What Is JetBlue’s Strategy Behind The New ‘Blue Basic’ Fare

by 
David Kaplan
Wednesday, November 13, 2019
 • 
9
 min read

Sandwiched between ULCCs and network carriers, plus managing booking inventory on OTAs and through meta-search, the first question analysts are asking: What took so long? The second question: How will it work?

JetBlue Airways is slowly adding a new category of lower-cost fare options, as the budget carrier finds itself caught between several forces across the competitive landscape.

The new fare option is dubbed “Blue Basic.” It represents the first major change in JetBlue’s seat pricing since June 2015, when it adopted “fare families” and followed other airlines’ long-established decision not to include a free checked bag on the cheapest bookings on all but a few international routes (aka “Blue”). JetBlue also added two other tiers at that time, “Blue Plus,” which allowed one checked bag, and “Blue Flex,” which included two checked bags for those paying at the highest end of those fare categories.

Customers flying under Blue Basic prices board last, cannot receive a refund for cancellations (only certain unspecified ancillaries will be reimbursed), cannot initiate any changes to the flight (that goes for members of JetBlue’s elite frequent flier program Mosaic as well).

“We believe customers shouldn’t have to choose between low fares and great service,” JetBlue told us in a statement regarding questions about Blue Basic, which was first reported by Bloomberg News. “There are a growing number of travelers who want an ultra-low fare and we want to have an option that meets their needs, while also offering the award-winning JetBlue experience they know and love (the most legroom in coach, free Wi-Fi and seatback entertainment on every aircraft, unlimited free snacks and soft drinks, etc.). Our new fare options are a much better match for what customers are looking for today.”

In its materials outlining Blue Basic, JetBlue added, “Since launching fare options in 2015, JetBlue has gained deep insights into what customers want when they select a fare. At the same time, competitors have begun offering basic economy and ultra-low-cost fares on many routes we fly.”

A Competitive Necessity

While the changes are hardly radical in the broader airline industry, Blue Basic offers a clear challenge to the carrier’s marketing.

JetBlue’s branding has always aimed for a sweet spot of “premium experiences” at relatively lower prices.  “I don't spend a lot of time thinking about premium or luxury,” JetBlue Marketing VP Elizabeth Windram told Kambr Media back in May. “We spend a lot of time thinking about offering value at whatever price point you choose within our network.”

But now, as JetBlue faces a number of challenges, particularly in Florida and Latin America, which recently saw the closing of JetBlue’s Mexico City route, as PaxexAero’s Seth Miller reported in early October.

In offering his initial reaction to the introduction of Blue Basic, Atmosphere Research Group’s Henry Harteveldt described having a “mixed opinion” on the new fare strategy. Ultimately, the airline had little choice, he said.

“It's a necessity for JetBlue to do this in order to remain competitive with both the ultra-low cost carriers, such as Spirit, and Frontier, and the network carriers, which already have their basic economy fares,” Harteveldt told Kambr Media. “JetBlue had said that they were going to pursue a basic economy-type of fare, so this was not unexpected.”

For Kambr Advisory Group analysts, the main question is, “What took JetBlue so long?” [Full disclosure: Kambr Advisory is a corporate sibling of Kambr Media, both of which operate independently within Kambr Inc.]

“There was not much of a choice for JetBlue if they did not want to cede the bottom end of the market to others,” said Chris Anthony, Kambr Advisory’s managing director. “The risk I see: if you are going to do it, do it right. Why not exclude the cabin bag? That's what most other airlines do, excluding Delta. Seeing as Blue Basic pax board last, they are also most likely to be unable to find room for a rollaboard, which the airline then has to deal with at the gate. Why not just avoid that?”

“It seems way overdue to me. Here you have a carrier sandwiched in between the ULCCs and the legacy network carriers,” added Steve Hendrickson, head of advisory services at Kambr Advisory. “This kind of product has been offered on both sides of B6 for a while, but they've only now seen the light.  What were they thinking?  What fairytale were they telling themselves?  Was there a systems capability challenge that made it difficult to add this tier of fare product?”

