May 12, 2007

JetBlue replaces Neeleman as CEO

NEW YORK -- David Neeleman stepped down as chief executive of JetBlue Airways Corp. on Thursday, giving up operational control of the airline he built from a scrappy low-fare upstart into a perk-heavy carrier with nearly 600 daily flights.

Neeleman is being replaced as CEO by Dave Barger, who has been president, but will stay on as chairman.

The move comes less than three months after two winter storms forced JetBlue to cancel nearly 1,700 flights. Neeleman acknowledged Thursday that it was time for him to step aside and let the operating experts take over.

"I think the board has been talking about this for a long time," Neeleman said in an interview.

Neeleman had been CEO since 1998. He said he will focus on strategic initiatives by staying on as chairman.

Still, its quite a change for a business whose brand, some analysts say, became intertwined with Neeleman's personality.

"He has embodied the personalized service of that airline," said Richard Levick, president and CEO of Levick Strategic Communications in Washington.

However, pure energy can only carry a chief executive so far.

"While Neeleman's infectious enthusiasm and entrepreneurial spirit was perfect for the company in its early start-up and hyper growth phases, as the company matures, a renewed focus on operations will likely make JetBlue a stronger business," wrote William Greene, an analyst at Morgan Stanley & Co. Inc., in a research note.

Neeleman concedes that his entrepreneurial skills didn't translate well to the operational side of his business.

Storms on Valentine's Day and St. Patrick's Day essentially shut JetBlue down, forcing the cancellation of nearly 1,700 flights and stranding thousands of travelers throughout the Northeast.

To prevent a recurrence, JetBlue drafted a "customer bill of rights," under which the company now issues vouchers to some customers who experience delays.

The canceled flights and vouchers cost JetBlue $41 million, contributing to the company's first quarter loss of $22 million, or 12 cents a share. That was an improvement over the year-ago quarter, but was less than analysts had originally expected.

Last month, JetBlue lowered expectations for the rest of the year.

Neeleman said the change at the top isn't a direct result of JetBlue's storm meltdown. He characterized it as "a natural evolution" of JetBlue's leadership structure.

Neeleman said the change came at the request of the company's board, which wanted to separate the CEO and chairman jobs.

"It's just really good governance," Neeleman said.

Ray Neidl, an analyst at Calyon Securities, said the change isn't surprising. JetBlue has been consistently "rotating" new managers into the company in recent quarters, he said.

But one can't ignore the impact the storms had on JetBlue, he said.

"That was probably the final straw" for Neeleman, Neidl said.

Neeleman said JetBlue's hiring of Russell Chew as chief operating officer in the aftermath of the storms may have accelerated the timing of the CEO change. Chew's presence allowed Barger to focus less on day-to-day operations and more on managing the entire company, which in turn freed Neeleman to return to his roots as a corporate strategist.

"An entrepreneur comes in and he founds the company and then it gets going," Neeleman said of himself. But then, he said the entrepreneur found himself operating a growing, complicated business - which is not his strong suit. JetBlue operates more than 575 flights daily to 52 destinations.

"It's always tough to kind of let it go," Neeleman said.

Barger, 49, will retain his role as president. He joined JetBlue as president and chief operating officer shortly after Neeleman founded the airline in 1998.

Neeleman rejected any suggestion that JetBlue is a permanently damaged company.

"I don't think anyone ... thinks that we're walking wounded," he said.

Indeed, on Monday JetBlue said its April traffic grew 11.6 percent on a 12.8 percent expansion in capacity.

Levick says JetBlue customers are extremely loyal and have been willing to overlook the carrier's storm problems as an anomaly.

Neeleman said the subject of any change in his compensation did not come up with the board. Neeleman made $257,672 last year in salary and other compensation, according to Securities and Exchange Commission filings. Barger made $521,998.

Neeleman owns about 10.8 million JetBlue shares, or 6 percent of those outstanding.

Shares of JetBlue rose 49 cents, or 4.7 percent, to close at $10.89. The stock is off 36 percent since mid-January, when it hit an intraday high of $17.02.

By JOHN WILEN, AP Business Writer

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