David Neeleman has founded five airlines, including JetBlue. He recently launched a new airline, called Breeze.
His problem: How do you use technology to bring down the cost of airfares?
He's been working on that problem for decades -- from inventing ticketless travel in the 1980s, to building a 21st century airline where customers never need to call customer service to ask for help.
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Pushkin. Airfares are through the roof. You know this, and of course a key driver is the price of oil. But you know oil is not the only cost for airlines. Airlines have to pay staff and buy or lease planes and acquire customers. So it seems like right now is a great moment to take one of my favorite questions in general and apply it to the airline industry, how do you use technology to make stuff cheaper? And for today's show, I found the perfect person to answer that question for airfares. I'm Jacob Goldstein and this is What's Your Problem, the show where entrepreneurs and engineers talk about how they're going to change the world once they solve a few problems. My guest today is David Neilaman. David has founded by airlines, including most famously Jet Blue. Also, he founded a Brazilian airline called a Zool, where he is still the controlling shareholder, and most recently, David founded a new US discount airline called Breeze. David's problem is this, how do you use technology to drive down the price of air travel. Most of my conversation with David was about what he's working on at Breeze, but when I asked him about technology, he couldn't resist going back to the beginning of his career for just a minute. He started out booking package tours. Then in the early nineteen eighties, he launched an airline called Morris Air. And one of the first things he noticed was how inconvenient and inefficient paper tickets were. Tickets were like negotiable documents. They were like checks, and they would be issued and if you lost that thing, haven't forbid. Basically, they'd say, well, we'll have to wait one hundred and eighty days or longer to see if anyone uses your ticket. I don't use it, then we'll give you a refund. And so I can still remember, there's this guy named Stuart Thatcher, and he walked to my office and he said, we had all these people upstairs putting tickets in envelopes and mailing them out to people. He said, why don't we just give them a confirmation number, and then we'll put it on these little things that we can run through a machine and he can fold it quickly, and we'll just mail him a confirmation number. And then I looked at him and said, well, why would you give him a confirmation number over the phone. You sort of invented the Yeah, tickless travel, tickless travel. Yeah, I mean Southwest when they purchased Morris Aera, they didn't really realize what a great thing they did. So okay, so that's the forty years ago story. What is the thing you're doing now that forty years from now you're gonna be like, back in twenty twenty two, I was doing X. What's X? Well? I think what X is is taken a page from Amazon and from Lyft and from Airbnb. You don't ever want to talk to anybody. You want to have an app that people can do everything on and if they can't and if they get like frustrated, you want to have the ability for someone to ask you a question in writing that you can get back to them and the goal is in less than ten minutes and solve any issue they have so that you never have to have a call center. And that's cheaper for you than a call center because because it's asynchronous, because you can be talking to six people at one time. Huh. So you have six people at one time, you can be dealing their issues because not not you know, what's your confirmation number? They have to go find it or whatever that takes time. Okay, so that's a good one. So so having people basically text instead of call, that's a technological innovation that's going to lower your costs. What else, what's another one, Well, it's well, it starts with the app. You know, you have to have an app that's completely functional so you can self help. So if we said, you know, you want to change a flight, change your own flight you want to. You know, if we we've canceled flight on you because of whatever reason, you know, we can send you the option push this button to book on the other flight we have you on, or push this bent to get a full refund and credit for your next flight. It's all the self help things where you're taking care of yourself and you don't need to talk to one of us to do anything, and only when you get frustrated then you actually text us. But having a functional app that does all the stuff that an Uber app does or an Amazon app does. Yeah, so right, So in the same way that Amazon, say, makes it really easy to return things. Right, So I don't have to call if I want to return something, I just click a couple of buttons, print out the thing. And it's done. I don't have to call them. It's like that. If I want to change my flight or anything like that, an app with full functionality as much as possible, and then we can add on to that. And one more thing I want to mention. You know, if you book, if you book through Expedia or you book through one of these other online travel agencies, we don't have your information. They keep it because they guard it. You can't book a reservation with us unless you give us your cell phone number or your email. You have to give it to us. So that way, if there is a disruption or when there's boarding time and all that stuff, we can communicate directly with you all the time. Interesting and usually airlines about forty or more, they don't have that