JetBlue has taken a fair bit of flak lately for falling in line with other airlines and their less customer-friendly policies, but this really isn’t all that surprising. After all, JetBlue is a public company, and investors want to see stronger returns than the airline has been able to generate. While Southwest has chosen a strategy of bucking the trends set by other airlines to generate impressive returns, JetBlue thinks the opposite is going to be its road to riches. The airline’s argument is… if consumers behaved differently, JetBlue would too.
Going Basic
There was a lot of talk recently about JetBlue’s decision to follow the big guys and implement a Basic Economy fare. We don’t know full details of what exactly this will look like since it hasn’t been officially rolled out yet. That makes it hard to comment on specifics, but the airline should proceed with caution.
As JetBlue said in a blog post/internal memo:
At JetBlue, we never liked the “no frills” approach. But with these competitors now offering basic economy on many routes we fly, Customer behavior suggests our success is at risk if we do not disrupt this market by lowering fares without sacrificing the experience.
“These competitors” are the ultra low cost carriers like Spirit and Frontier. It seems like JetBlue is keeping its current three-tier fare bundle structure, but the bottom one will evolve from just excluding checked bags to being a full-blown Basic Economy fare. The mid-tier will be a more traditional regular economy fare while the rarely-purchased top tier will come down in price and be more about flexibility and priority access.
JetBlue’s President Joanna Geraghty closes the note with this:
We’ve all heard the horror stories from Customers about ultra-low-cost travel. JetBlue can do better for them. If we add a fare that saves Customers money but still delivers the JetBlue experience, I can’t imagine why a traveler shopping on price would ever choose another airline over us.
And what are those “horror stories”? They usually come in two flavors: cancellations/delays and poor service/experience. JetBlue seems confident that if the fare is the same, it can win by providing a better service/experience. That may be true, but when it comes to cancellations and delays, JetBlue is much worse.
In the most recent month reported, July 2018, JetBlue had a relatively good month for itself with a comparatively-awful 69.1 percent on-time arrival rate. Spirit was at 80.2 percent. In that month, JetBlue canceled 2.4 percent of its flights. Spirit only canceled 1 percent. Even if we look at an apples-to-apples comparison, Spirit wins. In Ft Lauderdale, JetBlue had 66.7 percent of flights arrive on-time while Spirit was at 73.4 percent.
Like the legacies, JetBlue sees that low-cost carriers can come in with cheap base fares and win the battle. Also like the legacies, JetBlue is going to match those fares but only after stripping what’s included down much further. If this helps to bring the price-conscious traveler back to the airline, then that’s good. But it could also dilute the brand (something that is a big asset for the airline) and dilute the fares existing travelers are paying.
Route Reshuffle
This isn’t the only way JetBlue is following the money, however. It has recently announced a massive network restructuring. Some people have focused on the negatives of this announcement, but it’s really more of a long-overdue change to where airplanes are flying.
Growth
- Boston: New route to Rochester, more flights to Aruba, Nassau, Orlando, Punta Cana, Santiago, Santo Domingo, Sarasota, Tampa, West Palm Beach
- Ft Lauderdale: New route to Guayaquil (new JetBlue city), new route to Phoenix and St Maarten, more flights to Nassau and Santo Domingo
- New York/JFK: More flights to Aruba, Cancun, Nantucket, Nassau, St Lucia, Santiago, Santo Domingo, Tampa
- Orlando: More flights to Aguadilla, Hartford, Ponce
- West Palm Beach: New route to Providence, more flights to Hartford and Westchester
Or if you prefer it in visual form:
What you see here is a lot of strengthening in core focus cities on the East Coast in heavy tourism or visiting friends/family markets. That is JetBlue’s bread and butter, and it’s clear that Boston, New York, and Ft Lauderdale are the future. There are some other northeast-Florida routes sprinkled in that are also big markets for JetBlue. And the Aguadilla and Ponce flights are just targeting the hundreds of thousands of Puerto Ricans who have fled their homeland to settle in Orlando in the last few years. The only odd outlier is Phoenix, but then again, American isn’t in that market. This is probably meant to replace the Long Beach flight as an evening utilization trip since that one is getting killed off (see below).
These all seem like smart moves, but it has to come at a cost. JetBlue isn’t just magically adding airplanes, so it has to cut. What goes away?
Cuts
- Boston: Flights canceled to Washington/Dulles
- Ft Lauderdale: Flights canceled to Baltimore, Detroit, Long Beach, Pittsburgh, Fewer flights to Mexico City,
- New York/JFK: Flights canceled to Daytona Beach and Washington/Dulles, Portland (ME) becomes summer-only,
- Orlando: Flights canceled to Baltimore, Fewer flights to Mexico City,
- San Juan: Flights canceled to Santiago and St Croix
It looks like JetBlue is just going down the list and finding weak performers. Dulles hasn’t done well for any low cost carrier, and JetBlue apparently also sees weakness in Baltimore where it has to fight both Southwest and Spirit. Other Florida cuts are either from small cities like Daytona Beach where demand is weak or are to places outside the Northeastern US (including to the shrinking focus city in Long Beach). Mexico City fares are really weak for everyone, so that’s not a surprise.
This is more straightforward than the Basic Economy introduction, but the trends are the same. JetBlue is looking at the numbers and making changes to try to kickstart margins. We’ll see if Wall Street or customers end up being happy about this. It’s possible neither will be.
