What Are The Initiatives Undertaken By JetBlue To Ensure Sustained Growth?

The investment firm, Barclays, recently initiated coverage on JetBlue with an overweight rating. The firm believes that capacity restraint and improving yields will contribute towards earnings growth for the firm and the aviation sector as a whole.

Over the last few years, JetBlue has done phenomenally well. Its top line, in the period between 2010-2015, has grown by an average of 11.8%, the fastest in the industry. With the Alaska-Virgin America merger, the carrier was the fifth largest airline in terms of number of passengers. JetBlue established its brand by being economical and yet offering amenities like in-flight entertainment, TV at every seat, and Sirius XM satellite radio, which are not available at other low-cost carriers such as Spirit. Furthermore, in 2013 it launched its premium seating program, Mint, to entice business class or first class customers to its airline. The Mint program, with its lie-flat seats, and moveable partitions that can create small suites on the airplane, proved to be immensely successful, marking a cornerstone in JetBlue’s history.

In the following note, we discuss some of the initiatives taken by JetBlue to ensure sustained growth.

Segmentation and Fee Bundling

JetBlue segments its services under four broad categories: Blue (Basic Economy), Blue Plus (Economy), Blue Flexi (Premium Economy), and Mint (First Class). Offering a diversified set of classes allows the airline to cater to all segments of the population, i.e., from low income to high income, by allowing people to choose the service they value and pay for it. The bundling of fees and the fare options offered by the carrier have been accretive to JetBlue’s earnings. The company expects to add $260 million through segmentation to its earnings in 2016, and then $280 million in 2017.

Loyalty Program and Credit Card

TrueBlue, JetBlue’s frequent-flyer program, originally awarded 2-6 points depending on the distance. These points were then doubled, if the flight was booked online. Under the changes made to the program in 2009, members receive three points for every dollar spent toward a flight, and an additional three points for every dollar spent on a flight if they book online on the JetBlue.com website. Furthermore, if the American Express credit card is used to purchase a flight, an extra two points are awarded. One major selling point of the program is that TrueBlue points will never expire for any reason.

The success of the credit card program have added dollars to the company’s earnings. It expects these benefits to increase going forward.

Ancillary Revenues and Restyling

The company earns approximately 8% of its revenues in the form of ancillary fees and cargo fees. Ancillary revenue is revenue from non-ticket sources, such as baggage fees and on-board food and services. JetBlue earns approximately $25 per customer in the form of non-ticket revenues. The growth in ancillary revenues is expected to continue at a CAGR of 6% per annum until 2017.

As we mentioned before, the provision of amenities such as television at every seat, led to the immense popularity of JetBlue. To keep up the momentum, JetBlue has taken up the task of restyling its cabins in the A320 flights. Moreover, to reduce costs, it also plans to add 12 more seats to each of these planes. The understanding is that this will spread the unit costs over more seats, while increasing the capacity. Consequently, the airline expects $100 million incremental earnings, starting in 2017, from its cabin restyling program.

Cost Savings Initiatives

While the company will be investing in cabin restyling and fleet expansion in order to increase its network, it will try to offset this increased expenditure by way of cost savings initiatives. It will try to optimize its technical operations through maintenance planning and crew resource maintenance to improve air safety. Further, it plans to implement corporate automation, customer self service at airports, and capex governance, in order to save up to $300 million in operating costs.

Have more questions about JetBlue Corporation (NYSE:JBLU)? See the links below:

• How Did JetBlue Perform Operationally In November?
• Millennials And Their Increasing Contribution Toward Air Travel
• How Did JetBlue Perform Operationally In October?
• Higher Expenses Weigh On JetBlue’s Q3’16 Results, Even As Unit Revenues Improve
• JetBlue’s Q3’16 Earnings Preview: Reduction In Capacity Expansion To Arrest The Decline In Unit Revenues
• How Did JetBlue Perform Operationally In September?
• How Has The State Of Air Travel In The U.S. Changed Over The Years?
• How Has JetBlue’s Financial Position Improved Over The Last Few Years?
• Is Renewable Diesel The Way Forward For The U.S. Aviation Industry?
• How Did JetBlue Perform Operationally In August?
• Can Passenger Airlines Revive The Growth In The Air Cargo Industry?
• How Are The U.S. Carriers Taking Advantage Of The Restoration Of Diplomatic Ties Between U.S. And Mexico/Cuba?

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for JetBlue Corporation

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research