information for their customers and we have that. So that that's another important factor that we just decide to start. It's hard to change that once you're going, but once you start from a clean white piece of paper, you can do that. And so presumably that not only allows you to whatever, text me updates about my flight, but it also allows you to text me updates if you have a discount on that flight in six months or whatever. Right now, I'm in the system. Yeah, you're in our database. We can do some data mining and figure out, you know, what you like, what you don't like, and make sure that we target market instead of just blast out crap that you don't want to read. Everything's relevant to you. So there's this there's this trade off I've heard you describe from when you were launching jet Blue that was super interesting to me, and I'm curious to hear you talk about that, and then I'm curious to learn whether there's any kind of analog in launching Breeze. And the trade off for Jet Blue was having live TV and not having meals. And this was a time when, ay, you pretty much always got a meal on a long flight, and b live TV on an airplane was like science fiction. Right, It's twenty years ago. Netflix was DVDs in the mail. You couldn't watch TV on your computer. So I remember it was wild having live TV. So tell me about launching an airline at that time that had live TV but non meals. You know, it was a simple mathematical equation, you know, I have It's well known that I have add and I just get I used to hate to travel on airplanes. Because it was hard for me to read a book. It was hard to just sit there, and I just wanted to be entertained. I didn't have I didn't have a smartphone, I didn't have an iPhone, and I was kind of going crazy at the time. And so I was sitting in my office and I was trying to figure out if we could have movies in the seatbacks, and there was a couple of different outfits that were doing that. And then you know, one of our people walked in with this brochure and said, Hey, there's live television on these are on these private jets. Why don't we put that on our airplanes? And it was just like boom, that light went on and we talked to them and it was about a dollar a passenger per flight, and the other guys were paying about five bucks for mills for meals. Yeah, it's like five bucks for mills or one buck for live TV, you know. And I can just have baskets to snacks that cost less than a dollar. What's going to be more impactful with my brand new airplanes? And it just kind of blew everybody away. It was it was something that was so new and so exciting and it changed flying right. It was so unexpected, especially for what was basically a discount airline at launch, Like so you gotta move like that? Now, what is that? But for Breeze, you know, I think I think just getting on and flying first class for fifty percent more than coach, having streaming, you know, internet being served at flemingon Sandwich. So first class first class for about how much? Like give me an example of a first class fair on a route. Well, because the configuration the airplane, we only have to get fifty percent more for the ticket. So if we have a ticket for two hundred bucks, for an next one hundred dollars, you can go first class. So people right now are flying what's a transcontinental route you have going? Right now? We fly to Charleston, San Francisco. So are people right now flying from Charleston to San Francisco first class for three hundred dollars? Yeah, three hundred bucks each way? Okay, six hundred bucks round trip? Still very good. I will admit I'm going to California and I paid six hundred bucks more to fly coach, So I find that a compelling offer. So the cheap, cheap, relatively speaking, first class ticket is a big move. How do you do that? How do you get the cost down so you can do that? Well, we have you know, fuel fishing airplanes that are perceied, the most fuel fishing airplanes in the sky, you know, having less overhead and less not thousands of IT people, but you know, tens of IT people, and just trying to you know, be efficient and use technology every step of the way. So is the place where your costs are lower than other airlines? Not so much the on the plane part, not so much the pilots and the flight attendants, but rather having fewer IT people, fewer fewer customer service people. That's where you're hoping to really drive down costs. Yes, but it's really technology that the drives all that. And if you start with a clean, right sheet of paper, it's just a lot easier to do that than if you stuck with a bunch of legacy systems. I want to talk about routes now. I feel like routes are like kind of part of the like fun inside baseball of how what's actually going on with airlines? You know, we get dazzled by a TV in the seats, but there's these weird route choices that seem to make a big difference. That's another one where maybe it's worth just briefly to talk about Jet Blue because I feel like that was also clearly one of the big moves there, and in particular was the first route at Jet Blue flying out at JFK to Fort Lauderdale. Like that, it was a clever strategic move, right, tell me about that choice. Well, you know, JEK was interesting because jeff K was pretty much an abandoned airport. So you'd you'd go JFK to LA, you'd go to London and Paris, all around the world, but you wouldn't fly to Miami from JFK. I like, why not? It was funny because when I was running, I was raising money for jeff Blue in New York City. I'd meet these people and say and they'd say, I live in Manhattan. I'm never going to go to jeff K to go to Florida because it's so much farther than LaGuardia because