5 Takeaways from JetBlue’s Earnings Call

Using buzz words like “disrupt” and phrases like “game change,” JetBlue Airways executives said Tuesday they plan to continue to evolve their model to keep pace with global airline industry challenges.

Speaking on the carrier’s second quarter earnings call, JetBlue executives outlined several approaches they may (and may not) use to tweak their business, both short and long term. Generally speaking, the airline seeks to improve its premium cabin experience while not taking away from its coach product. And it thinks it can do that not only in the United States, but also possibly abroad.

JetBlue’s talk about evolution comes as it, like many of its competitors, earns less revenue on a per passenger basis than in previous quarters. JetBlue reported that its passenger revenue per available seat mile, an industry metric measuring how much an airline earns from each mile it flies, decreased 10.5 percent on a year-over-year basis. Overall profits, however, remain strong, with JetBlue reporting second quarter net income of $180 million, up from $152 million in the same period last year.

Here are some of JetBlue’s plans for the future.

Expanding Mint to more domestic routes

JetBlue, which introduced its 16-seat business class cabin in 2014 from New York to Los Angeles and San Francisco, had already outlined plans to add new Mint service from Boston, New York and Fort Lauderdale to several West Coast markets, including San Diego, Las Vegas, and Seattle. But on Tuesday, JetBlue said it will add at least five more Mint-equipped A321s next year, and likely more in later years.

With the new planes, JetBlue wants to disrupt premium fares, just as it has in existing markets, CEO Robin Hayes told analysts.

“When we started Mint in June 2014, there were many skeptics and there were many doubters, including many in our company,” Hayes said. “It was a very big change from where we where. We felt there was a opportunity to disrupt the transcon market. It has been an overwhelming success.”

Outside of between New York and California, it remains rare for domestic flights to offer flatbed seats, but Hayes said consumers are willing to pay for a better product in more markets.

“We anticipate Mint will prosper in other domestic city pairs,” Hayes said. “Only 5 percent of domestic markets over 1,800 miles have consistently, regularly scheduled, lie flat seats today.”

Looking seriously at Europe

JetBlue does not have any aircraft with the range to fly to Europe, but that soon may change. When the airline announced its order Tuesday for 30 new Airbus A321s, many of which should come with Mint, it said it has the right to upgrade some of the aircraft to a longer-range version, capable of flying across the Atlantic.

Marty St. George, JetBlue’s executive vice president for commericial and planning, said the carrier is seriously looking at European routes, perhaps from Boston and New York. He noted that 87 percent of today’s trans-Atlantic market is controlled by one of the three airline alliances -SkyTeam, Star Alliance and OneWorld – which might leave room for an upstart to stimulate the market with low prices.

“We see markets that are important business markets that have very high fares,” St. George said.

Just as importantly, JetBlue executives said Mint likely would perform well to Europe. Today, it is not unusual for a nonstop roundtrip business class fare from Boston to London to cost $7,000 or more. That leaves plenty of room for JetBlue to come in with lower fares and still make money.

“When you look at why Mint was successful, it was because there was a very high premium fare environment,” Hayes said. “When you look at the opportunity across the Atlantic, it suffers from the same thing – extremely high fares.”

Prioritizing the West Coast

When it tried to buy Virgin America, JetBlue was interested partly because it wanted to bolster its West Coast franchise. But since Alaska won the bidding, JetBlue will need to grow organically.

The airline now essentially has a two-pronged approach. First, it is bulking up its focus city in Long Beach, California, just south of Los Angeles, saying it soon will announce new flights. JetBlue generally flies shorter routes from Long Beach, including to Seattle, Salt Lake City, Oakland and Las Vegas. Eventually, it wants to fly internationally from Long Beach, but the airport does not have a U.S. Customs facility.

Second, JetBlue plans to grow at large West Coast airports, such as Los Angeles and San Francisco. But rather than starting shorter flights, it mostly wants to be the “carrier of choice” for more travelers on transcontinental routes, Hayes said.

No plans for a basic economy fare

In an effort to compete with discounters like Spirit Airlines, United Airlines, Delta Air Lines and American Airlines are all introducing bare-bones fares that come without many extras passengers have come to expect, such as free seat assignments. But JetBlue executives said Tuesday they have no plans to copy.

St. George said JetBlue can compete with Spirit and Frontier Airlines with tools it already has. Over time, that could make JetBlue fares slightly more expensive than what other airlines offer, but St. George said the tradeoff is worth it.

“We still want to make sure that when a customer walks on a JetBlue airplane, no matter where they sit, they will have the best experience of any airline,” St. George said. “A strategy that dumbs that down and impacts the value proposition is on the surface not very attractive to us.”

Still, St. George left some flexibility. If customers demand discounted no-frills fares, the airline would consider them, he said.

“Our job is to be responsive to customers,” he said.

Flying less in off-peak periods

Like many other U.S. airlines, JetBlue noted that demand for travel is a little soft in some periods. In response, it will reduce its post-Labor Day schedule this year, removing some flights during off-peak periods when fewer Americans want to fly.

Across its network, JetBlue is cutting some Tuesday, Wednesday and Saturday flights, as well as some overnight flying. JetBlue is also slashing some Puerto Rico flying, as the island’s weak economy has made some routes less profitable.