| And another domino falls.
In a surprise move that shouldn’t have been, Jetblue, one of the holdouts in the airline industry for not charging for a first checked bag – is now considering adding the fee, as the carrier overhauls the way it prices tickets.
In a Bloomberg article
last week, “the concept of a first-bag fee is on the table,” said JetBlue Chief Financial Officer, Mark Powers. “There is a construct under which we would, in effect, be able to charge for bags.”
Putting Customers First to Putting Profits First
Shares of JetBlue Airways shot up to a 7 1/2-year high last week, after Wall Street cheered turnover in the air carrier’s strategy, in which it will start favoring shareholders over customers.
According to TheStreet
, that spike was due to institutional investors’ and analysts’ faith that Dave Barger, JetBlue’s CEO, will soon be replaced by a new top manager. (Barger’s contract is up in February 2015, but there is speculation that he might depart sooner, allowing current JetBlue president Robin Hayes to assume Barger’s role.)
What’s so good about Barger leaving? Barger is known as a champion of the customers-first school of business that underlies JetBlue’s strategy of delivering upgraded service at affordable prices. In the view of analysts, some of whom have called for Barger’s dismissal, that approach has kept JetBlue from “fully realizing its profit potential”.
“JetBlue is an overly brand-conscious and customer-focused airline, which has resulted in lagging fundamentals,” said analyst Helene Becker in a note
to clients. “The changes would improve the financial outlook for the company in our opinion.”
Another profit area being discussed is reducing legroom and adding more rows of seats. MarketWatch outlines
two actions that would “quickly and easily” pad JetBlue’s profits. One would be to add 12 more seats to each of the airline’s A320 aircraft. Second would be imposing fees for the first checked bag and for inflight WiFi.
You have to wonder, do analysts ever fly Economy class? And, when did analysts take over management’s duties at companies?
If I were a shareholder whose investment had risen 49% so far this year, I would wonder why management was changing anything about the way it conducted business.
We Don’t Need No Stinking Customers!
Such changes would be treason for JetBlue loyalists, for whom the spacious seating and absence of junk fees have been key reasons to book JetBlue over the competition. Even the number-crunchers acknowledge that a remodeled JetBlue would jeopardize the considerable brand equity the airline has built up over the years.
Most U.S. low-cost carriers choose to either be a “fun” and “customer friendly” airline or an ultra low-cost carrier that charges you for everything. For JetBlue, it has chosen the first path. That is a big reason why it attracts a loyal following.
Today, companies are criticized by Wall Street for being customer-focused and favoring passengers over the stockholders. JetBlue has earned a special place with travelers, but it now appears they will be joining the race to the bottom for the sake of the bottom line.
Can a company ever get too focused on customers? JetBlue survived the Great Recession due to customer loyalty and offering seat assignments, which Southwest does not.
e=”font-size: 11pt;”>These are the same neo-profit “analysts” that are pushing for pay toilets and bicycle-like “seating” like those patented by Airbus. What’s next? How about getting rid of the co-pilot? Charge passengers by their weight? How do those “analysts” travel? Bus? More likely, limo and private jet.
For investors, the airline’s future looks bright. But for travelers, JetBlue’s best days may be behind it.
Becoming Just Another Flying Cattle Car
JetBlue’s strength was their product and the value for money that it provided. It has previously played to that strength. If JetBlue tries to make price their big selling point, then they become one of many.
Robin Hayes, JetBlue’s new president, said its investment in a partnership with Dublin-based Datalex
, will provide the technology as a foundation for a “new merchandising platform” for the airline, “went a little bit unnoticed.” JetBlue and Datalex announced the partnership in January.
“This strategic agreement with Datalex will further strengthen our e-commerce capabilities with a state-of-the-art merchandising platform and expanded self-service capabilities,” said Eash Sundaram, JetBlue’s chief information officer when the deal was announced.
Killing The Goose That Propels Your Golden Egg?
JetBlue is frequently more expensive than other airlines when looking at the base fare only; their value was always in what was delivered for that fare.
JetBlue has always been more attuned to the needs of its customers than to Wall Street. That’s how it has built its current success. But the shareholders are pushing the position that a lot of extra cash is going out the door just to be able to say that they allow two free checked bags, especially when most of their competitors are doing it. Sure, but it’s hard to look at Delta Airlines, United Airlines and American Airlines
making all that money on bags to not join the club.
Perhaps JetBlue’s history of ‘solid profits’ is because people prefer flying with them to avoid paying a bag fee. Once they start nickle and diming their customers they lose that advantage. Are they proud of the fact that they are one of the few remaining airlines that still allow free checked bags?
A company putting the customer first is a rare thing these days. And an airline offering roomy seats in coach is extremely rare. Getting rid of these means JetBlue becomes no different from the other airlines, packing as many people in as they can. They risk losing their key market differentiator.
Could this affect Southwest’s two free bag policy?
If JetBlue still allows holders of its credit card to get one bag free, it may counter some of the upset that a bag fee is inevitably going to cause. But if they charge everyone a fee in the future, passengers may jump to Southwest without hesitation.
Until Southwest charges
for checked bags!