JetBlue to Charge for Checked Bags in New Fare Class

JetBlue to Charge for Checked Bags in New Fare Class
Image credit: Reuters | Lucas Jackson

JetBlue Airways announced Wednesday that it will charge certain customers for their first checked bag, yielding to pressure from analysts who criticized the airline for not adding fees in step with other carriers.

The New York-based airline also said it will add more seats to its fleet of Airbus A320 planes while maintaining leg room for passengers.

The moves reflect how an increasing chunk of airlines' revenue comes from fees above the fare price and from squeezing more people into planes through seats with thinner backs. In particular, they show that new strategies have landed at JetBlue since it announced two months ago that its president Robin Hayes will take over as chief executive in February, although Hayes has promised to preserve the airline's culture.

At a presentation to investors on Wednesday, JetBlue discussed its three new fare families, including a discount class that does not come with a free checked bag. The airline estimates this will earn the company about $65 million in 2015 and about $200 million total within several years.

"This was something that the carrier needed to do in order to be more competitive and to close the financial gap with its peers," S&P Capital IQ analyst Jim Corridore said. "It (had placed) them at a serious competitive disadvantage in an industry where profit margins are very, very low."

JetBlue posted a net income of $79 million last quarter, compared to $357 million at Delta Air Lines and $924 million at United Airlines, which were buoyed in small part by baggage fees.

The company also said it will add 15 seats to each of its Airbus A320 planes over about two years, beginning in mid-2016. The seats will also save JetBlue on fuel costs by making planes more than 1,000 pounds lighter.

"We think it gives customers a much better experience than they have right now ... while still offering the most leg room of any airline in North America," Senior Vice President of Commercial Marty St. George said during the presentation.

JetBlue said revamping its cabin will earn the company about $100 million.

Among other initiatives, JetBlue said it will defer the first deliveries of 18 Airbus aircraft to 2022, back from 2016. This will reduce JetBlue's costs by $900 million through 2017 and help the carrier manage its capacity.

JetBlue's stock rose about 2.44 percent to trade at $13.03 in the late morning.

(Reporting By Jeffrey Dastin; Editing by Meredith Mazzilli)

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