Introducing JetBlue Airways’ Valentine’s Day Operational Crisis

Perhaps the best way to understand the stakeholder theory of management is through an example. This particular example, which will focus on an operational crisis experienced by JetBlue Airways, a company I was honored to have co-founded, will provide you with insight on the importance of understanding stakeholder interests and both good times and in bad. First in this video, I’ll provide some company history and then I’ll tee up what would eventually become known as JetBlue’s Valentine’s Day Massacre. A horrific operational meltdown that took place admits to one of the worst winter storms the New York metropolitan area had ever experienced.

Then later in this module, I’ll share how JetBlue executives viewed the interests of their stakeholders before the events of the storm played out, as well as how JetBlue executives tried to address their failure to serve these interests as the crisis progressed. I hope you’ll find an account of this crisis useful, relatable, somewhat entertaining, and wonderfully illustrative of the application of stakeholder theory. Throughout JetBlue’s first seven years of operations, which began in February of 2000 we had truly enjoyed an incredible track record of successes, despite some remarkably challenging times for our industry as a whole.

We were able to make a profit in our first full year of operations and after the tragic events of 9-11-2001, we were one of only three airlines who didn’t end the year with a loss, Southwest, AirTran, and JetBlue, the low cost, high efficiency carriers in North America. In 2002, JetBlue earned market of the year awards and was recognized for having created a unique identity in an industry with companies that on average word, dislike slightly more than the Postal Service and slightly less than the IRS.

In 2003 and 2004, JetBlue ranked at or near the top of most operational performance categories, filled planes more completely and efficiently than any other US carrier, and by the end of 2004, had a mass 16 consecutive quarters of profitability. In 2005, JetBlue had the highest customer satisfaction of any low fare airline according to JD Power and by 2006, it had the highest satisfaction score of any airline on the continent. Financially, although we were among the top performers for the entire US airline industry, we suffered earnings losses in both 2005 and 2006, $20.3 million and $1 million respectively, primarily due to rapidly rising jet fuel costs.

Despite the difficult operating conditions, JetBlue’s other performance metrics in almost every major category were number one or two among its peers. JetBlue was the airline every competitor was watching, and we were incredibly proud of our ability to compete. Also in 2006, our operating revenue total almost $2.4 billion, which represented a growth of over 39 percent from the previous year. We were by far the fastest growing and arguably best-performing airline in North America at the time. By the beginning of 2007, JetBlue’s fleet of Airbus 320 and Embraer 190 jet served 52 destinations with more than 575 daily flights.

While critics continue to ask about and warn us of possible growing pains, JetBlue was expanding rapidly and with a purpose and people, planes and destinations at a rate not seen for many years in the industry. For over seven years JetBlue had brought humanity back to air travel, our company’s vision statement and New York’s hometown airline had become what many called the darling of the industry. But as is so often the case, staying on top is often more challenging than getting there in the first place. 2007 began with great enthusiasm for JetBlue.

Despite a small loss in 2006, leaders across the airline were committed to overcoming the rising cost of jet fuel with a collection of efficiency initiatives that would ensure JetBlue’s return to profitability. The key for turning a profit in the first quarter of ‘07 would be to perform exceptionally well over the President’s Day weekend holiday. JetBlue you see, was primarily a leisure airline, which means that we mostly carried what we called VFR traffic, not visual flight rules, a term pilots and aviation enthusiast would know, but rather customers who were visiting friends and relatives, VFR. From a revenue perspective, this meant that JetBlue made money during peak leisure travel periods.

JetBlue always had done very well over the summer months because so many families traveled for vacations when their children were out of school. JetBlue also tended to make money on long holiday weekends. In the first quarter of 2007, President’s Day weekend was the only long holiday as Easter, typically a first-quarter holiday, fell in April of that year. So coming off a small loss in 2006, you can appreciate the sense of urgency, we had to operate a full and productive schedule over the long President’s Day holiday, which actually began on Valentine’s Day that year, February 14th, falling on a Wednesday before the long holiday weekend.

But as Valentine’s Day approached so did the weather, a winter Nor’easter storm toured the New York metropolitan area and landed full force on JetBlue’s primary base of operations, JFK airport on Valentine’s Day morning. The next seven days would be by far the most trying in our eight year history. By February 19th, as a result of our attempt to operate through the storm rather than canceling extensively like all of our local competitors had done, our company ultimately canceled more than a 1,000 flights, more than all of our competitors combined, stranded thousands of customers and cruise on planes in terminals, in cities away from their homes and away from their loved ones, and incurred tens of millions of dollars in losses.

Perhaps even worse, JetBlue sterling reputation was now seriously tarnished, perhaps permanently because of bad luck, flawed decision making, and multiple systemic and leadership failures. JetBlue found itself in its first true operational crisis, and the manner in which we dealt with that crisis would change the airline forever. Obviously, if you spend anytime flying somewhere in, out, or within the America’s, you know that JetBlue survived this crisis and has become the fifth largest airline in the United States. They’ve done so by learning from their mistakes, by viewing failures as opportunities to grow, to improve, to become more resilient.

How were we as the JetBlue leadership team, thinking about our commitments to various stakeholder groups as the holiday weekend and the winter storm of the century approached? How could we have possibly decided to try and operate while our competitors had decided to cancel not just some, but all of their flights in and out of the New York area? As you’ll see this case presents a fascinating opportunity for discovery. For lessons that are particularly well-suited to understanding the stakeholder theory of management, and for learning by exploring the perspective of each of JetBlue’s stakeholder groups, as they experienced diversion of JetBlue’s Valentine’s Day Massacre.