Crisis

You don't need to be a frequent flier to know that the friendly skies aren't so friendly
anymore.
Cramped, overloaded planes, flight delays, and bare-bones amenities are the norm on
most of the legacy carriers. But low-cost airlines like Southwest and JetBlue have found
opportunity in the misery, and captured more of the market, with competitive fares,
friendly service, and in the case of JetBlue, leather seats with television.
Founded in 1999, JetBlue has seen rapid growth and frequently tops annual customer
surveys of their favorite airlines. But on a Valentine's Day to remember (or forget) all
that changed.
HBS associate professor Robert Huckman, professor Gary Pisano, and research associate
Virginia Fuller tell that story in "JetBlue Airways: Valentine's Day 2007," a case taught
in the MBA course Operations Strategy that examines the confluence of issues leading to
what JetBlue founder, chairman, and then-CEO David Neeleman would later call "the
worst operational week in JetBlue's seven-year history."
A storm brews
It started with a winter ice storm forecasted to change to rain. With that prediction in
mind, JetBlue staff at New York's John F. Kennedy airport continued to load flights and
allow them to taxi to the runway. But conditions didn't clear as expected, and some
passengers waited for as long as six hours to return to an open gate. (Planes continued to
land in the poor weather; but FAA regulations regarding icy conditions prevented flights
from taking off.)
That day, only seventeen of JetBlue's 156 scheduled departures left JFK, a fact that
caused ripple effects throughout the system and displaced crew and aircraft. In
subsequent days, JetBlue management canceled more and more flights, angering
thousands of passengers, until finally, on February 20, normal operations resumed.
“It’s hard not to think there’s more than just an accident happening here.”
"When Gary and I teach this case we have several pedagogical objectives," says
Huckman. "The first is to ask students to evaluate JetBlue's operating system as of
February 13, independent of this event. Do they think the elements of the structure and
systems within the JetBlue operation are internally consistent with one another and
externally consistent with the organization's overall business strategy?"
A few vulnerabilities that come to light in the case are JetBlue's dependence on a
reservations system that relies on a dispersed workforce (many agents worked flexible
hours from home) and the Web—a low-cost solution that works well until thousands of
passengers need to rebook at once (JetBlue's kiosks at JFK did not offer self-serve
rebooking). JFK, which frequently experiences weather delays, is also a significant hub
for JetBlue.
Evaluating the response
In the second part of the class, Huckman and the students assess JetBlue's response to the
situation.
"This was such a dramatic operating event for the airline that it's hard not to think there's
more than just an accident happening here," Huckman remarks. "Now that you suspect
this, how do you react as a manager? How do you restore confidence among your
customers?"
Neeleman apologized publicly to over 131,000 customers affected by the cancellations,
delays, and diversions, offering varying levels of compensation. Passengers who were
stuck on a plane for more than three hours, for example, received a full refund and a
voucher for a free roundtrip flight.
On February 21, JetBlue also issued a Customer Bill of Rights—a move that was almost
as widely reported in the media as the airline's problems. The policy offers explicit
compensation for a variety of departure delays and onboard ground delays. It even
promises $1,000 if, through overbooking, a customer is involuntarily bumped from a
flight.
"Given JetBlue's strong reputation as a service-oriented airline, one of the issues students
wrestle with is whether or not the airline needed to be this specific in how the penalties
and compensation would work," says Huckman. The students seem to come down evenly
on both sides, he adds, with some feeling that JetBlue could have traded on its good
reputation and simply apologized without creating such a specific document.
Flight plan for the future
Finally, students discuss the longer-term changes they would recommend for JetBlue's
operating strategy while analyzing new systems being implemented in human resource
management and information systems.
"We had so many people in the company who wanted to help but who weren't trained to
help," Neeleman told the New York Times. "We had an emergency control center full of
people who didn't know what to do. I had flight attendants sitting in hotel rooms for three
days who couldn't get a hold of us. I had pilots e-mailing me say, 'I'm available, what do I
do?'"
During the crisis, Charles Mees, JetBlue's CIO, created a database to track crew locations
and contact information, later adding new functions that would allow pilots and crew to
type in their locations via mobile Internet devices.
Mees also set the goal of doubling the number of agents who could simultaneously use
the company's reservations system and of getting a Web-based rebooking system up and
running so that customers could reschedule a flight at the airport.
For his part, Neeleman focused on employee cross-training so that all 900 of the
corporate employees in JetBlue's Forest Hills office could assist at nearby JFK during any
future operational crisis.
“JetBlue is ultimately better for having gone through this.”
In class, some students suggest maintaining JetBlue's flexible approach to reservations
staffing while imposing contract terms that would call for all hands in the event of
demand. "You can't be an organization that simultaneously and completely fulfills the
wishes of employees, customers, and all other constituents," Huckman says. "You need to
decide what implicit and explicit tradeoffs will be built into your operating model."
JetBlue COO and airline industry veteran Russ Chew offered some firsthand insight
when he visited the classroom when the case was taught.
"I was impressed by how open he was about the nature of the issues that the airline
faces," Huckman remarks. "He helped the class understand that every organization of this
size, particularly one going through this kind of growth, needs to learn from its
experience—and that includes successes as well as events that don't work out as you
planned."
Some students in the class were affected by the JetBlue crisis, adds Huckman. "Russ
seemed to view his visit as an opportunity to educate students who may be in similar
roles in the not-too-distant future; he also saw it as a way to get feedback and let his
customers know that continuous improvement is something the airline takes very
seriously."
Beyond the core
The JetBlue case fits well with the overall course focus of growing and refining an
operating model, Huckman says.
"After you spend time perfecting your operation, you then need to think of ways to
unwind some of that focus to take on a new growth opportunity that may differ
substantially from yourarea of expertise," he notes. For example, another case in the
course, "BYD Company, Ltd.," examines the largest Chinese manufacturer of lithium ion
batteries and its movement into the auto industry, a potentially significant future
consumer of its product.
JetBlue's strategic shift isn't quite that radical, but since last year's crisis the airline has
begun to take on new aircraft, open new routes, and deliver on IT improvements.
"The general consensus is that JetBlue is ultimately better for having gone through this,"
Huckman says. "There are many ways for a growing company to improve; going through
a crisis is not necessarily the easiest path to take, but it does force an organization to
evaluate its operating processes rapidly and decide where it needs to create greater
formalization or structure."