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After Earnings Nosedive, JetBlue Enters the Premium Market

August 6, 2013
URL: http://www.entrepreneur.com/article/227716

The skies haven't been friendly to JetBlue Airways in recent months, but the airline is hoping that the introduction of premium seats and other amenities on lucrative transcontinental routes will change its fortunes.

At an industry conference in San Diego on Monday, JetBlue chief executive Dave Barger unveiled the new seats, which can lie flat to accommodate sleeping passengers. The announcement came less than a week after JetBlue registered a disappointing second quarter in which net income fell to $36 million, a 30-percent drop from the same period last year. Barger chalked up falling profits to the sluggish economy as well as maintenance costs on its aging fleet.

JetBlue was founded in 2000 as an all coach-class air carrier, and its entry into premium travel marks a major culture shift for the New York-based airline. "JetBlue had this egalitarian, everyone-is-treated-the-same culture. And now it's like any other airline," said George Hobica, founder of Airfarewatchdog.com, a low-airfare alert site owned by TripAdvisor Media Group.

Thus far, JetBlue's commitment to a superior experience for economy passengers has made it a consistent fan favorite, says Anne Banas, executive editor of SmarterTravel.com, an online resource for travel news and advice. Banas says the addition of premium seating might initially be hard for some fans to swallow. "I think it's going to be a little strange for people who love JetBlue to feel that separation," she says.

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Starting in the second quarter of 2014, passengers will find premium seating on flights from New York to Los Angeles and New York to San Francisco, heavily trafficked routes that serve executives in the entertainment, technology and finance industries. Eleven new A321 aircraft will feature the premium accommodations. Of the 16 first-class seats onboard, 12 will be lie-flat seats in the traditional 2-by-2 arrangement, and the other four will be single-seat "suites" with closing doors for privacy. No other airline serving these routes offers private suites, JetBlue says.

The seats will offer a massage function and adjustable firmness as well as a 15-inch television. Banas calls these premium seats "a little over-the-top" for domestic flights. "It's not like you're flying 10 hours to Japan or Hawaii or something," she says.

But Hobica sees the added benefit for red-eye passengers, who would be able to catch a few hours of valuable sleep. "A lot of uber-flyers and type-A flyers take those flights because they don't waste a day traveling," he says.

Once upon a time, airlines made most of their profits from business-class travelers, whose pricey seats subsidized a cheap economy class. During the recession, cost became a paramount concern, and low-cost carriers such as JetBlue and the newer Spirit Airlines grew rapidly. But now demand for premium accommodations is returning to pre-recession levels. "We're in a very different world than we were in just a few years ago," says Banas.

As legacy carriers and international airlines fight to attract premium passengers, JetBlue, which can't offer first-class lounges and other pre-flight amenities like the others, may try to undercut them on price, just as it did with economy-class years ago.

JetBlue hasn't released prices for the new seats yet, but its CEO hinted that fares would be lower than the norm. "Transcontinental routes have had high premium fares we believe we can beat," Barger said in a company press release. Then, if JetBlue's premium model does well serving California and New York, it may expand the offering to other routes, possibly transcontinental flights to and from Boston.

But Banas cautions that premium travel isn't a slam dunk for JetBlue. It's a new arena for the airline, one with a number of established players. "The other airlines might have an edge there," she says. "JetBlue needs to first make (it) work before they will be threatened."

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