A Smokeless Herb JetBlue founder David Neeleman, a Mormon, doesn't even touch coffee. But for sheer startup magic, he could be Kelleher's match.
(FORTUNE Magazine) – Preparing to meet JetBlue Airways CEO David Neeleman--by all accounts the most successful, innovative airline founder to hit the scene since Herb Kelleher--I'm thinking I'll encounter a certain swagger. A kick-ass attitude. A guy who's going to knock me off my feet. I guess I'm expecting Herb II, to be honest.
What I find when I actually interview him, in Syracuse, N.Y., catches me completely off guard. Neeleman has just completed a rather low-key press conference marking the inauguration of JetBlue's daily service into the town, and he sits at an airport gate that's teeming with passengers, airport employees, kids, politicians, local newspapermen. Neeleman mentions something about his "philosophy of life." I ask him what he means, and he mumbles something about customer service. Neeleman's gaze shifts across the gate area, where one of his executives is fumbling with her purse. "She is so funny," he says, perking up and waving at her. I try asking him another question. Seeing a friend, he jumps out of his seat and walks away.
Neeleman, 41, has told some people that he thinks he has attention deficit disorder. To me, he has mentioned merely that he gets "easily distracted." Whatever his deal is, he hardly seems like the kind of outrageous extrovert who can make an airline fly--the kind of leader who, through the sheer force of his personality and the example of his dedication, can inspire employees and customers to turn a business that's fundamentally flawed into a money-making machine. Neeleman's no Kelleher. He's a college dropout, not a hotshot lawyer; a Mormon with nine kids who won't sip coffee, much less chain-smoke cigarettes and toss back the Wild Turkey. He doesn't have much time for partying, and he says his only pastime--other than hanging out with his kids--is reading history books (he's particularly interested in the "post-Christ" period). But you shouldn't be fooled. David Neeleman wants to one-up Southwest. And in his own idiosyncratic way, he may very well pull it off.
By anyone's measure, Neeleman's JetBlue, which has been flying for only 17 months, is a runaway success. It operates out of New York City, the largest market in the country, sending planes to five destinations in Florida, four in the Northeast, and five out west. Like Southwest, JetBlue offers low-fare service. It flies mostly in secondary markets. It keeps its costs low. It "turns" its aircraft quickly, keeping them in the air and earning money. Unlike most startups, which buy cheap, old planes, Neeleman's airline flies new Airbus A320s. JetBlue doesn't serve meals, but it lets passengers pick their own seats, has leather upholstery and free satellite TV, and will soon introduce a frequent-flier program.
"Customers have gone berserk for this," says Miami airline consultant Stuart Klaskin. Michael Lazarus, a partner at the San Francisco venture firm (and JetBlue backer) Weston Presidio, says he's had people thank him after they've flown on the airline. "We don't spend tens of millions of dollars telling people how cool we are," Neeleman says. "We put low fares out there and let them tell us." JetBlue estimates that 74% of its first-time passengers choose the airline because of good word of mouth.
Industry types can't help but be impressed. In February, JetBlue filled a greater proportion of its seats than any other U.S. carrier. People who try the airline tend to come back: 21% of its passengers fill 50% of its seats. Neeleman claims that his costs per passenger mile (the standard measure of airline efficiency) are the lowest in the industry, even lower than Southwest's. He also says JetBlue is profitable. The privately held company doesn't release numbers, but Neeleman hints that margins have been huge. JetBlue's first-quarter profit-sharing contribution--that's 15% of what it netted--was greater than Neeleman had thought total profits would be for the period.
How on earth is that possible? Just as with Southwest and Kelleher, the answer lies somewhere in Neeleman's DNA. JetBlue is Neeleman's third successful airline startup. Back in the early '80s he was co-founder with June Morris of Morris Air, a low-cost carrier based in Salt Lake City. The company was on the brink of an IPO when Southwest snatched it up for $130 million. (Neeleman, who was 33 at the time, reportedly made $20 million on the deal.) He signed on with Southwest but found the place too regimented (!) and left within five months.
