By
Jack Nicas
Updated Nov. 19, 2014 11:43 a.m. ET
JetBlue Airways Corp. is adding bag fees and cutting passenger legroom—revenue initiatives customers generally dislike and that it long resisted—in a bid to improve its lagging financials.
JetBlue said it would start offering new basic fares that don’t include a complimentary checked bag, as part of three new fare classes the airline is introducing next year. Along with
Southwest Airlines Co. , JetBlue had been one of the last two U.S. airlines to offer all fliers at least one free checked bag—despite widespread adoption of bag fees by their peers in recent years.
JetBlue also said that starting in the third quarter of 2016, it plans to increase the number of seats on its Airbus A320 aircraft to 165 seats from 150. The new seats will reduce JetBlue’s average legroom by almost 5% to 33.1 inches per seat, which is still the most average space among U.S. carriers. The new seating configuration will also require a fourth flight attendant on those A320 aircraft because of federal rules that require one attendant per 50 seats.
JetBlue said the new revenue initiatives and improvements in existing projects would increase its annual operating income by about $450 million by 2017, including $200 million annually from the new fare classes and $100 million annually from the new seats.
JetBlue had foreshadowed the new initiatives since September, when it said President Robin Hayes would succeed departing Chief Executive
Dave Barger in February. JetBlue’s financial performance has lagged behind the wider industry in recent years, leading analysts to push for bag fees and tighter seating, saying the discount airline was giving fliers too much for too little. “Stop selling steak to customers who want hamburgers,” wrote Barclays airline analyst David Fintzen in a recent note.
Mr. Hayes said in a presentation to analysts on Wednesday that the new initiatives will improve investors’ returns without scaring away customers. “I’m extremely confident that even with some of the changes today, our customers are going to still feel like JetBlue is offering a better experience than anyone else,” he said.
JetBlue also said it is deferring 18 Airbus aircraft to between 2022 and 2023 from their current scheduled delivery between 2016 and 2018, contributing to roughly $1 billion in capital-expenditure savings through 2017.
JetBlue’s new fare classes will include first- and second-tier options that include at least one free checked bag and other perks. The cheapest option will be a basic ticket that includes no complimentary checked bags and potentially less flexibility on changing a reservation.
Marty St. George, JetBlue’s senior vice president of commercial, said the basic fare class will be a positive for the more than half of its customers who “pay for the service of a free bag without actually taking advantage of it.” He said that the sting of bag fees has been reduced as U.S. fliers become more accustomed to them. “We realized it’s become an accepted part of their customer experience,” he said.
JetBlue shares were up 2.5% to $13.04 in midmorning trading.
Write to Jack Nicas at
jack.nicas@wsj.com
