JetBlue founder to create discount airline in Brazil

David Neeleman, founder of U.S. discount carrier JetBlue Airways Corp., said he will create an airline in Brazil to tap the nation’s expanding appetite for flying.

The company will start flights in early 2009 using 118-seat Embraer aircraft, Neeleman told reporters today in Sao Paulo, where the carrier will be based. He said he has $150 million in financing and has ordered jets valued at $1.4 billion.

“Competition here is high, but the market is expanding a lot and that opens room for a new airline,” Neeleman said.

Neeleman, a Brazilian native, wants to copy JetBlue’s strategy of luring passengers through low fares and airplanes with leather seats and seat-back televisions. Only about 5 percent of Brazil’s population now travels by air, and fares are about 50 percent higher than in the U.S.

“Our target market is the 150 million passengers who travel annually by long-distance bus, as well as those, who for lack of a convenient alternative, don’t travel at all,” Neeleman, 48, said in a statement.

Neeleman was ousted as chief executive officer of New York- based JetBlue in May. He said today that he would like to step down as chairman to focus on his new company. The decision rests with JetBlue’s board, he said.

A new airline would add competition in a concentrated market. TAM SA, the country’s biggest airline by passengers carried, and Gol Linhas Aereas Inteligentes SA control 92 percent of domestic travel.

Regulatory Approval

A new company would have to wait at least six months for permission to operate, according to a spokeswoman for Brazil’s civil aviation agency who declined to be identified, citing government policy. The airline’s name is scheduled to be announced in early May.

Tam’s non-voting shares fell 2 centavos to 34.48 reais in Sao Paulo trading. The stock has lost 19 percent this year. Gol rose 4.6 percent to 28.79 reais in Sao Paulo, paring its decline to 34 percent year to date.

The $150 million in funding to set up the airline was raised from Brazilian and foreign investors, Neeleman said. He said he placed a firm order for 36 Embraer E-195 jets, holds options to order 20 more planes and purchase rights for another 20. The total order, if all options and rights are exercised, is valued at $3 billion.

Embraer, or Empresa Brasileira de Aeronautica SA, is the world’s fourth-largest aircraft maker.

‘Makes Sense’

The use of Embraer’s regional jets, which are capable of landing at most Brazilian airports, “makes sense” for Neeleman’s business model, said Sara Delfim, a Bear Stearns Cos. equity analyst in Sao Paulo.

Flight demand in the country has been growing 15 percent a year since 2004, according to the National Civil Aviation Agency, as rising income and declining unemployment encourage Brazilians to travel more. The $1.2 trillion economy expanded 5.4 percent last year, the fastest pace since 2004.

Bain & Co., a Boston-based business consulting firm, projects the number of Brazilian passengers carried annually to triple in the next 15 to 20 years.

Still, the existing infrastructure and regulators’ limits on the number of hours pilots can fly make it difficult for airlines to operate as much as they might like.

`Much More Challenging’

“The Brazilian airline market is much more challenging than it seems to be when you are looking from outside,” Andre Castellini, an airline industry analyst at Bain in Sao Paulo. “It’s very tough to expand and profit.”

Neeleman created JetBlue in 1998 with $130 million from investors including Soros Private Equity Partners. He earlier founded low-fare Canadian airline WestJet Airlines Ltd. and was president of Morris Air Corp., which was acquired by Southwest Airlines Co., from 1988 to 1994.

Neeleman used luxury features, including the leather seats and live programming on personal televisions, to lure travelers when JetBlue began flying in 2000. JetBlue sold shares to the public in April 2002, and the stock reached an all-time high of $31.23 on Oct. 9, 2003. The shares have since fallen 82 percent through today from their peak.

JetBlue’s fortunes began to change in the fourth quarter of 2005, when it reported its first quarterly loss since selling shares to the public.

The board replaced Neeleman as CEO after two straight years of losses, flight cancellations amid winter storms that cost the carrier $41 million, a reshuffling of lower management and software glitches on its Embraer E190 regional jets.

bloomberg.com