JetBlue needs to preserve its positive customer vibe as it moves forward with basic economy

It is not surprising that JetBlue Airways is following American Airlines, Delta Air Lines, United Airlines and Alaska Airlines in debuting a basic economy fare. The fare tiers obviously give airlines leverage in pushing passengers to “buy up” and bolster their revenue.


Summary:

  • JetBlue is set to follow other US airlines and introduce a new basic economy fare;
  • The basic economy fare class has already been adopted by the US majors as they seek to better compete with ULCCs;
  • The fare tiers give airlines leverage in pushing passengers to “buy up” and bolster their revenue and American and Delta have both reported favourable returns;
  • JetBlue will need to tread carefully in developing and executing their refined fare tiers in order to preserve their positive customer sentiment.

Basic Economy is part of fare tiers developed by American, Delta and United in part to ensure they have a competitive product with US ULCCs Frontier Airlines and Spirit Airlines. But the fare segmentation is mostly designed to help those large carriers improve their revenue management. Indeed, American has stated upsells from basic economy products have been close to 60%. Delta has stated its branded fares should generate close to USD500 million in incremental revenue in 2019.

American recently opted to refine its basic economy product to include a carry on bag, which leaves United as the only US major charging passengers that purchase basic economy fares for carry on bags.

Alaska Air Group and JetBlue couldn’t walk away from the revenue opportunity created by fare segmentation. Alaska plans to introduce a “Saver Fare” that will allow passengers to select their seats and bring one personal item and one carry-on onboard.

The Saver Fare and other revenue adjustments Alaska plans to undertake – including dynamic pricing for premium seats and a charge for exit row seats – should generate an additional USD150 million in revenue for the company in 2019, and Alaska management has calculated Saver Fare revenues should account for two thirds of that total.

Now multiple news outlets are reporting JetBlue also plans to develop a basic economy fare set to debut sometime next year. Citing a memo from airline president Joanna Geragthy in which she concluded customer behaviour suggests JetBlue’s success could be at risk if “we do not disrupt this market by lowering fares without sacrificing the experience”, according to Business Insider.

It seems as if JetBlue’s basic economy option will also allow passengers to bring a carry-on bag and personal bag.

For lack of a better charcterisation, Alaska and JetBlue are the US’ hybrid, low cost airlines, and both carriers generate high customer approval ratings. As a result, Alaska and JetBlue need to tread carefully in developing and executing their refined fare tiers in order to preserve their positive customer sentiment.

Both Alaska and JetBlue are working to distinguish their lowest fare tiers from American, Delta and United, which should please customers. But they also need to ensure their efforts to compete effectively with higher levels of lower fares in the market place generate enough revenue to satisfy Wall Street’s expectations.