JetBlue Founder David Neeleman on How New Airline Moxy Will Change the Way We Fly
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Ever since David Neeleman, at age 29, turned an obscure Utah charter company into one of the fastest growing airlines in the country—Morris Air, later sold to Southwest—he has maintained a reputation as the most indefatigable entrepreneur in the airline business. Best known for launching JetBlue Airways in early 2000, Neeleman hasn’t stopped there: After leaving JetBlue in 2008, he headed south to start up Azul, a Brazilian clone of the New York carrier, complete with TV seats and leather seats. Eight years later, in 2015, he acquired close to a majority stake in TAP Air Portugal, and began turning around the fortunes of the once-sleepy state-run flag carrier.
Now, at age 59, Neeleman is embarking on what might be his riskiest venture yet: to build a new U.S. airline that will carve out a niche serving travelers and communities that lost out in the wave of airline consolidation. The nascent carrier, using the working name Moxy, is amassing a war chest of $100 million and has ordered a fleet of 60 Airbus A220 jets, a new type of plane that Neeleman says will allow him to keep fares low while providing good service. He is, after all, the same guy who promised to “bring humanity back to air travel” nearly 20 years ago, a pledge that drew ridicule from critics—until JetBlue proved them wrong.
You’ve started up or gotten involved in more than six airlines at this point—and yet now, you want to launch another new airline in the U.S.? Why? What keeps on drawing you into this business?
I don’t start airlines for the sake of starting airlines. I do it because I see that there’s an opportunity. Even when I started Morris Air, there was a vacuum there in the West. When I helped start up WestJet, the Canadian airlines were consolidating. And with JetBlue, Kennedy Airport was wide open and the legacy airlines were big and bloated. Today, we are getting back to the point where there is a lot of concentration in the industry and the legacies aren’t doing a lot of flying that people really want. So we are going to try to fill that gap. If there is an opportunity, then I can build a better mousetrap and do something that others aren’t doing and can’t do.
With your new domestic airline, Moxy, you are entering a very different landscape from when you started JetBlue nearly 20 years ago. Instead of going up against, say, six or seven big network airlines, it’s now three huge network airlines that dominate the market. How are you going to meet that challenge?
True, it’s very different now. These guys are bigger and stronger, and they’re better than they were when we started JetBlue. They use technology better. And in the case of Delta, they do give good customer service, people seem to be motivated. Their planes are new. That’s not it. But because their costs have kind of crept up again, they have really become hub focused. There are a lot of cities where, if you don’t go through the hub, then you know you can’t get there nonstop. So there is an opportunity to get people there twice as fast at half the price.
So would you consider this an “ultra-low cost” carrier, then, in the mold of a Spirit or Ryanair?
I think it’s going to be low cost, but when you say “ultra-low cost,” that means you have to treat everyone like garbage. I prefer to say we are a high-tech company that just happens to fly airplanes. We are going to build all the technology out; it’s going to be like using the Uber app or the Amazon app, and we will have a whole menu of things on the airplanes and on the ground, and we will take care of you.
But how is this going to improve the experience? Technology can only go so far in giving customers what they need.
Technology can handle 90 percent of it. When was the last time you talked to somebody at Uber or at Amazon? If you have a weather situation and a disruption, and then you’re going to sit on the line for 30 minutes to speak to someone? I can offer to you: “Here are all the flight options you have: Would you like to pick another flight, or would you like to get a full refund?” and you can basically decide that without having to waste up to an hour where they’ll tell you the exact same thing. So I think it can actually be much better for the customer. There are so many things technology does better than humans. But, that said, there’s also an overreliance on it. At JetBlue we always said “high tech-high touch.” We’ll be able to talk to you.
In the technology vein, do you have a dream team coming together—are you developing a proprietary algorithm or app that you think will really give you the edge over the competition?
Oh, absolutely. Listen, I don’t get planes until mid-2021, so I have plenty of time to develop all this technology. We have a team right there in Salt Lake City, and that’s where I built my reservations company, Navitaire. [Editor’s note: Navitaire is the current incarnation of Open Skies, the reservations platform Neeleman started in the 1990s that, among other things, helped develop ticketless technology.] And our advantage? Well, it’s really hard when you have an airline already going to introduce a new technology, as you have all these millions of people flying every day. So the typical way airlines do this is through cutovers and switchovers, but that’s kind of like changing the tires on a car as it’s going down the freeway. So if you can do everything from scratch, it’s just a lot easier.
The phrase ‘clean sheet of paper’ resonated when you were starting up JetBlue. Does it feel like that again?
I doubt we will have a single route where we will have a competition. Every route, we’ll be the only one flying it nonstop. And you know the power of that: At Azul, on 70 percent of our routes we have no nonstop competition.
But the U.S. is a more mature market from an aviation standpoint than Brazil. What types of routes and markets are you looking at? Are you going to focus on secondary, or even tertiary, markets in the U.S.? Could you go international?