it's an hour instead of a half hour. Right, LaGuardia is a half hour at jfk' is an hour hour and a half. Yeah, it depends on where you live in Manhattan. But it was it's eight miles. Well, hey, miles in New York City could be a lot miles. Yeah, yeah, it could be a lot. So I said, I don't care because people leave from their homes. And I got five million people that live in Queens and Brooklyn and Long Island that are closer or as close as LaGuardia, and I'll take care of those people. I don't need anyone from Manhattan. But you know, obviously, when we had the light TVs and leather seats, Manhattan Night's spent that extra thirty minutes coming out to JFK. So was the idea that it was cheaper to get a gate at JFK in the middle of the day than it was at LaGuardia because nobody was flying out of there then, I mean, was that the core sort of thing. Well, LaGuardia was slow controlled, so we couldn't fly to there if we wanted to at the time. So it was all full. So it's okay, all full. The national growth and air traffic was exponentially more than New York was. New York was being held down by really high fares because nobody was adding service out of JFK, and that airport was pretty well during the day, you could shoot a cannon down the runway and not hit anything, So you know that was available, and it was less delayed flights at the time, and all of that stuff that made it such a compelling story, not to mention all the people that lived closer to JFK than lived closer to LaGuardia. Yeah, so it's really Manhattan centric bias that you were overcoming. That was the real move there. Yeah, well, I notice. So, so let's talk about Breeze now and the routes you've chosen for Breeze. Right, in terms of New York where I live. I noticed you fly into Westchester, which is the suburbs north of New York, and I Slip, which is basically the suburbs east of New York. But you don't fly into Laguardi or JFK or New Work. Your inaugural flight was Tampa, Florida to Charleston, South Carolina, which is unexpected to me. So, like, tell me what's going on, Well, like, tell me about the route strategy for Breeze. Well, in so at long fact that every airline has to put all of their data into and send it to the DOT, and the Dot puts it in a database to the Department of Transportation Transportation, so we know who flies between what routes an annual basis quarterly, and what they paid or they paid for their ticket. Oh great, So it's like complete competitive intelligence is available to anybody wants to mind it. So we look at it and and we say, what's the largest market from Richmond, GA. That's an unserved NonStop and what's the average person paying? And it was San Francisco. So all these people were flying whatever Richmond to Salt Lake City to San Francisco, or Richmond to Charlotte to San Francisco. But there was no direct flight, Yes, no direct flights. And so we have our own little special sauce that we use in our little formula that if we say, if we can take someone NonStop, if we can, you know, the fair is down thirty percent and we go NonStop, we can x times the size of the market. We can make it four times bigger, five times biggers, in some cases twenty times bigger. So you're saying, if you make it cheaper because you're cheaper and more convenient because it's NonStop, lots more people will do it. Yes, we'll do it. And it's more convenient and they just go more often. And so I mean the core move you're making is flying NonStop out of and often between kind of second tier cities market, right, I mean that's the core thin you're doing, flying between cities that don't have NonStop service basically, and it you know, those are would more likely be a secondary market. And so is this I mean, why wasn't anybody doing this before? Like it seems like very straightforward when you put it that way, like there's just money on the table, is it. Well, if you don't have to do it and you can make people drive down to JFK, you know, from Connecticut where I lived, or you can make them drive down and you have to do it, why do it? You know it just splits up your market? Is some part of this? Like it seems like there's a pendulum. There's been this pendulum in American commercial air over the last I don't know, twenty years or something, where first there was this period of consolidation where airlines were going bankrupt getting acquired, there was less and less competition, and now it seems like we're going back the other way. There are lots of new airlines doing things like you're doing. I mean, is that is this that story? Is this like you know, sort of the market working as intended, where people go to business and there's opportunity, and then you come and start an airline and be like, oh, there's an opportunity to fly from Westchester to Las Vegas. I mean, it's that a way of framing the story. I think it's more that, you know, kind of as the airlines got higher costs, and you know, after their bankrupt season, then they started building costs back up again. They started saying, well, we can make a lot more money if we just fly to our hubs. So if we can take everyone to our hubs and we can connect them, and if we can go up to a two hundred seed air plane instead of one hundred and thirty seed airplane, that works better. And you know what's happening today with the pilot shortage. You know, regional airlines can't hire pilots, enough pilots stuff, And there's about three hundred of those airplanes that are grounded. So cities like Richmond and Charleston and used to always have these little spokes that would go to the hubs. A lot of those are not they're canceling service to those cities. So it's a combination of the focus on