JetBlue’s Founder Aims to Reboot Discount Flying With U.S. Startup

(Bloomberg) -- Serial airline entrepreneur David Neeleman is determined to make his next carrier stand out in a market where rivals large and small shoehorn budget-minded travelers into cramped cabins.

His proposed low-cost airline, with the working name Moxy, plans to offer passengers novel ways to customize their experience: from legroom to food to price. The founder of JetBlue Airways Corp. now wants to create a “technologically advanced’’ carrier flying a mix of short hops and longer direct routes, all in Airbus SE’s newest single-aisle jet, the A220.

JetBlue’s Founder Aims to Reboot Discount Flying With U.S. Startup

“JetBlue was a customer service company that just happened to fly airplanes,’’ Neeleman said in an interview, speaking publicly of his plans for the first time. “Moxy will take that a little bit further. It will be a technology company that just happens to fly airplanes.’’

Neeleman, the majority investor in the new venture, is looking to burnish his track record for successfully starting airlines in an industry littered with failures. He co-founded Morris Air in the U.S. before selling it to Southwest Airlines Co. He also started Canada’s WestJet Airlines Ltd. and Brazil’s Azul SA, and is in a partnership that holds a 45 percent stake in Portugal’s national airline, TAP.

‘Not Austere’

Investors and competitors are watching as Neeleman’s latest airline takes shape, starting with a deal unveiled in July for 60 of the A220 jets, which were developed by Bombardier Inc. and formerly known as the C Series. The carrier will be entering a market in which the four biggest airlines are locked in a vicious battle with heavy discounters such as Spirit Airlines Inc. and Allegiant Air.

“I think there’s probably a spot for ultra-low-cost, but not austere,” said aviation consultant Robert Mann. “He won’t start out with the same old used equipment. He’ll do what he did with JetBlue: spend the money and make it fresh and new.”

Still, there are risks. Neeleman is using a new, relatively unproven, aircraft that seats about 150 travelers, smaller than the norm for budget airlines. Jammed airports, rising fuel prices and a pilot shortage are driving other airlines to order larger Airbus and Boeing Co. models in droves.

“We’re looking at a world where airlines need bigger airplanes to defray costs,” said George Ferguson, an analyst with Bloomberg Intelligence. “That’s not the A220 -- that’s the A321,” Airbus’s longest single-aisle jet.

Industry Transformation

Neeleman, 58, is returning to a U.S. industry that has been transformed by a wave of consolidation since he left JetBlue. The shares climbed 30 percent from the company’s initial public offering through Neeleman’s exit as chief executive officer in May 2007.

A Standard & Poor’s index of major U.S. carriers fell 47 percent during the same period, during which United Airlines, Delta Air Lines and US Airways filed for bankruptcy.

During the last five years, by contrast, the S&P airline index has more than doubled. Steady profits in the billions of dollars have enticed investors including Warren Buffett, whose Berkshire Hathaway Inc. is the biggest shareholder in Delta and a major investor in United, Southwest Airlines Co. and American Airlines Group Inc.

Aircraft Motivation

For his next airline, Neeleman promised “innovative approaches” to recruiting pilots, and said the A220 itself helped motivate him to start another carrier. The new jets are designed for greater passenger comfort, even in the cheapest seats, with bigger windows and a seating configuration in coach that leaves only a single middle seat per row.

“The airplane made the proposition more interesting,” Neeleman said. “The combination of the opportunity plus the airplane compelled me to do it.”

The aircraft’s trip costs and fuel-efficient engines will provide a buffer against volatile fuel prices, he said. Air Baltic, the first airline to operate the larger A220-300 model that Moxy will use, is planning a move to an all-A220 fleet after concluding that the jets are more efficient than the Boeing 737s it also flies.

The orders for A220 aircraft and Pratt & Whitney engines will be finalized in “a matter of weeks,” Neeleman said. The carrier will file for federal authorization to operate in the U.S. around the middle of next year. Flights won’t begin before early 2021, when the first of the planes, which have a list price of $91.5 million each, are set for delivery.

Lender Confidence

“The A220 allows us to offer a low fare without compromising everything else,” said Henri Courpron, an adviser to Neeleman and chairman of Plane View Partners.

As an adviser to Bombardier, Courpron helped forge a turnaround as the company formed a joint venture that gave Airbus control of the C Series, which had been a major cash drain for the Canadian manufacturer. Now Los Angeles-based Plane View is working to line up financing, potentially including sale-leasebacks, for Moxy’s first 30 planes.

While financiers had once been wary of the A220 because of its small operator base, confidence has picked up since the jet family joined Airbus’s product lineup in July. A healthy response to the Moxy aircraft would benefit other operators, including Delta Air Lines Inc., Mann said.

Bypassing Hubs

Neeleman said his new airline, which won’t keep the Moxy brand, will have “a very robust app” and some level of free internet access on board. It will offer “the ability to buy different seats based on how tall you are, how comfortable you want to be and how cheap you want a seat. Same thing with food.”

The name of the carrier and its headquarters city haven’t been decided, he said. Details of the route network are still being worked out and Neeleman is still assembling his investor group.

The airline will emphasize direct flights that bypass major airport hubs dominated by larger carriers. About 800 possible city pairs are under consideration, including international destinations, Neeleman said.

“The mantra will be let’s try to get people there twice as fast with fares 30 to 50 percent lower than they’re paying today,” he said. “I would be surprised if we have a single route at Moxy that has a single nonstop competitor.”

©2018 Bloomberg L.P.