With the A220, we bought a plane that has maximum flexibility. So we could do all of the above. Fly it short, fly it long. Fly off long runways, short runways. We want to be able to have a premium cabin. With the plane, I could do a domestic first class, I could an international lie-flat product. I could switch things out season to season. I can fly up to nine hours, which is 4,000 miles. That means I can go from the Midwest to Hawaii, I can go from the Midwest to Portugal, or I could go from Florida to any place in Brazil. I could go transcontinental, or I could fly from North Carolina to Florida. That’s what gives us the edge. You can’t be tied into one thing, because opportunities appear and then they disappear. It’s not like building a big office building in a city—we can basically move things around.
How are you going about deciding, though? Which airports and cities are you considering?
There is a line around the block of people wanting to talk to us, wanting to get service. Finding the airports is not the problem.
What about the airports that lost out in the merger and consolidation wave, like Cleveland, Memphis, St. Louis—is that the kind of opportunity?
I’m not going to mention any cities; I don’t want to give anyone the competitive advantage. [Laughs]There are a lot of cities that have suffered. There is a lot of opportunity.
How is the process of naming the airline coming along? With JetBlue it sort of happened, but with Azul you had a contest, right? Which way will it go this time?
Yes, we had a contest for the new airline in Brazil. We had two names that won. One was the name that got the most votes, but I didn’t like it. [Laughs] So I picked one of the other ones that had been suggested, Azul, which is Portuguese for blue.
Currently you have airlines or airline projects on three different continents. How do you stay on top of things?
It’s not a difficult as you think, because I have great management teams. They run the airlines day to day and I provide strategic direction. They do the nitty gritty. Azul is one of the most on-time airlines in the world. And TAP is in a turnaround mode. We have got a great team that is running that. Next year, TAP is getting 34 new planes, almost four a month. And so passengers will see new planes, and more frequency to more destinations. We have seven destinations in North America, and when we bought a large stake in the airline, we had two. Then we added Boston and JFK, and we just added Washington and Chicago. [Editor’s note: TAP Air Portugal just announced that it will fly five weekly nonstop round-trips, year-round, between San Francisco and Lisbon beginning June 2019.]
TAP is a 70-year-old foreign flag carrier, after all; it’s as far from a startup as you can get. How do you innovate in that context?
You provide the vision. This was an airline that had a lot of potential but just didn’t have the capital. Lisbon is phenomenal place to have a hub: it’s only a 30-40 minute flight from Morocco, it’s close to Africa, close to South America, it’s close to North America. It’s a perfect place to connect to other points in Europe, in fact, 30 percent of all the traffic that goes from Brazil to Europe comes through Portugal. We did a stopover program and had around 150,000 people stopping over. Portugal is suddenly the hottest place in Europe, and now you can get there. We are growing at 15 percent a year.
Other than your involvement, what’s the connection between your Brazilian and your Portuguese airlines?
We codeshare, we switch customers, we connect. Azul just announced service from Viracopos, near São Paulo, to Porto; we serve Brazil, and they serve Lisbon. We are working on a joint venture together—the outlook is good.
Back to Moxy. When you do plan to file for authority to start up your new airline with the Department of Transportation?
Probably the middle of next year. In the next six or eight months.
At JetBlue you famously had a corps of ‘ladies in bunny slippers’ working as part-time reservationists from their homes in Salt Lake. Will you have something like that this time?
Yes, we will have them. But there won’t be as many. They’ll be chatting with you. If we absolutely have to, we’ll call you. You won’t call us. You won’t be on hold. And there won’t be a call center. With a lot of technology, we don’t need the same number of people.
What’s the category killer for your new airline? With JetBlue you had live TV, leather seats, more legroom, and all these amenities that no other airline offered on domestic flights. How are you going to stand out now?
The category killer is being able to charge half the price [of the going rate].
But why do you think you’ll be able to charge half the price?
We’re just going to be more efficient. Today, people living in a lot of these small cities have to connect through hubs if they want to fly anywhere, and the cheapest fare is like $400 or $500. We can do it for $100 each way. We’ll get you there in an hour and a half instead of three-and-a-half hours. The reason is just the way their [the legacy airlines’] structure is set up today—they don’t have the nonstop service to those smaller markets, so they don’t really price for those customers.
Just today I was trying to fly one of my guys, who’s in Kansas City, to New York. And it was $450 (one-way). So then, he priced it from San Diego and it was $179 one-way to go to New York from there! So these people suffer; there are a limited number of flights in these places. And even going from Kansas City to San Diego—to nab the great New York City fare—was going to cost him $380. So it’s not that my costs are going to be a lot lower, it’s because I can go nonstop.
I can say, This flight is going to cost me $49 per seat to fly, and I can turn around and charge $99, and on average, I’ll break even on a 50 percent load factor. What is the going fare in the market? It’s $250. So, you ask, why do they charge $250? I don’t know why they charge that. They have some flights that make money and some that lose money. They have to do it because they’re charging $179 to go from JFK to San Diego. It’s a cross subsidy, that’s the way it works. At Azul, we have some pretty high fares. We make money, but we aren’t making egregious amounts of money. It’s just the way the business works. You just have to find those pockets of pain where you can do it better.
