Record ancillary revenues won’t derail Basic Economy expansion at JetBlue

JetBlue realized $33 per passenger in ancillary revenue last quarter, an all-time record for the carrier. But the company is not resting on that accomplishment. Rather, JetBlue sees significant opportunities for further growth with more unbundling (and rebundling) of fares.

The planned revamp of fare families is not new. JetBlue announced its intentions on that front in September 2018. Company President Joanna Geraghty reiterated those plans in the most recent earnings call:

It gives additional options for customers whether you’re extremely price sensitive or whether you’re somebody who wants a more inclusive offering. We have markets today where ULCC carriers are in and we think that this will provide options to some customers that might not have necessarily considered JetBlue because on an OTA when the fares are displayed, our fare shows up as higher because it’s an all inclusive offering.

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Read More: JetBlue goes Basic, plans fare families revamp

Just what the new fare family bundles will include remains uncertain, but Geraghty previously indicated that a carry-on bag fee was off the table for the company. Given that, it would seem the only cuts available for a Basic fare are advanced seat assignment and residual value for a change fee (i.e. making that zero).

Geraghty did claim on the most recent earnings call that the current fare families are “all-inclusive” even at the Blue Fare level. That claim is a stretch given the lack of checked bag included, an included benefit that was removed when the fare families launched.

Dropping the ability to assign seats in advance would bring the company closer to its ULCC competition and allow it to increase prices for its current baseline offerings. And, after all, raising fares for passengers is really what basic economy is – and always has been – all about, regardless of the competitive spin airlines offer up.

#Delta Basic Economy is offered in more than 450 markets, including pilot testing in every international entity, compared to 53 in 2014

— Eric (@GoldboxATL) December 17, 2015

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It took a couple years to materialize that way, but Basic Economy now spans most markets, including international routes, the Big 3 US network carriers serve. There are and likely always will be some exceptions, but the ability airlines have to scare passengers into paying more, through the warnings and pop-ups through their direct sales channels, generates significant revenue. It would be financially foolish not to pursue such efforts. The book-away concerns appear unfounded, though American did back off on its carry-on bag restrictions as part of a Basic Economy revamp.

JetBlue has also admitted that its bundled options come up short in driving the desired increase in revenue. The higher priced options today are simply not compelling for sufficient numbers of travelers. reclaiming that screen real estate for new bundling options could help the carrier reach its revenue goals. Access to Even More Legroom seating as part of the fare seems an obvious candidate for driving the revenue boost. Reduced change fees and priority security screening access are far less compelling today.

Then again, selling the Even More Legroom seats as a premium economy product, similar to Delta Air Lines‘ efforts with its Comfort+ offering, would likely deliver an even greater revenue boost to the carrier, especially as its ability to dynamically price those offerings improves.