Kelleher made Neeleman sign a five-year noncompete agreement, so the younger man went to Canada to help start another airline, WestJet. Neeleman also founded a company called OpenSkies, which makes software for airline reservations systems.
"He's a genius entrepreneur," says Kevin Murphy, a friend and airline analyst at Morgan Stanley. Agrees Dave Barger, Neeleman's No. 2 at JetBlue: "He has an uncanny knack for knowing when an opportunity's right." Like Kelleher, Neeleman takes notions that others dismiss outright and implements them so impeccably that in hindsight their value seems obvious. ("I love being contrarian!" he says.) Neeleman is widely credited with coming up with electronic ticketing (Morris Air first offered the service in 1993). He also recognized early the benefits of telecommuting; as far back as 1992 he encouraged Morris Air reservations agents to take calls in their homes.
At JetBlue, Neeleman's brilliant insight was to base his airline at J.F.K., the black sheep of New York airports. Low-cost carriers had always avoided New York City, the country's largest air market, because (1) flying out of LaGuardia and Newark is expensive, and (2) conventional wisdom had long held that you couldn't run domestic service out of Kennedy, which is farther from Manhattan than LaGuardia or Newark and, at certain times of the day, is choked with international flights. Neeleman saw things differently. If you hit J.F.K. right, he realized, you could pretty much sail through without delays. And Neeleman thought the convenience complaints were ridiculous. "Kennedy is only eight miles away from LaGuardia. It's like eight miles is 800 miles to some people," he says.
Convinced that he could run a Southwest-like airline profitably out of J.F.K., he set about pursuing partners who could make it happen. His track record served him well. Neeleman recruited Continental's Barger, who had turned around operations at Newark, to be president and COO. He raised $160 million from A-list investors: Weston Presidio Capital, J.P. Morgan Partners, Soros Private Equity Partners. Neeleman courted the right people in government too. By promising to provide jet service to Buffalo, Rochester, and Syracuse, he persuaded New York Senator Charles Schumer to help him get slots at Kennedy. Neeleman's partners all say they were blown away by his pitch. "I went in with enormous skepticism about investing in an airline," says Neal Moszkowski, a partner at Soros and a member of JetBlue's board. "But his presence, coupled with the strength of the team, was staggering."
So what gives with the distraction, the opacity I encountered in Neeleman when I tried to talk with him in Syracuse? I'm not the only one who senses it--even people who know him well often paint Neeleman in bland brush strokes. "He's low-key, and he's totally directed, and he has great faith, being a Mormon," Schumer says. "He's a nut job, but he's a focused nut job," grins JetBlue government affairs director Robert Land, without further explanation.
But Neeleman, I learn, has all the depth and force of personality I'd looked for at the start. He and Kelleher aren't polar opposites; they're different actors tackling the same part. The same day I meet Neeleman in Syracuse, he lets me tag along to an employee orientation where he plans to give a talk on airline economics. Standing at the front of the room, Magic Marker in hand, he talks with his new colleagues--baggage handlers from Buffalo, check-in agents from Oakland--calmly, naturally, explaining how JetBlue can make money when the big guys don't. He answers personal questions. He doesn't lose his concentration. You can imagine what Moszkowski saw when Neeleman arrived at his office looking for money. The man can be completely, utterly riveting.
But can he be the next Kelleher? If he can stay focused, the answer seems to be yes. JetBlue has big plans. It will add more routes during the summer and is scheduled to add a new airplane to its fleet every five weeks until 2008. Barger says the plan is to transport seven million passengers a year in and out of Kennedy by the year 2003. (To put that in perspective, Delta flew 10.8 million people out of the New York region last year.) Neeleman's hunkering down. He has moved his giant family east from Utah; talking to the Syracuse crowd, he asks the audience to "visit us in New York City." Will he be there 35 years, as long as Kelleher has been at Southwest? "Oh, I don't know--that's a long time, and I'm young," he says. "But once you've seen the bright lights of New York, starting an airline, what else are you going to do? Run a widget factory?"