JetBlue CEO cites hiccups in Embraer plane debut
Thu Jan 26, 2006 3:55 PM ET
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By Christian Plumb
NEW YORK (Reuters) - JetBlue Airways Corp.'s (JBLU.O: Quote, Profile, Research) chief executive on Thursday said the discount carrier had experienced problems with its new Embraer 100-seat jets which have led it to slow their introduction into service.
David Neeleman told analysts at a conference that the airline had set a too ambitious schedule for the debut of the Brazilian-made jet, whose problems have coincided with ongoing struggles at JetBlue with late flights.
"We have had some operational issues with the airplane," he said. The plane's introduction "certainly hasn't been up to what we thought we could do."
JetBlue shares were down 50 cents, or 3.7 percent, at $12.94 -- more than a one-month intraday low -- in afternoon trading on Nasdaq. The airline reports fourth-quarter earnings on February 1.
Some analysts have warned that the addition of the smaller jet to JetBlue's existing fleet of Airbus A320s risked adding an unneeded layer of complexity to its operations.
Neeleman, JetBlue's founder, has argued that the jets will end up giving the airline greater flexibility to serve mid-sized markets that wouldn't fill its larger aircraft.
But he said the plane, which JetBlue began flying between Boston and New York in November, had reliability rates "a few percentage points less" than its Airbus planes in terms of glitches which delayed flights.
In addition, Embraer has been delivering the planes about two weeks behind schedule, meeting the terms of its contract, but lagging what Neeleman said was an "aggressive" schedule the airline set for putting them into service.
"We're playing a little bit of catch-up right now," he said, adding that employees' lack of familiarity with the jet and its need to get certified for low-visibility flying had also slowed progress.
MISSTEPS CITED
JetBlue reported a 63.6 percent on-time arrival performance for December, according to Aviation Daily. Neeleman blamed the problems partly on construction near its JFK International Airport hub.
Neeleman also said JetBlue was moving to boost its revenue performance, which he said had suffered thanks to competition from bankrupt Delta Air Lines Inc.'s (DALRQ.PK: Quote, Profile, Research) low-cost Song unit and what he called JetBlue's own missteps.
"In the short term we have a few clouds to get through, some of them through our own doing," he said.
JetBlue will move its yield management and corporate finance departments, which had been based in Salt Lake City, Utah, and Darien, Connecticut, respectively, into its operational headquarters in Queens, New York, he said.
Song is due to be folded into Delta, though analysts are still unsure whether that will mean a reduction of its flights between New York and Florida, where it competes with JetBlue.
"We believe they have no choice but to cut capacity, which will certainly help us," Neeleman said.
Neeleman's cautious tone contrasted with a sunny outlook from low-cost carrier Southwest Airlines Co. (LUV.N: Quote, Profile, Research).
"I am confident that we'll be able to stand up here and be smiling as much as Southwest because we have a tremendous product and tremendous people," Neeleman said.
In an earlier presentation, Southwest CEO Gary Kelly reiterated the airline's target for 15 percent earnings growth and said he was hopeful the airline could maintain strong revenue performance for the first half.
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