JetBlue Airways Corporation (JBLU) has announced that it will add bag fees and squeeze seats. The decision, which is believed to have been taken in a bid to bolster revenues going forward, was announced at the company’s Investor Day. The news caused the shares of the airline to rise by 4.13% to $13.25 on Nov 19. However, the plan naturally failed to find favor with travelers.
The carrier declared that it plans to introduce three ticket classes in the first half of 2015. JetBlue customers with the lowest-priced seats will have to shell out fees for all checked luggage. Passengers buying the second category tickets will be able to enjoy at least one piece of checked bag free of cost.
For customers traveling in the most expensive seats, there will be an option for two free checked bags. Incidentally, the airline holds that a flier stands to benefit the most if he chooses the most expensive seat and naturally, the least if he chooses the cheapest one.
Post-JetBlue’s decision, Southwest Airlines (LUV) now remains the only U.S.-based carrier to allow free check-in of a bag for all passengers. JetBlue’s new rules come much later compared to its peers. Other major airlines have been following this practice since 2008.
According to a Bloomberg report, bag fees have helped U.S. airline companies raise approximately $1.7 billion in the first six months of the current year. Owing to its decision to charge bag fees, JetBlue projects its operating income to increase by more than $200 million annually.
Apart from this, the company also intends to increase the capacity of its Airbus A320 planes by 15 seats to 165. Due to the addition of new seats, the carrier’s seat pitch (distance from one seat back to another in the coach class) on A320s will reduce by 1.6 inches to 33.1 inches. The modifications, which will commence in the third quarter of 2016, will take approximately two years to be completed.
As a result of the decision to introduce extra seats, JetBlue projects its operating income to increase by $100 million annually. Annual operating income of the carrier should rise by $150 million as a result of its other initiatives.
On the other hand, from the customer’s perspective, the move to cut leg room will increase their discomfort. JetBlue, however, stated that even after the modification, there will be more leg room in the airline’s main cabins compared to its peers. For example, the average fleet wide seat patch at Spirit Airlines (SAVE) is 28.3 inches.
JetBlue stated further that 18 Airbus jets will now be delivered between 2022 and 2023. The jets were earlier scheduled to be delivered between 2016 and 2018. Consequently, capital spending at JetBlue will be reduced by more than $900 million through 2017.
Zacks Rank
JetBlue Airways presently carries a Zacks Rank #3 (Hold). A better-ranked stock in the airline space is Republic Airways Holdings (RJET) with a Zacks Rank #1 (Strong Buy).
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