Does JetBlue Have the Right Strategy?

Businessweek is questioning JetBlue's strategy.

Neeleman still has a lot more he wants to prove, though. He intends to spend some $7 billion to more than quintuple JetBlue's fleet by 2011, to 290 planes, which would make it bigger than US Airways Group Inc. (UAIR ) is now. Starting next year, he'll wield a new 100-seat jet to attack smaller markets that previously seemed safe from the discount onslaught. In short, Neeleman has dramatically upped the stakes in the airline wars. The reaction has been fierce, driving down JetBlue's operating margin and its stock price. There may be worse to come. After slashing costs and building up cash, wounded carriers such as American Airlines Inc. (AMR ) and Continental Airlines Inc. (CAL ) are now in better shape than they've been in years to defend themselves from JetBlue and other fast-growing low-cost interlopers. In late January, Delta Air Lines Inc. (DAL ) announced it would add eight new destinations from New York's John F. Kennedy International Airport, JetBlue's home base. And Delta and United Airlines Inc. have started their own discount airlines, Song and Ted, respectively.

At the same time, many of the discounters are increasingly likely to find themselves competing against one another as they try to expand their presence nationally. Even Southwest Airlines Inc., (LUV ) Neeleman's onetime employer and notoriously no-frills rival, is considering offering satellite-TV service and buying smaller planes, just like JetBlue. "JetBlue has effectively painted a fairly large target on its back," warns one competitor. Or as Jamie Baker of J.P. Morgan Chase & Co. (JPM ) puts it: "The industry is gunning for JetBlue."

How Neeleman handles these fresh pressures will determine which of two scenarios plays out: On the one hand, the counterattack from rivals could blunt JetBlue's ambitions or Neeleman and his team could fumble their growth plan. That would leave JetBlue a niche player under constant assault. "They have chosen a fast-growth approach," says Michael S. Allen, chief operating officer of Back Aviation Solutions. "It's going to require some good execution."

It sounds like some people are worried about Neeleman's overconfidence. If he was a regular Businesspundit reader, he would know that CEOs our brains play such funny tricks on us sometimes, and it can lead to bad management decisions.