JetBlue Airways Corp. (JBLU:US), one of the U.S. industry’s holdouts in not charging for a first checked bag, is considering adding the levy as the carrier overhauls the way it prices tickets.
“The concept of a first-bag fee is on the table,” Chief Financial Officer Mark Powers said in an interview. “There is a construct under which we would, in effect, be able to charge for bags.”
A fee may be part of JetBlue’s new fare structure, Powers said yesterday, as the New York-based airline creates classes of tickets whose price would include services such as one free piece of checked luggage. While fliers could still choose a cheaper seat, they would have to start paying for any baggage, not just their second suitcase.
Adoption of such a fee would leave Southwest Airlines Co. (LUV:US) as the only major U.S. carrier that doesn’t charge passengers for the first bag. Hunter Keay, a Wolfe Research LLC analyst in New York, has estimated that an across-the-board levy at JetBlue would boost annual earnings per share by 30 cents.
JetBlue trails most of its domestic peers on benchmark profit measures such as operating margin and per-share earnings, according to data compiled by Bloomberg. The carrier’s 30 percent stock gain this year through yesterday lagged behind the 35 percent advance for the Bloomberg U.S. Airlines Index.
Software upgrades to let JetBlue create the fare classes -- which the carrier refers to as “families” or “buckets” -- should be in place in the first half of 2015, according to the airline.
“Fare bundles provide some intrigue, but until we get more clarity on what these bundles include, we find it difficult to get overly excited,” Helane Becker, a Cowen & Co. analyst in New York who rates JetBlue market perform, said in a note today. “Given the company’s loyal customer base and brand focus, we believe it will be difficult to implement” revenue increases with steps such as bag fees.
Powers declined to discuss specifics of the program because work on the fare categories is continuing. In broad terms, JetBlue would tailor the fare packages possibly based on the market, time of day or other criteria.
“If you chose to buy a bucket without attributes and show up with a bag, you probably should pay for it,” Powers said. “It’s a terrific way, and in a JetBlue-friendly way, of monetizing all the excellent product attributes we have without doing what we’re absolutely opposed to -- nickel and diming and gouging customers.”
So-called bundling of products and services is common at other airlines. With such bundles, the cost of products such as bags, early boarding or premium seats is included with the fare at a rate below what those items would cost separately -- encouraging consumers to pay an all-in price.
“We do believe fare families is a significant source of revenue growth for us into the future,” President Robin Hayes said yesterday on a conference call. “We want to be very thoughtful about how we execute these things. These are very complex changes for our company and we want to execute it really well so our customers have a seamless experience.”
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