JetBlue Airways said on Tuesday reimbursing passengers stuck on about 1,000 delayed flights and updating its operations to prevent further problems could cost the airline $30 million or more, sending its shares down more than 5%.
David G. Neeleman, JetBlue's founder and chief executive, said the program, which includes improved procedures for crew members and reservations, would be expensive, but it was more important for him to look at the long-term benefit of regaining customers' confidence in the company.
In an interview on CNBC, he said Neeleman said JetBlue's first-quarter results would be hurt by the service disruptions.
"Hopefully, it'll be something that's contained to the first quarter," Neeleman said. The company plans to file an 8-K outlining the impact and will provide new guidance for the quarter.
He does not expect the proposed customer's bill of rights to boost costs in a meaningful way.
The carrier's shares fell 69 cents to $12.87 in morning trading on Nasdaq, down 25 percent from a 52-week high of $17.02 hit in mid-January. Shares of other airlines rose slightly.
JetBlue is struggling to make up ground after the worst crisis in its eight-year history, as it canceled more than 1,000 flights following an ice storm in the U.S. Northeast last week, leaving many passengers stranded. It usually operates about 600 flights a day.
The low-cost airline, which has won fans in the past for its reluctance to cancel flights because of bad weather, is blaming the problems on its inability to cope with rescheduling
so many flight crews.
Unveils Customer Bill of Rights
Neeleman on Tuesday unveiled what he called the "JetBlue Customer Bill of Rights," basically a sliding scale of reimbursements for delayed flights.
The plan was couched in language that appears to be designed to preempt moves in Washington to create an industry-wide passenger bill of rights.
The reimbursements will apply retroactively to passengers delayed on Feb. 14 or after, according to a JetBlue statement.
Under the new plan, passengers will get a $25 flight voucher for flights that arrive half an hour to an hour late; a $100 voucher for flights one hour to two hours late; the value of the one-way ticket for two to three hours late; and the value of the round-trip ticket for flights that are four or more hours late.
Other reimbursements apply for flights that are late departing or otherwise delayed by factors within JetBlue's control.
JetBlue will "take the necessary action" to get passengers off planes delayed on the ground for more than five hours, and will form a customer advisory council, which will be consulted
on improvement programs, according to the plan.
Neeleman added that no JetBlue employees would be fired over the delays and cancellations.
Passengers and Wall Street analysts were critical of JetBlue, but hopeful the setback would lead to improvement.
"The marketplace is holding JetBlue accountable, and like competitors before them, the pounding will lead to positive change," said Kevin Mitchell, who represents the interests of
corporate travel managers as chairman of the Business Travel Coalition.
Merrill Lynch analyst Michael Linenberg cut his full year 2007 earnings forecast to 40 cents a share from 50 cents, but kept his "neutral" rating on the stock. Analysts are expecting
53 cents, on average, according to Reuters Estimates.
"These things happen in the airline industry," said Linenberg in a note to clients. "At the end of the day, customers will return to JetBlue."
Lawmakers Consider Passenger Rights Bill
In Washington, JetBlue and other carriers still face challenges. Last week Rep. Michael Thompson, a California Democrat, said he planned to introduce a bill that would address delayed flights, time on the tarmac, cancellations, and lost or damaged luggage.
One of Thompson's constituents, Kate Hanni, launched a drive for a passenger bill of rights after she was stranded on an AMR's American Airlines flight in Texas on Dec. 29.
The airline industry beat back a similar push for legislation in 1999 after agreeing to a adopt a voluntary customer service initiative in response to a Detroit snowstorm that snarled Northwest Airlines operations.
Crowds At JFK Ease
Meanwhile, the onslaught of angry and disgruntled travelers at JetBlue's terminal at John F. Kennedy International Airport, its New York hub, appeared to ease on Monday as service desks functioned more smoothly. Customer calm prevailed despite the cancellations of 139 of 600 scheduled flights at 11 other airports.
Last week's ice storm, snow and bitter cold froze equipment and grounded the company's planes at Kennedy, stranding passengers inside them for up to 10 1/2 hours. JetBlue, which prides itself on low fares and good customer service, said it waited too long to call for help in getting the passengers off the planes because it hoped the weather would let up and the flights would be able to proceed.
The weather delays and cancellations led to customer questions and complaints that overwhelmed the company's reservations system, and many of its pilots and flight crews wound up stuck in places other than where they were needed.
Monday's cancellations gave the airline time to get equipment to the proper places and helped make sure all flight crews had legally mandated amounts of rest before flying again, JetBlue spokesman Sebastian White said. Planes were repositioned on Monday to be ready to go on Tuesday morning, he said.