the hubs not being able to fly the regional flights that has really created a really great opportunity for us. In a minute, speaking of the pilot shortage, what's going on with air travel this summer? Why is everybody suddenly warning us that flying is just going to be one problem after another. That's the end of the ads. Now we're going back to the show. Let's talk about the pilot shortage and staffing more generally. I know you had to postpone launching some new routes. It seemed like kind of at the last minute recently. Is that partly because you can't hire enough people fast enough. No, it has nothing to do with that. We have plenty of people that we've hired, and it was more an issue of training and had a little bit to do with the FAA. We had a certification process for our new aircraft that was supposed to take six months. It's always taking six months. This took eight months, you know, because of COVID and all that. You know, the staffing issues at the FAA. So we ran into that two month delay and we finally just ran out of runway, had to push it back and now we're we're we're in good shape now. But you know, it was painful, and you know it's it's never gonna happen again, for sure. It's just for us. It's a training pipeline. And now we got a lot more analytics, and we brought in a whole new team, a new CEO, a new president, you know, new chief people officer, and they're you know, doing a heck of a lot better. So did you just reorganize the company a year after you started it? Yeah? Uh? What went wrong? You know, because you know, we weren't doing a good enough job of you know, anticipating and doing the analytics and making sure that you know, the communication between operations and our commercial side, making sure that it was just you know, flawless. And you know, we just can't disappoint our guests anymore. You know, we have to run. We have to be flawless on everything we can control. There's enough that we can't control, but we need to be perfect on on what we can't control. There is it happened in this broader context, right, everybody's saying, like if you could not fly the summer, don't fly this summer and there's too many people and not enough pilots. Is that not the case for you? Do you think that's not the case for anybody? Like, help me understand that sort of broader context of the way people are talking about air travel right now. I don't ever remember people talking about it quite like they are right now. Well, you know, I think COVID really put a dent in the in the industry from a training perspective, because the first thing that happened was, you know, the airline's got paid fifty three billion dollars, you know, to kind of keep people on staff. But what they decided to do was to use some of that money to retire pilots, the most expensive pilots. So there was about seven thousand pilots that left. So they left the industry seven thousand. Give me, I don't have any context. What's the denominator to how many or how do I parse that number? I would guess probably at the big airlines, you know, fifty and pilots or less. So it was a big chunk of what they had. But it created this trickle that effect because you know, when you have to train someone, it takes two months to train someone for a new airplane, and then they have this initial operating experience and if you've got five or six aircraft types, you're you're really just doing a lot of training to backfield for those seven thousand and then you pull from your regional airlines, you call, you know, you go to SkyWest and you go to Republican Higher, all their pilots away and then you put them in and everyone's changing airplanes and the whole process is just is very time consuming. And you know, they just saw the demand coming back and put flights on as we did. And you know, the training is really what was the hiccup? The training is get that in a similar way to getting you, it's getting everybody. Yeah, are there things you've tried to figure out either at Breeze or at previous airlines you've started or run that you haven't figured out yet that you're still kind of working on. Is there some sort of you know, problem you're still trying to solve that you haven't quite got right yet that you that you're returning to or you want to return to. I think you know the challenges you've got, and I'm not I haven't looked at it recently. But you have a company like Priceline that has booking dot Com and they, you know, at one time they were worth one hundred billion dollars. You go on to book a hotel and they're worth more than all the airlines combine. If you add them all up, they're worth more than one company. So well, airlines are famously a really bad business, right like you got to you gotta pay for the planes, you got to buy gas, you got all this regulation, like it's a hard business. It is, But nobody books a hotel before they book an airline ticket. They always book the airline ticket first, and so there's no reason why we can't put that together using automation to be able to give them everything and do it better than can be done if you alocrt it and pe smell it. So I think that's kind of the holy grill of being able to kind of put a concert ticket with a rental car or a transportation in a hotel, but doing it through automation, not the old tour operator style, but something where you can you know, create that and do it because I think being able to profit from that trip all the way through it as opposed to just the airfare. I think that's really kind of where we need to be. Yeah, I mean it's like you're building the business that's most essential, but the least profitable piece of the trip, right exactly, right, So we you