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JetBlue Airways does not often lead on ancillary fees, but with the fuel costs up significantly and the airline unable to recoup all of its increased costs through higher fares, it had no choice except to raise prices for the first checked bag last month, CEO Robin Hayes said in an interview this week in London.
“Fuel prices are up over 33 percent this year,” he told Skift at the Aviation Festival, an industry conference. “You end up having to pass those on. We’re about low fares. We hate increasing fares. But we had a couple of fare increases, and then we made the decision to increase the bag fee to $30 if you don’t buy it in the fare.”
It’s an important distinction. If and when other airlines match JetBlue’s increase — United Airlines did late last month — they will probably add $5 to the price of everyone’s checked luggage. But unlike many of its competitors, JetBlue offers passengers a chance at booking to buy a slightly more expensive fare that come with a a free checked bag. Since the price for that fare — called Blue Plus — remains $25 more expensive than the cheapest fare, passengers who buy it still essentially pay the old price for a bag.
In a way, JetBlue is using the price increase as an incentive to persuade more passengers to commit to a slightly more expensive fare in advance, Hayes said.
“We lay out the fares up next to each other and we make it very clear that it includes a bag,” Hayes said. “Some of the challenges come through the [online trade agencies], because it’s not so obvious to customers. But when you’re on our website — most customers come to our website — it’s pretty clear which fare you should buy.”
The airline industry has an odd way of pricing bags.
Ticket prices and many ancillary options are set according to demand, so prices increase when more people want the products. Almost always, an upgrade to a seat with extra legroom on JetBlue costs considerably more from Los Angeles to New York, when more customer value the product, than from Jacksonville to Fort Lauderdale.
To recoup its added fuel costs, JetBlue might have tried to push the industry in another direction, away from the once-sized-fits-all pricing for checked luggage. It could have devised a dynamic way to price bags, so customers would pay more to check luggage on longer flights, or during holidays. Discounter Spirit Airlines has experimented with this approach, but it has not caught on.
Ultimately, explaining the change in the pricing model might prove too difficult, Hayes said.
“You could get super scientific and say the price should be linked to the weight of the bag as well, so it’s the weight and the distance,” he said. “But I think that just gets very complicated to message. So we end up just with an average. But yes, it obviously costs more to transport a bag from JFK to LAX than it does from Boston to Pittsburgh.
Other Options for Revenue
JetBlue could have found others ways to make up the revenue.
Even as it retrofits aircraft to reduce legroom slightly, it still has more legroom than just about any other U.S. airline. It’s also the only U.S. carrier with free high-speed WiFi, which can cost $20 or more per segment on other airlines. But JetBlue views both perks as differentiators, and didn’t want to become stingier, Hayes said.
“We can’t have the best on everything, but we want to have what makes a difference to the customer,” he said. “We want to win there. And everywhere else, we just need to be competitive. And those products, they’re an investment, right? If you have more leg room, TV, and WiFi, it costs money to provide that.”
JetBlue also might have introduced a no-frills basic economy product to compete with United, American Airlines and Delta Air Lines. All have a stripped-down product designed for the most cost-conscious customers.
So far, JetBlue has resisted. That may not last forever, but for now, it’s status quo.
“I think that we already have a fare structure that our customers appreciate,” Hayes said. “We’re always looking at things, so it’s not that that fare structure won’t evolve.”
At the conference, Hayes continued to tease JetBlue’s possible expansion into Europe, likely from Boston and New York.
But Hayes said nothing more than usual about JetBlue’s plans. The airline, he said, continues to seriously consider converting an existing order for Airbus aircraft to an extended-range version that could fly from the East Coast to Western Europe. Moreover, he said, JetBlue still calculates its entry into the market would disrupt the business model of other carriers, who can often charge $8,000 or more for a last-minute transatlantic business class ticket.
Hayes said the airline is still not ready to commit, but called Europe a more promising opportunity than the American midwest, where cities like Milwaukee, Kansas City and St. Louis likely would welcome the carrier.
“Not that we can’t add some of these other smaller cities or medium sized cities over time, but the next best source of value for us is to add the destinations that have the most relevance, so London, Paris, and other European countries,” he said.