"The place has been a graveyard for airlines..."
JetBlue founder David Neeleman sees big potential for his new Brazilian airline Azul
NEW YORK - When David Neeleman stepped down as CEO of JetBlue Airways Corp. a year ago, he swore he'd never start another airline.
"Shows you how compelling ... this Brazil idea really is," the JetBlue founder said of his latest venture, an airline — of course — that will appeal to Brazilians on service and price.
The 48-year old father of nine who has been involved in starting up three carriers north of the equator says he won't be launching another one on this side of the globe any time soon.
"If someone came to me and said, here's $400 million to start an airline in the U.S., I'd say, 'No way,'" Neeleman said over lunch in New York last week.
Oil at more than $120 a barrel, a slowing economy and fierce domestic competition are squeezing airlines. Most U.S. carriers reported sharp losses in the first quarter. Two — Delta Air Lines Inc. and Northwest Airlines Corp. — are combining to try to cut costs, and several others are said to be seriously exploring joining forces.
Analysts and industry insiders such as Neeleman say the solution to those problems, barring a sharp reduction in oil prices, is to cut capacity — the number of planes and seats chasing passengers. To an extent, that's why airlines need to consolidate, analysts say; they need to eliminate redundant routes and hubs.
But even Delta and Northwest are reluctant to identify potential cuts, saying they'll retain their hubs and routes, for now.
"We're all competing, and nobody wants to be the first to pull back," Neeleman said. "If they do, then the other guy takes his market. So, we're all on this ... Bataan Death March, marching along and losing money."
But Brazil is different, he says. Two carriers, TAM Linhas Aereas SA and Gol Linhas Aereas Inteligentes SA control more than 90 percent of the market, and prices are about 50 percent higher than they are here, he said. There is no passenger rail service to speak of; people who can't afford to fly travel long distances by bus.
Because most Brazilian flights require passengers to change planes at hubs, Neeleman's airline, Azul — which is Portuguese for Blue — will appeal to higher-end travelers by offering more nonstop flights. On the lower end, it will offer fares only slightly more expensive than bus tickets, hoping to not only take market share from Brazil's existing carriers, but to entice people who don't normally fly.
"We think that the market should be three to four times bigger," Neeleman said.
But penetrating Brazil's airline market may be harder than it sounds.
"Neeleman is up against very strong brands," said Bob Mann, an independent airline consultant based in Port Washington, New York.
"The Brazilian domestic market is not one that's easy," said Mike Boyd, president of The Boyd Group, an Evergreen, Colorado, consultancy. "The place has been a graveyard for airlines. ... That much said, if anybody can make a go if it, Neeleman would be the one."
Boyd thinks Neeleman's experience focusing on consumers will carry him far in Brazil, which Mann notes faces congestion and delay problems similar to the U.S.
Neeleman's new carrier sounds a little JetBlue-ish. It will use 118-seat E-195 jets made by Brazil's Empresa Brasileira de Aeronautica SA. JetBlue uses a similar Embraer plane. The planes will be outfitted with leather seats and free satellite TV — amenities familiar to JetBlue customers but virtually unheard of in Brazil.
Neeleman plans to start service next year with three planes, then add a plane a month until he has 76 in service. He has raised $150 million (€96.6 million) — about a third of that from Brazilians, the rest from the U.S. — and has invested $10 million (€6.4 million) of his own money. Neeleman was born in Brazil while his father was in the country as a Mormon missionary. He holds joint Brazilian and U.S. citizenship, which gets him around a Brazilian law blocking foreign citizens from owning more than 20 percent of an airline.
Azul will fly domestically at first, but may add international routes later. The airline will be privately held, with the intention of someday going public. Neeleman will hold voting control.
"I won't have the same issue (I had) at JetBlue," Neeleman said. "I'm not going to lose, you know, I'm not going to be surprised like I was last time."
And surprised he was, when JetBlue's board asked him to step down as chief executive and handed operational control of JetBlue over to President Dave Barger just months after an infamous Valentine's Day 2007 ice storm caused thousands of flight cancellations throughout the Northeast.
Neeleman apologized at length for JetBlue's missteps and took immediate steps to fix the airline's operational issues. For instance, he hired former American Airlines executive and Federal Aviation Administration official Russ Chew as chief operating officer.
But Neeleman's steps to fix JetBlue didn't prevent the board from deciding he was the problem.
"It was horrible, it was unexpected, it was really without warning," Neeleman said of the board's decision. But he adds, "I have to take responsibility for it ... I was communicating with everybody except the board, properly. So, the board kind of developed its own opinion of how things should transpire and what should be happening (going) forward."
Neeleman has remained chairman of JetBlue, but recently said he won't stand for re-election. He's selling JetBlue shares as part of a regular diversification plan, and says he'll continue to do so as opportunities present themselves.
JetBlue officials declined to comment. During a conference call last month to discuss JetBlue's earnings, Barger thanked Neeleman for his work at JetBlue, and wished him luck on his new venture.
Neeleman has long maintained that he is more of a visionary than a nuts-and-bolts airline operator. He is Azul's CEO at the moment, but is interviewing Brazilian executives to run the airline's day to day operations as chief executive. Neeleman also said he has learned a lot about interacting with a board of directors.
But it's clear Neeleman's in no hurry to return to the U.S. airline industry. Asked about the latest buzz, a potential merger between UAL Corp.'s United Airlines and US Airways Group Inc., Neeleman responded: "I'm glad I'm in Brazil."