Business

JetBlue: Passenger Reimbursement Could Cost Upward of $30 million

posted: 22 February 2007 08:28 am ET

JetBlue Airways said reimbursing passengers stuck on about 1,000 delayed flights and updating its operations to prevent further problems could cost the airline USD$30 million or more.

"It's going to be very expensive," CEO David Neeleman said in an interview on NBC. "I don't have the final number, but it's going to be maybe USD$20 million or USD$30 million and maybe a little bit higher." Neeleman said the costs would hit first-quarter results and JetBlue would update its financial forecasts soon.

Low cost carrier JetBlue is struggling to make up ground after the worst crisis in its eight year history, as it cancelled more than 1,000 flights following an ice storm in the US 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. "We had a weakness in our system," said Neeleman on the "Today" show. "We were overwhelmed." the CEO said on Tuesday unveiled what he called the "JetBlue Customer Bill of Rights," basically a sliding scale of reimbursements for delayed flights.

The plan was in a language that appears to be designed to pre-empt moves in Washington to create an industry-wide passenger bill of rights. The reimbursements will apply retroactively to passengers delayed on February 14 or after, according to a JetBlue statement. Under the new plan, passengers will get a USD$25 flight voucher for flights that arrive half an hour to an hour late; a USD$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.

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 American Airlines flight in Texas on December 29.

The airline industry beat back a similar push for legislation in 1999 after agreeing to adopt a voluntary customer service initiative in response to a Detroit snowstorm that snarled Northwest Airlines' operations.