JetBlue undercuts competitors by 50% in trans-con premium market

Washington DC
Source: Flightglobal.com
This story is sourced from Flightglobal.com

JetBlue Airways has undercut competing airlines by more than 50% in fares with its introduction of lie-flat seats on transcontinental routes.

The New York-based carrier is currently selling seats in its new “Mint“ premium cabin at a special fare of $499, though the carrier says regular prices are between $599 one-way and $999 one way — less than half the price charged by competing airlines.

Still, one analyst doesn’t think other airlines will match JetBlue.

“The competition won’t respond to JetBlue because most of the people sitting in those lie-flat seats on American and United and Delta are [upgraded] frequent fliers,” says Michael Boyd, chairman of aviation consulting firm Boyd Group International.

“[Those customers] are not going to go anywhere, and [those airlines] are not going to change their prices because nobody is paying those prices anyway,” Boyd says.

The Mint product is currently only available on Airbus A321 flights between New York’s John F. Kennedy International airport (JFK) and Los Angeles, beginning 15 June 2014.

The $999 fare is refundable, and customers who purchase Mint seats for $799 or more are not subject to reservation change fees.

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Sources are airlines' websites

By comparison, American Airlines’ and United Airlines’ one-way business-class seats from JFK to Los Angeles on 16 June cost between $2,187 and $2,277, according to the carriers’ websites.

American, which flies three-class aircraft on the route, is selling first-class seats for between $2,221 and $3,354 one-way, according to American’s website.

A business class seat on Delta Air Lines from JFK to Los Angeles on 16 June costs between $2,187 and $2,541, according to Delta’s website.

Another competitor, Virgin America, is charging between $2,345 and $2,655 for first-class seats on the route on 16 June.

No free upgrades

JetBlue chief executive David Barger declines to say whether the carrier plans to eventually raise its premium prices, but notes JetBlue will not provide customers with free upgrades, as legacy carriers typically do.

Barger says JetBlue’s pricing is intended to create a “buzz” about the product.

JetBlue's target customers are small-business owners and entrepreneurs, not investment bankers or ultra-frequent fliers who typically book on legacy carriers, Barger adds.

Bob McAdoo, an aerospace analyst with Imperial Capital LLC, says most passengers who sit in other airlines’ premium cabins are upgraded for free.

He estimates only 3% to 4% of Delta's, United's and American's passengers on the New York to Los Angeles and San Francisco routes pay premium prices.

Barger says JetBlue is confident the 16 lie-flat seats will produce more revenue than the carrier could receive if the aircraft had only coach seats.

JetBlue’s A321s with lie-flat seats have 47 fewer coach seats than the airline’s coach-only A321s, according to JetBlue marketing documents.

Barger says he has “no doubt” Mint will produce positive revenue for the carrier in 2015, as possibly as early as the second half of 2015.

“We believe its an absolute lay-up,” he says.