JetBlue seeks to strike balance between Wall Street and customers

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One of the biggest challenges JetBlue faces in rolling-out its new fare “families” next year is ensuring the new bundled packages do not degrade its overall product proposition that generally creates favorable sentiment among its diverse passenger base.

JetBlue aims to debut fare families during the first half of 2015, in some ways to ease the mounting pressure it’s receiving from analysts and investors to shore-up its revenue. “Wall Street wants to see JetBlue pull out major stops to help create a tangible boost to its bottom line,” says Atmosphere Research Group travel analyst Henry Harteveldt. Fare families cannot do that alone, he adds, but can be a significant contributor to revenue growth.

Inquiries about charging for a first checked bag or increasing aircraft density are a mainstay in JetBlue’s earnings discussions with analysts, and were featured in the airline’s discourse with investors about its second quarter results. The introduction of fare families gives JetBlue the platform to start charging for a first checked bag, and the airline’s CFO Mark Powers told news outlet Bloomberg earlier this week that the concept of a first bag fee was on the table.

traveling airport bagsIn markets such as Florida, JetBlue believes “we get a [price] premium for things like first bag”, says Hayes, but in other markets “we accept that we don’t”. The creation of fare families “allow you to monetize first bag in markets where you don’t get it [a price premium]”, he explains.

The challenge for JetBlue in introducing baggage fees and fare families overall is “protecting its brand preference”, says long-time airline industry consultant Robert Mann. The airline may also aim to get a larger slice of the demand curve with fare packages that appeal in part to more cost conscious travelers, he notes.

JetBlue’s contemplation of a first bag fee is occurring as a potential shift in consumer sentiment over luggage charges gets underway. Harteveldt highlights that anecdotally he has seen some individuals question Southwest’s long-standing “Bags Fly Free” message to determine if passengers opting to carry their luggage onboard subsidize those Southwest customers that choose to check bags.

Harteveldt says he has no insight into JetBlue’s first bag fee plans, but notes that options for the airline include dynamic pricing based on length of haul – i.e. charging less for shorter flights and more for the first checked bag on longer sectors.

Responding to specific questions about increasing seat density JetBlue president Robin Hayes declared the airline is “not philosophically against it, but we actually believe that things like fare families is a much bigger source of value generation”.

Overall, JetBlue’s most formidable challenge in introducing fare families is “remaining true to the JetBlue core brand value”, says Harteveldt. Another important consideration is how the airline intends to present its fare families. JetBlue and all airlines “really need to start thinking about how to become better retailers”, he notes.

More details about JetBlue’s new fare families should trickle out in the coming months as Wall Street’s impatience for a marked rise in revenues grows. JetBlue appears to be receiving the message as Hayes stressed, “We do believe fare families is a significant source of revenue.”

1 Comment

  1. Michael Wm. Denis

    Since there is no or little labor cost difference between a bag that flies in the belly vs one that flies in the overhead – this may be a more profitable ancillary revenue pricing method than flat fee per bag. Customers are trained to think to pay more by distance – so they would probably object less.