JetBlue may be a customer favorite, but if the airline loses its cost advantage over United, Delta, and American, it will be in trouble. It makes sense for the airline to try to reduce costs to stay competitive.
Over the past three years, JetBlue Airways has introduced several new features, including its new Mint business class, in the hopes it could please investors by increasing revenues to more closely match standards set by other, larger airlines.
Those revenue-producing features, such as checked bag fees, extra seats on existing aircraft, and a lucrative credit card deal mostly did what they were designed to do. The airline has improved its revenues and pre-tax margins relative to the carriers it considers peers — American, Delta, Alaska, United, Spirit, and Virgin America.
But there’s more to running a successful business than increasing revenues. And at its Investor Day on Tuesday in New York, JetBlue executives admitted they had lost focus slightly in recent years on cost control.
“There was a period when we had to make significant investments, but now we appreciate, in this landscape of increased competition, the importance of cost,” CEO Robin Hayes told analysts.
For the next three years, JetBlue told investors it will focus on several initiatives to reduce costs. By 2020, JetBlue plans to realize $250-$300 million in structural savings, and the carrier claims it can do so while not affecting the experience.
The focus on cost is vital, JetBlue executives said, so the airline can retain its advantages over America’s three legacy carriers — American, United, and Delta. Because JetBlue, like other low-cost carriers, spends less on costs, it can expand profitably on routes on which larger airlines might not make money.
If all goes well, passengers will not notice any changes. The biggest chunk of savings ($100-$125 million) is supposed to come from improving maintenance efficiency. Some of the changes are remarkably simple. Steve Priest, vice president of structural programs, said JetBlue could save if does routine aircraft maintenance at the same time planes are scheduled to be out of service for interior modifications. That’s timely now, as JetBlue next year will embark on a major revenue-producing project to add 12 seats to each of its Airbus A320s.
JetBlue also estimates it can save roughly $75-$90 million by 2020 by being more efficient at its Long Island City, New York headquarters. One of Priest’s goals is for the company to rely more on “corporate automation.” The airline also wants to improve at sourcing from vendors.
“Do we have too many business partners doing the same sorts of [tasks] for the organization? Priest asked. “We are now a much more mature company and at 17-years-old, we can really start to look at where do we rationalize the amount of business partners we have? Where can we drive our strengths?”
The final two elements of JetBlue’s cost control plan could affect travelers, if only indirectly. The airline wants to save $55-65 million at airports, and it will so partly by increasing self-service functions for passengers. But airline executives argue that travelers want more self-service solutions. There are no plans to reduce staff, the airline said. But this program would free airport employees for other, more complex tasks.
JetBlue also wants to save about $20 million by looking at its distribution costs. It wants to ensure more customers book on JetBlue.com, rather than third-party sites.
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Photo credit: JetBlue Airways is looking to reduce its costs by up to $300 million within three years. Pictured is the airline's premium Mint product. JetBlue Airways