JetBlue uses in-flight TV to lure travelers
By Doron Levin
Bloomberg News Service
Everyone knows air travelers prefer cheap tickets. It took JetBlue Airways Corp. to discover travelers may fly an airline because it offers TV. Real TV.
Bloomberg News Service
In each seat of New York-based JetBlue's 29 Airbus A320 aircraft, passengers can tune a monitor to the History Channel, ESPN, Golf Channel or 21 other channels offered by DirecTV, a satellite-based television service of General Motors Corp.'s Hughes Electronics.
Passengers aboard a JetBlue Airlines Airbus A320 enjoy live television during a flight. JetBlue has been offering free live TV on two dozen channels since April 2000 and agreed last week to buy the supplier, LiveTV LLC, for $81 million in cash and debt.
Amy Carpi, director of investor relations, says surveys of JetBlue passengers show that after cheap fares and new aircraft, TV service is the most important factor in selecting an airline — ahead of on-time performance, flight frequency and even pleasant service.
JetBlue has been offering the TV service free since April 2000, and is so optimistic about its potential to attract passengers it agreed this month to buy the supplier, LiveTV LLC, for $81 million in cash and debt.
After less than three years of operation, JetBlue is being noticed by a limping U.S. airlines industry, especially its larger, loss-plagued carriers. The situation mirrors Europe, where low-cost operations such as EasyJet and Ryanair have been prospering while big network airlines struggle.
JetBlue flies 29 planes and serves only 19 U.S. cities. Nevertheless, passengers and investment capital are flowing to the airline. The number of paying passengers in August was 542,301, a 68.7 percent increase over July, according to JetBlue.
Its market capitalization of $1.85 billion is larger than every carrier except Delta Air Lines and Southwest Airlines. The company said it had $295 million in cash on hand.
JetBlue's founders say they're building the company along the lines of consistently profitable Southwest, whose stock has experienced nearly 21 percent annual price appreciation during the past five years, while the Standard & Poor's index has grown an average 1.7 percent during the same period.
In the second quarter, JetBlue's first quarter as a public company, it earned $14.6 million or 33 cents a share on revenue of $149.3 million.
"We took basic Southwest and then differentiated in three ways," said John Owen, a former Southwest executive who now is JetBlue's chief financial officer. JetBlue's chief executive, David Neeleman, 41, was president of Morris Air Corp. until it was sold to Southwest in 1994.
A second difference is assigned seats, which contrasts with Southwest's first-come, first-seated policy. And those seats in which passengers watch live TV are leather; Southwest's are fabric.
"Leather costs twice as much as fabric," said Owen. "Leather also lasts twice as long as fabric." Southwest, he said, now is switching to leather.
Most of JetBlue's flights use John F. Kennedy International Airport in New York. A second, smaller hub has opened in Long Beach, Calif.
However successful they are, the limited size of JetBlue and Southwest pose a minimal threat to the much-larger network carriers. Nor are they the answer to the industry's current financial woes, which have resulted in the bankruptcy of US Airways and have brought United Airlines near the brink.
The small point-to-point airlines, however, do pose a challenge. They've proven that methods exist — TV, for example —for a low-cost, efficient airline to attract travelers while still making a profit.
