JetBlue CEO Defends “Middle” Ground, Doesn’t Want to Become Spirit Airlines
A JetBlue Airbus A320 air plane is pictured on the tarmac at a ground breaking ceremony for the first Airbus U.S. assembly plant in Mobile. Lyle Ratliff / Reuters
Barger is seeking to maintain JetBlue’s middle ground between ultra low cost and network carriers, but investors’ new love affair with Spirit Airlines and others of its type will keep the pressure on JetBlue management.
JetBlue wants to occupy a “middle space,” Barger said, arguing that JetBlue is still in growth mode with its investments in Fort Lauderdale and San Juan as a bridge to Latin America, for instance. “We are still purchasing our aircraft, still acquiring our network,” Barger said.
“There is room for more than two models on the industry landscape and we are proving that,” Barger said during the company’s second quarter earnings call today.
A segment of the industry and the financial community seems to be falling in love with the ultra low cost airline model, based on the financial success of Spirit and Allegiant. And, there is even speculation that Spirit chairman William Franke has resigned his post so he can get involved in acquiring Frontier Airlines from Republic and turn Frontier into a no-frills carrier.
At one point during the question and answer session, a financial analyst seemed to be imploring JetBlue to take a different path, pointedly noting that Spirit and Allegiant get the most passenger complaints, but produce the highest return on investment capital in the industry.
Barger struck a somewhat defensive tone as JetBlue released its second quarter results today, which showed a drop in margins while much of the rest of the industry’s margins trended higher. JetBlue’s operating margins fell from 10.2% a year earlier to 7.6% in the second quarter of 2013, and net income declined 30.7% to $36 million.
Officials pinned the disappointing second quarter on increased maintenance costs, an arbitration with pilots, the sluggish economy, the timing of the Easter and Passover holidays, and even the lingering impact of hurricane Sandy, which occurred in October 2012.
“People are still moving back into their houses in the New York area,” Barger said.
In a bow to the middle ground that JetBlue is staking out, JetBlue chief commercial officer Robin Hayes said the airline has no intent of changing its first checked bag for free policy because “the first bag is very material to how customers book.”
“In essence, we are capturing [a bag fee] it in the fare,” Hayes said.
But, JetBlue increased change fees several months ago to $150, up from $100, when carried out within 60 days before the flight because people don’t usually take change fees into account when purchasing a flight, Hayes said.
JetBlue forecasts a 15% increase in ancillary revenue in 2013.
Two-Way Codeshare with South African Airways and Emirates
In other news, JetBlue announced a two-way codeshare with South African Airways, and indicated that JetBlue’s proposed bilateral codeshare with Emirates is under review by the DOT, with approval expected in the “near term.”
Hayes said the ramp up of implementing the Emirates codeshare would take place “pretty quickly” once it gets approval.
JetBlue also completed in June its first test flight with satellite-based Wi-Fi and is awaiting FAA approval. Fleetwide installation would proceed “shortly thereafter,” Barger said.
Officials said they can’t wait for Wi-Fi to be installed fleetwide because JetBlue is missing out on revenue. It’s high on the wish list of business travelers on long-haul flights.
Barger said JetBlue is confident the airline can turn around its margin degradation, and a new contract with General Electric to service JetBlue’s E190 engines will help “smooth out” maintenance expense.
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