know, we got to do we got to do better at that, and we have our database of people. So I'm trying to think, is there a model like who's come closest to that? Well, there's package companies that's you know, sell packages. But a pure ala cart, you pluy ala cart where you can just go click, click, click, click, this is what you want and you change the click and it changes the amount and you click click click, you know, you go three star, four star, five star. Yeah, but now you're just back to kayak or something, right, Like, it's not obvious why the airline should be at the center of that. Well, it's because we're if without us, nothing happens sort of, But like why should it be that the air airline is fixed and the hotel is variable? Like why not have them all be variable? Right? In Brazil? You know, taking my airline Brazil, I have the largest airline in Brazil. It's called a Zool And I was pushing. I hired all these people, the were airline people to help me start the airline. I started as a package tour operator. That's how I started way back. So I'm pushing them, pushing them, pushing them, pushing them. We got to do this, we got to do this, and we'll do a lot of business traffic down there. So Saturdays we have a bunch of airplanes laying around, not doing anything, and Sunday mornings we don't fly. And I said, it's perfect. We got these planes laying around. And so it took years and it took a lot of work. But today we fly on the weekends. We have like two hundred and fifty flights that take off on Saturday morning and go between areas out to these leisure destinations for a week's stay that we don't fly to during the week and we're utilizing those airplanes. And that is a four hundred million dollar business that we have. So it's it's you know, and it's very profitable because we have the hotels, we have the airfare, we have all that. So people in Brazil are more accustomed to buying those types of packages than they are in the US. But you know, it's it's an idea that you know, I think we could use a lot of that up here. And even today we don't flyer planes a lot on Saturday, so we could do the same type of flying to Camcoon or something. You started off as doing package tours when you are basically a kid, right when you were in your early twenties, and then you went on started all these airlines worth lots of money, and that did interesting things, and basically it sounds like you're just trying to get back to booking package tours again. That's right. I mean, airline people don't think that way. They don't think about the whole revenue Pitcher. It's just not what they do. They think about operating an airline and choosing a route and pricing the route and maintaining the airplanes and training the pilots, and it's like, well, what about making money and all this other stuff. We're just busy doing this. You know, you have to kind of think on a different plane to be able to pull that off and even work guildea of it too. You know, we had anticipated doing that, but we're so folks on what we're doing. We haven't done it ourselves. We'll be back in a minute with the Lightning round. Now, let's get back to the show. I want to ask you just a few quick lightning round questions to close. What's one piece of advice you'd give to someone trying to solve a hard problem? Simplify it. My team is always like, it's not that simple. I mean, why isn't it proved to me it's not that simple. I think sometimes it looks harder than it is, but you have to put some creativity in it, and that's kind of my I think gift is to be able to look at really complicated things and simplify it. How long before departs your time do you get to the airport? My wife checks a bag, so we always try and get there at least an hour before because I don't want to get cut off on the checking the bag thing. If I didn't, it would be less than an hour. I had this, I always have this saying that if you don't miss a flight every now and then, you spend too much time in airports. So you've been fired twice that I'm aware of, And I'm curious, what's your advice for you know, the most important things say someone should do when they get fired, they should look at it as an opportunity and say, okay, what can I create? And when I got fired from Southwest, I created jet Blue. When I got demoted from the CEO to the chairman at JEB Blue, I went and started at Zul and a Zul is the most important thing I've ever done. Really. We fly eighty thousand people a day, and we have a logistics company that's on par with FedEx or ups in Brazil that can deliver to forty hundred ZIP codes. Used to be two weeks to do that, now we can do it in two days. And that's that business is huge for us. So you know, if had I never been fired at JEB Blue from the CEO job, Zoo wouldn't exist. And that is the most important thing I've done thus far. Peanuts are pretzels, Peanuts of course. More favorite airport to be stuck at with my terminal five Jeff Blue in JFK. It's got a lot of options, a great place still though you still still you still like it there? Yeah, sure, it's my baby. What's the next airline you're going to start? I think this is it. I'm good, I've done enough and I think Breeze is gonna be great, and then I'm just gonna enjoy it. David Neilman is the founder and CEO of Breeze. Today's show was produced by Edith Russolo, engineered by Amanda ka Wong, and edited by Robert Smith. I'm Jacob Goldstein, and I would love to know who else you think we should book for the show. You can email us at problem at pushkin dot fm. It's problem at Pushkin dot fm, or you can find me on Twitter. I'm at Jacob Goldstein. We'll be back next week with another episode of What's Your Problem