How JetBlue Airways Became America's 5th Largest Airline

By Markets Fool.com

Today, JetBlue Airways (NASDAQ: JBLU) ranks No. 5 in U.S. airline market shareand posted a profit of over $400 million in 2014; $232 million when excluding the sale of LiveTV. But this airline didn't exist before the late 1990s, and its colorful history and rapid growth have made JetBlue what it is today

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Source: JetBlue.

Bringing humanity back to air travel
By the late 1990s, air travel had taken on most of the characteristics travelers are familiar with today. The regulation era had long since passed, and airlines had shrunk legroom, reduced amenities, and appealed to consumers through lower prices.

In 1998, JetBlue founder David Neeleman sought to create a new airline, which resulted in JetBlue and its goal to bring "humanity back to air travel."The new airline pounced on an opportunity to take advantage of both emerging technology and a lag in the airline industry. With technologies such as sattelite radio starting up in the 1990s and seatback TVs yet to be adopted by major airlines en masse, JetBlue was able to offer a more tech-centric flying experience before its larger rivals reacted.Passengers on JetBlue began to enjoy individual TVs at their seats andSiriussatellite radio, features that separated JetBlue from its peers

Perfect Timing
Since deregulation in 1978, new airlines have been popping up and collapsing so rapidly that even the closest followers of airline history would find it tough to name them all. But JetBlue's start-up came amid the founding of other successful new entrants such as U.S. ultra-discount carrier Allegiant Air, Britain's ultra-discount carrier EasyJet, and Canada's discount carrier WestJet Airlines.

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JetBlue and the late 1990s group of airlines were able to find success through two key reasons: The late 1990s saw a major economic boom boosting travel demand for all airlines and the new carriers started with lower cost structures than their established rivals largely due to younger workforces and lower compensation. With an economic boom and the success of previous airlines, JetBlue was able to raise vast amounts of capital making it the best capitalized start-up airline ever by its inaugural flight in Feb. 2000. This is not to say all late 1990s airlines survived but conditions for airline start-ups were highly favorable compared to the turbulent 1980s and the preceding regulation era.

But while economic boom of the late 1990s helped to get these airlines off the ground they soon encountered tough industry conditions following the 9/11 attacks. The entire airline industry lost billions of dollars and both United Airlines and US Airways declared bankruptcy in its wake, however JetBlue managed to remain profitable.Growing pains
With the goal of becoming a major Northeast airline, JetBlue faced the issue of slot restrictions. The one thing that JetBlue had going for it was that major existing carriers were not allowed to get more slots during busy hours, start-up airlines could file for an exemption. With the help of Sen. Charles Schumer of New York and Rep. Louise Slaughter of New York, JetBlue was able to get an unprecedented 75 slots from exemptions at New York's JFK International Airport from the Department of Transportation.

JFK gave JetBlue a strong base but it wanted more Northeast slots. These eventually came from Boston after low post-9/11 airport traffic and a major construction project made the Massachusetts Port Authority change positions. Having previously denied JetBlue, the Authority allowed JetBlue flights to begin in 2004 with the airport now being a JetBue hub.

These slots, combined with the airline's initial capital and capital raised from a secondary public offering in 2002, allowed JetBlue to grow dramatically. But a combination of rising fuel costs and low fare competition caused the airline to post a loss in 2005. In response, the airline launched its "return to profitability" plan, with a goal of $80 million in savings and increased revenue.The plan was successful, even in a tough economic climate for airlines that saw both Delta Air Lines and its eventual merger partner Northwest Airlines file for bankruptcy. Unfortunately for JetBlue, the return to profitability was overshadowed in the press by another event.

Source: JetBlue.

In 2007, the airline known for trying to "bring humanity back to air travel" got some bad press of its own. Because of a snowstorm, some of the airline's passengers were left in planes on the tarmac for several hours, in an event that caused a PR nightmare. In response, the airline developed a "Customer Bill of Rights" within a week and made it easily printable from its website.

The following year, the airline pushed forward, adding several new international routes, all within the Americas.

Despite the bite of the financial crisis, JetBlue survived and avoided bankruptcy while several other carriers including American Airlines, Mesa Airlines, Sun Country Airlines, Pinnacle Airlines, and Mexicana, sought bankruptcy protection. Not only has it survived, but the airline is also now riding the wave of increased airline profitability. Like almost all U.S.-based airlines, JetBlue shares are now near record highs as industry profitability soars amid higher demand, lower oil prices, and growing ancillary revenue.

The shake-up
JetBlue has long stood alone on certain passenger-related issues including checked bag fees and legroom, reinforcing its "bring humanity back to air travel" goal. But more recently, Wall Street has been pushing the airline to follow some of the moves other airlines have made to boost profitability.

With the retirement of former JetBlue CEO David Barger, the new management is now implementing some of these changes, including reducing legroom and charging for checked bags.

At the same time, management doesn't want to destroy the value of the JetBlue brand name. Being unique among airlines is valuable in an industry that's the third most hated of all, ranking better than only Internet service providers and subscription TV services.The push to make JetBlue more profitable while maintaining its brand image is an ongoing story that investors should keep an eye on in the future.

The bottom line
JetBlue arrived on the airline industry scene in 1998 by taking advantage of yet-to-be adopted emerging technologies to lure customers while catching tailwinds from the booming economy of the late 1990s that helped it raise capital and get off the ground. Surviving the post-9/11 industry conditions, a surge in oil prices, and the financial crisis; the airline has shown resilience in the face of outside challenges that have caused almost all legacy carriers and a plethora of smaller carriers to seek bankruptcy protection.

Investors interested in JetBlue should watch this airline closely since history is still being made and management continues to look for new ways to grow the airline both at home and abroad.

The article How JetBlue Airways Became America's 5th Largest Airline originally appeared on Fool.com.

Alexander MacLennan owns shares and options on American Airlines Group, which was formed from the merger of American Airlines and US Airways in 2013. He also owns shares of Delta Air Lines. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.