What Happened to JetBlue?
· The Atlantic
For airlines in the United States, going bankrupt is practically a rite of passage. Since the airline industry was deregulated almost 50 years ago, dozens of airlines have filed for Chapter 11, including each of the so-called Big Three carriers—United, American, and Delta. A notable exception has been JetBlue, which until recently was one of the industry’s few success stories. But after The Wall Street Journal reported last month that the airline’s mounting debt obligations moved senior creditors to hire restructuring advisers, some investors began assuming that bankruptcy was on the way.
JetBlue’s CEO, Joanna Geraghty, insists otherwise. On the company’s most recent earnings call, in late October, she at least temporarily assuaged investor anxieties with claims that the airline was not at risk of going under, and was on track to return to profitability next year. Even so, JetBlue is undoubtedly struggling. The carrier has lost more than $3 billion since 2019, the last year it turned a full-year profit, and its debt load has risen swiftly to about $8.4 billion. The proximate cause of the company’s current woes is obvious: Fuel costs have soared since the Iran war began. But the challenge the company faces is more fundamental than that. JetBlue has been struggling because it finds itself in what’s sometimes called the “mushy middle,” caught between discount airlines on the low end and the big legacy carriers, which have lots of expense-account-wielding business travelers and lucrative transatlantic routes, on the high end.
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When JetBlue began flying, in 2000, being in between was a strength: The company explicitly positioned itself as a stylish and plucky alternative to the ultra-low-cost carriers and the legacy carriers. It offered more legroom, good snacks, free satellite television, and leather seats to every customer, but still managed to be significantly cheaper than the big airlines. It was able to pull this off because its jet fleet was made up of only one type of plane, which kept maintenance costs down, and its workforce was not unionized. The carrier also initially offered just one class of seat, which helped it maximize space, even with the extra legroom.JetBlue’s marketing leaned into the idea that the company offered a new model for the industry, promising to “bring humanity back to air travel.” The carrier was so successful so quickly that legacy airlines tried to adopt this model for themselves: Delta and United started lower-cost, would-be JetBlue competitors in the 2000s, but both quickly failed. Meanwhile, JetBlue expanded its relatively low-cost, high-value offerings; in 2014, it launched a premium cabin for transcontinental routes called Mint, featuring lie-flat seats and fares well below those of the big carriers. By the late 2010s, it was the fifth-biggest airline in the country.
Over much of the past decade, though, that sweet spot in the market that JetBlue had made its own has shrunk. On the low end, new discount airlines have sprung up, offering no frills but also very cheap fares. On the higher end, the legacy carriers have gotten better at exploiting their lucrative revenue sources, jacking up prices on business travel and transatlantic routes, and using their giant customer bases to partner with credit-card companies willing to pay them billions.
JetBlue has found it hard to keep up. Even if the carrier had wanted to slash prices to compete with the discounters, its costs are now far too high for it to do so. Those jets that were brand-new when the company launched are aging, driving up maintenance costs, and its workforce began unionizing in 2014, driving up labor costs. (It also does not want to give up on the premium amenities that have made it so distinctive.) At the same time, JetBlue has struggled to compete with the legacy carriers for more profitable business travelers because most of its planes lack business- or first-class cabins, and the company doesn’t fly to nearly as many cities as the legacy carriers do. Nor has it been able to leverage its loyalty program, TrueBlue, the way the big carriers have leveraged theirs. TrueBlue will generate about $1 billion in revenue for the airline this year, which seems impressive until you realize that Delta makes more than $8 billion annually from the SkyMiles credit cards issued by American Express.
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These problems are in some respects specific to the airline industry. But JetBlue’s troubles are also emblematic of a basic fact about American business, which is that it has simply become harder for companies targeting the middle of the market to succeed. Traditional department stores such as Macy’s and Kohl’s have found themselves squeezed between big-box retailers and e-tailers such as Walmart, Target, and Amazon on the low end and premium retailers on the high end. Casual sit-down restaurants including Applebee’s and TGI Fridays have gotten edged out by fast-casual restaurants and fine dining. The disappearance of the American-made passenger car is also part of this story: Cars such as the Chrysler Sebring and the Chevy Malibu weren’t cheap enough, relative to their perceived level of quality, to compete with the perennially reliable Toyota Camry and Honda Accord, but they also weren’t fancy enough to compete with Lexus and Tesla. Consumers have become more price-conscious and are better informed about quality and cachet. So offering a pretty-good option at an almost-premium price doesn’t cut it anymore.
JetBlue is not doomed. It still has valuable assets, including most notably its brand, which remains surprisingly strong—even if it’s now doing many of the things that annoy people about traditional airlines, such as raising baggage fees. Its planes still have more legroom and free Wi-Fi. And next month, the carrier is going to be rolling out first-class cabins on many of its domestic routes, which should boost revenue. When fuel costs come down, the company may well turn a profit again. But being JetBlue is never going to be easy. It’s stuck in the middle, and these days, that’s the toughest place for a business to be.