JetBlue Expands Mint Service To The Caribbean In Pursuit Of Higher Margins

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JetBlue (NASDAQ:JBLU) has announced that it is expanding its premium class Mint service to select Caribbean destinations. [1] Beginning in November, New York fliers will find the Mint service on JetBlue’s flights from the city to Barbados and Aruba – two of the Caribbean’s most popular holiday destinations. The Mint service, which features fully lie-flat beds and suites with a privacy door, was launched by JetBlue in June of last year on the New York-Los Angeles transcontinental route. In our view, this expansion of the Mint service to Caribbean international routes indicates that this service has been well received by fliers. JetBlue’s aim behind expanding this service is to grow its margins.

We currently have a price estimate of $18 for JetBlue, marginally below its current market price.

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The Mint Service Is Expanding JetBlue’s Margin

In June of last year, JetBlue launched the Mint service on its flights between New York and Los Angeles. By the end of 2014, the carrier introduced this service on its flights between New York and San Francisco. The Mint service includes fully lie-flat beds, some of which are suites with a privacy door. Fliers on this service get high-end food options, channels from DirecTV that can be viewed on 15-inch flat screen televisions, and on-board WiFi. To sum up, the Mint service is JetBlue’s attempt to attract premium class business and leisure travelers. And the carrier seems to be succeeding, as it has been able to expand this service since its launch. At the 2014 investor day presentation, JetBlue said that after launching the Mint service, revenue per departure on its New York-Los Angeles route grew by 24% annually in September driven by higher fares brought by these seats. At the same time, cost per departure grew by just 6% per year due to the additional expense incurred on offering this premium class product. So, JetBlue’s margin grew significantly on the New York-Los Angeles route driven by the premium class Mint service. [2]

After succeeding in transcontinental markets, JetBlue is expanding this service on its flights from New York to Barbados and Aruba. The Caribbean market sees many high-end leisure travelers, especially in the peak holiday season that stretches from around mid-December to mid-January. If JetBlue can attract a portion of this high-end leisure fliers, then the carrier will be able to grow its revenue and margin on Caribbean routes as well. Success in this market will likely propel JetBlue to launch the Mint service in more markets. Thus, in the long term, Mint has the potential to significantly lift JetBlue’s margin and yield.

However, the carrier will have to be careful about pricing this premium class product appropriately. JetBlue launched the Mint service at a one-way fare of $599, which is significantly below premium class fares offered by network carriers on transcontinental routes. [3] However, since the launch, JetBlue has revised its Mint fares upward. Further fare hikes could weigh on demand for these seats. On the other hand, if the carrier continues to price these seats appropriately, then Mint could drive significant growth in JetBlue’s margin in the coming months.

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Notes:
  1. JetBlue’s Acclaimed Premium Experience, Mint, Begins Flying to the Caribbean This Fall, March 16 2015, www.jetblue.com []
  2. JetBlue’s presentation at its 2014 annual investor day, November 19 2014, www.jetblue.com []
  3. JetBlue’s Premium Transcontinental Service Mint Takes Off, June 15 2014, www.jetblue.com []