping management reorganization that included the departure of its chief operating officer and three vice presidents -- which fueled questions about the future for Mr. Barger, whose contract runs out in February.
In an interview, Mr. Barger, who is also one of JetBlue's dozen directors, said he expects to have discussions with the board over the next few months about whether to extend his employment contract. The 56-year-old executive said JetBlue will be "transparent" about whether he will be "continuing on or moving on." He joined the New York-based discounter when it formed in 1998.
Mr. Barger said JetBlue has a new focus on containing costs that he is confident will allow it to deliver on its financial goals. And he pointed to initiatives like JetBlue's growth in Boston and its move to faster, satellite-based Wi-Fi on its planes that he said are starting to pay off.
"The investments that have been made over time are germinating," said Mr. Barger, who got the top job when the board ousted company founder David Neeleman in 2007 after an ice storm wreaked havoc on operations.
A person familiar with the board's thinking said Mr. Barger is considering departing and that, as a result, the board is "tentatively" looking ahead to what could follow. "I wouldn't say the board is unhappy," this person said. "Clearly the financial results have a ways to go, but there are a whole lot of things that are fantastic."
But many analysts and investors believe that JetBlue is marooned in an industry middle ground, between much larger, full-service carriers like Delta Air Lines (DAL) that are improving their service and profitability, and successful ultra-discounters like Spirit Airlines (SAVE) that go after passengers who don't want perks -- just rock-bottom fares. JetBlue has been profitable since 2009, but only marginally so and it often disappoints on quarterly profits.
JetBlue shares are up about 30 percent in the last 12 months, well above the stock's 52-week low of $5.95 but off their January peak of $9.44. The stock has underperformed its peers. Delta shares have doubled in the last 12 months and closed Monday at $38.61, near the 52-week high. Spirit's shares closed Monday at $57.42 a share, up from $28.01 a year ago.
JetBlue's board "has been asleep at the switch to some degree," said Will Nasgovitz, who manages Heartland Advisors' Select Value Fund, which held 2.8 million JetBlue shares at the end of 2013.
Mr. Nasgovitz said he likes JetBlue's potential, but "they need to be more focused on return on invested capital, being more aggressive on costs and boosting the top line through more ancillary" revenue. "I just think they've been a little bit late to the game, the C-suite and the board."
JetBlue's profit plunged 71 percent in the latest quarter to $4 million, while revenue rose 3.8 percent to a record of $1.35 billion. Part of the problem was the severe winter weather that caused JetBlue to cancel twice as many flights in the March quarter as it did for all of 2013, Mr. Barger said.
Meanwhile, excluding fuel and profit-sharing, unit cost -- the cost to fly a seat a mile -- rose by 6.3 percent, and labor expenses were up about 15 percent on a unit-cost basis, the biggest jump ever year over year.
"For value to be unlocked, we think there needs to be a change in strategy" at JetBlue, Wolfe Research airline analyst Hunter Keay said in a recent research note. He said he doesn't think the company is on track to meet its goal for 7 percent after-tax return on invested capital this year, a contention Mr. Barger disputes.
JetBlue also has encountered problems with workers. After the company agreed to a three-year, $145 million raise for its nonunion pilots, the aviators voted last month to join a union, which ultimately could boost costs further. Mr. Barger reiterated his disappointment, calling the lopsided pilot vote a "shortsighted, foolish decision."
The April management shake-up was an effort to address some of JetBlue's woes. Robin Hayes, a former British Airways executive who joined JetBlue in 2008 and was promoted to president in January, said in an earlier interview that the revamp was at the behest of senior management, not the board, and is intended to help the operations and revenue teams work better together.
Some see Mr. Hayes, age 47, as a potential successor to Mr. Barger. "At the moment, we're just focused on running the company and not speculating beyond the February 2015 date," Mr. Hayes said.
Earlier this month, JetBlue director Ann Rhoades told Bloomberg News that Mr. Barger was thinking about departing and the board began reviewing successor plans just in case, with Mr. Hayes a potential candidate.
Mr. Barger said last week he was "surprised" to learn of Ms. Rhoades's remarks but said, "I'm not going to try to enter into a conversation I wasn't in with Ann." Ms. Rhoades, a human-resources consultant who once served as a JetBlue executive vice president, didn't respond to requests for comment.
During Mr. Barger's tenure, JetBlue has slowed its punishing growth rate, fine-tuned its fleet and started moving to larger versions of its mainstay Airbus fleet. The carrier shifted nearly a third of its capacity into the Caribbean and near Latin America and signed passenger-sharing deals with 32 mostly foreign airlines. Coming up in June is the launch of its version of first class, called Mint, on flights from New York to San Francisco and Los Angeles.
"These aren't ideas," Mr. Barger said. "They're decisions that were made over the years and are happening now."
More from The Wall Street Journal
Seems jetBlue is drowning in tainted cool aide. Even if an individual overlooks the Airbus, 150 seats on the A320 seems like a waste. No 737-700 size aircraft?
I wouldn't drown in the Spirit cool aide. Some of their operations issues might be criminal not because of the Airbus exclusively. And, individuals complain about China's human rights violations? Passengers willing to watch someone get killed for a "cheaper" seat? Next time anyone flies Spirit watch if anyone falls dead outside the window and call 911.
Copyright © 2014 Microsoft. All rights reserved.
Pipeline owners are making big profits on oil coming from North Dakota's Bakken fields. But a lot of natural gas continues to be flared due to low prices.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.