David Neeleman Ousted as JetBlue CEO

David Neeleman was ousted as JetBlue's CEO in a surprise announcement today. He will be replaced with the company's longtime COO, Dave Barger. To put it simply, this is a major mistake for the company. Even though Neeleman blew it when it came to the Valentine's Day debacle, he is still the best person to run the company. The popular rationale for this announcement, which is probably true to an extent, is that JetBlue's board believes that now that the company has reached a certain size, it needs a person at the top who is more operations-oriented instead of vision-oriented. It was Neeleman's vision that many believe caused the mess on Valentine's Day, because the company grew too quickly without the proper emergency support systems, and it didn't cancel flights because of Neeleman's creed that customers prefer a heavily-delayed flight to a canceled one.

But while this departure may satisfy the board in the short-term, I suspect that in the long run, the board will regret its decision. The airline industry in the United States is very, very competitive right now (as if there were a time in recent memory when it wasn't), and operating a good airline is very important in order to retain customers. Unless the operation is run well, customers will have no reason to return. Given all the hassles flying entails these days, with weather delays and security hassles, any problems being caused by the airlines themselves are looked at with closer scrutiny by customers. Operations will destroy an airline if they aren't dealt with well (Ryanair may be the lone exception to this rule), and it's why Southwest Airlines has been so successful over the years. Southwest has a very simple business model, and has executed it very well with high on-time arrival rates and few mishandled bags.

If David Neeleman didn't run a good operation, then JetBlue would not have succeeded as well as it has. For example, Neeleman instituted a policy at JetBlue that required notification of headquarters if baggage delivery took more than 20 minutes. He also has been very generous with vouchers for free travel, even before the Valentine's Day incident. Passengers routinely receive vouchers if their in-flight entertainment doesn't work, a gesture passengers rarely see at other carriers. And he has created a company that provides some of the best customer service in the industry. There is little doubt in my mind that Neeleman has run a fantastic operation up until the Valentine's Day meltdown. That's not to suggest operations at JetBlue have been perfect; the airline has one of the lowest on-time performance ratings in the industry (partly due to JetBlue's concentration of flights in the Northeast, which is frequently hit with storms), although Neeleman has been working to correct that by scheduling flights with longer turnaround times to compensate for delays. Neeleman has learned from his mistakes during the Valentine's Day incident, and he deserves a second chance. Removing Neeleman won't help solve JetBlue's problems and it's unlikely to boost JetBlue's brand in the eyes of most customers. Even though he hurt the company tremendously because of the enormity of his errors that weekend, he is uniquely qualified to lead JetBlue forward, and the Board of Directors failed to recognize that.

What is needed in this industry right now, because of the intense competition within, is vision. JetBlue went on a mission over seven years ago to "bring humanity back to air travel". They did a very nice job of that, and they need to do that again. Flying has become much more difficult in the years after 9/11 due to longer lines at airports, more planes flying with an insufficient number of air traffic controllers to handle them, and hassles associated with more time-consuming (though not necessarily more rigorous) airport security. JetBlue needs to innovate once again, and only Neeleman is capable of doing that. The transition from Neeleman to Barger is symbolic in JetBlue's development as a company. This transition will help mark the moment JetBlue stopped being a start-up airline focused on innovation and instead becoming a mainstream airline focused on survival.

Innovation is what enabled JetBlue to develop such an enormous following from customers, and it's what enabled the airline to survive in the face of massive competition on the East Coast. Granted, JetBlue may not be able to make nearly as many innovations in the next seven years as in the previous seven, but it's essential to JetBlue's survival that the airline finds new ways to keep customers happy. Legacies have been able to gain and retain customers, particularly business travelers, with more amenities (such as premium classes), more extensive schedules and route networks, and attractive frequent flyer programs. Southwest, Frontier, AirTran, and Spirit have been able to gain and retain customers mainly due to low prices and simplicity of service. JetBlue is able to attract customers because it can find a happy medium between the two extremes. JetBlue offers low fares and plenty of amenities. But JetBlue's fares are typically higher than those of other LCCs, and if JetBlue fails to innovate, then the airline will be unable to maintain its price premium of $10-20 on a round-trip ticket. Other LCCs are adding amenities in a bid to compete, look at Virgin America (with first class seating and a fancy entertainment system) or AirTran (with business class seating and XM Satellite Radio). An innovation price premium is how JetBlue is making its money right now, and unless JetBlue tries to remodel itself and lower its costs substantially, the airline needs that premium to survive. Operations are important for retaining customers with any airline, but in JetBlue's case, innovation is just as important. I wish the best of luck to JetBlue, because I see trouble ahead if competitors can innovate more quickly. Neeleman can innovate; he has a track record of doing it. Barger may be able to, but in my mind, he's a much bigger wild card for the company than Neeleman is. Given the level of competition in the industry right now, the transition isn't worth the risk.