What bugs you the most about flying today, and what’s the single thing you would change if you could?
The functionality of the apps and just doing whatever you want to be able to do on the app. I’d like to see total functionality. But I think by and large, air travel is working pretty well today. To be honest, I am either flying in first class or premium class. I’m not in the category of people who get on last and get their bags forcibly taken away from them and have to pay $50 to check their bags. I don’t think flying is necessarily that bad, but then again, I live in a place with access to major airports with a lot of nonstops. I don’t have to deal with what a lot of people have to deal with, paying really high fares and not being able to get where they want to go.
One pain point in air travel that seems highly resistant to a fix is the boarding process; it only seem to get worse. Any thoughts on how it could improve?
Without redesigning airplanes, there really isn’t much you can do. I came up with a design 20 years ago that I tried to get Airbus and Boeing to do, where you’d have all these platforms with the seats on them. You’d board everyone at one time. You’d step up to the platform and all the luggage you’d usually put overhead would go underneath you. It would be put on a mover that would take you out to the airplane. Sides (of the plane) would swing open, and it would suck out the people getting off the airplane, change levels, suck you on, and then take off and then when it lands you do the same thing. Unless you do something like that, you’ll keep on having to get on earlier and earlier.
They [airlines] keep stuffing more seats on airplanes, the planes are getting bigger, and it just takes a lot of time to get all these people and all their stuff onto the overhead bins. And then there are these guys who take their sweet time and won’t get out of the way. And people are pushing people and yelling at them. It’s a design issue. But there is also stuff you can do that’s simpler. At JFK, JetBlue is starting to deplane from the back of the plane as well the front. There are things you can do like that.
What did the aircraft manufacturers think of your idea?
I think one of them got a patent on it—I think maybe Airbus did. [Editor’s note: They did.] You wouldn’t need big long concourses, either. You wouldn’t need all these ridiculous airports, and you wouldn’t have to wait to deplane. These capsules would take their place. Everyone enplanes at the same time and deplanes at the same; you just grab your bag and go. No one ever damages your bag. No one ever loses your bag.
One thing you do have control over is how many seats to put on the plane. What kind of legroom and seat pitch are you considering?
It depends on what you want to pay for. When I got to Portugal [to run TAP] they said, “You aren’t going to do an ultra-low fare carrier, are you?” And I said, “Ryanair is killing us,” we’re going broke, and they just gave 800 million euros back to their shareholders, so obviously somebody likes that model. So we devised a Ryanair-type model in back of the airplane: twenty-nine inch seat pitch, and you pay €29 ($32). You don’t want to deal with that? Then you get 34 inches of seat pitch and no bag charge, and you pay €99. You can’t complain about paying a $39 fare if that’s what getting the people traveling.
People want choice, and that’s what we’re going to give them. It’s all about real estate, right? If a seat takes up twice as much space, we’re going to charge you two and a half times more for the seat. If you want a seat that you don’t want to pay up for, then you sit in this seat. You all get to pay what you want to pay. And then if you want a meal, order that in advance put it on your tab, and you will get it delivered to you on the plane. It’s all about choice.
It’s a very different model than Southwest and JetBlue where, at least at the outset, the idea was that it was one-class, everyone gets the same treatment.
Some people, and those who can afford it, just want to have more space. Everybody wants to get upgraded and nobody ever does. Why not give them a plane that has 36 first class seats on it instead of 12? I’m not saying that I’m doing that, I am saying that these are options. You could have different layouts. You could change them around. [Editor’s note: another key feature of the A220 is that it’s designed to have just one middle seat per row, not the usual two.]
How fast are you taking delivery of the planes?
About one a month. [Editor’s note: Neeleman has ordered 60, so it will take five years to get all of them.]
Back to the name. How urgent is it that you come up with a brand?
I am not worried about the name. That was on the agenda today at our meeting, and I said, “Take that off, I don’t care— that’s not urgent, that’s not important. Let’s talk more about technology.”
You must use a lot of airline-aviation apps. How well do they do the job?
None of them stand out as particularly good. They’re just good for checking in, and just the basics. I want to give you the full travel experience. We are going to have that whole travel experience, and we’ll offer other travel products to you. I see us as a technology travel company. We’re looking at the whole range of travel offerings.
So what worries you the most?
Getting the planes.
What about JetBlue? What will it be like going up against your former airline—and one that you still have a stake in?
I’m not going to fly anywhere they fly. JetBlue has five percent of the total market, and so that leaves 95 percent that they don’t fly. There’s plenty of room. I have a good relationship with them—I talk to Robin [Hayes, current CEO of JetBlue] all the time.
Source: CN Traveler https://www.cntraveler.com/story/jetblue-founder-david-neeleman-on-new-airline