There's no "Blue Basic" section of the cabin on a JetBlue flight. But those customers will have to board last.

In terms of the execution, Harteveldt gives the carrier credit for retaining some “JetBlue touches” for Blue Basic. For example, Blue Basic allows passengers to bring on a full sized carry-on suitcase. However, Harteveldt also noted that that perk “is not guaranteed because of boarding priority. But unlike other airlines that rule out letting you bring a carry-on bag, JetBlue is going to give you the option.”

And that makes JetBlue competitive with Delta, he said.

“JetBlue is also going to give passengers the ability to reserve seats in advance for a fee, but again, the other airlines that have basic economy fares, don't do that at all,” Harteveldt said. “And when check-in opens on other airlines, you are assigned a seat check. JetBlue will let you choose from available empty seats. If you want, you can pay extra to have a seat with more legroom.”

A Fare/Fair Contest

Aside from the threat coming from ULCCs and legacy airlines, Harteveldt was also struck by other reasons JetBlue cited for creating Blue Basic, namely “the commoditization effect” wrought by metasearch engines and online travel agencies.

After all, when travelers are shopping on third-party online sites, as opposed to shopping an airline’s site directly, they’re looking to compare the lowest fares. And that tends to be the way third-party OTAs and search engines list flights.

“Without that basic economy fare, JetBlue's fares sometimes may have appeared higher,” Harteveldt said. “But these sites failed to provide adequate context.”

For example, a third-party site would display “airline A’s” basic economy fare without identifying it as such, creating an “apples and oranges” result — one airline’s basic economy fare against the lowest JetBlue “regular” coach fare, which may have  been more expensive, but also is a more comprehensive product, Harteveldt noted.

Given that JetBlue’s previous economy fare came with greater amenities and privileges than the ones it would be listed against on metasearch engines such as Google Flights, Kayak, Momondo, or on OTAs like Expedia, Booking.com, Orbitz, JetBlue often wasn’t given a fair comparison, Harteveldt said.     

Who Is The Basic Blue Target?

No matter how many people told Windram about their “love for JetBlue,” she conceded back in May that “the number one factor people look to when choosing who to fly with is price. It’s difficult for any brand to overcome price, especially airlines. Our mission is to make sure all the services are more appealing so customers will see the value.”

Since “value” is in the eye of the beholder, particularly when it comes to travel, it’s important that JetBlue is clear in who to target Blue Basic to, and then to carefully manage expectations accordingly.

“We are broadening the appeal of each fare tier so that there is truly something for everyone,” JetBlue President & COO Joanna Geraghty said in a statement that offered a taste of further messaging to come. “Our new low fare will be anything but basic, designed to help customers save while still offering the full JetBlue experience. This will attract ultra-low-fare seekers to JetBlue, where we can take better care of them than other airlines do.”

Blue Basic, like the other basic economy fares, is clearly targeting a customer that is price-focused, and is willing to trade off convenience and control for a lower fare, Harteveldt said. “Blue Basic would not be a fare I would recommend for families with young children where it's important for a parent to sit by one of their kids,” he said. “It is not for someone who wants flexibility, even the ability to stand by for an earlier or later flight. Blue Basic is for a traveler who is fairly definite in their travel plans and who values price above almost everything else.”

A Zero-Sum Game

One thing Harteveldt likes about the strategy behind Blue Basic is JetBlue isn’t carving out a section on the plane solely for Blue Basic customers. A Blue Basic customer will have access to the entire core cabin, even if they are the last ones taking a seat.

And while much is made about Blue Basic being JetBlue’s total entry into “no frills” offerings, this fare category could serve as an introduction to people who have never flown the carrier before.

By giving those passengers a look at what they could have bought, JetBlue may influence future travel purchases. Plus, upselling Blue Basic passengers on higher priced seats could further enhance JetBlue’s ancillary growth strategy. It’s worth noting that Geraghty told analysts on JetBlue’s Q3 earnings call that ancillary revenue ancillary revenue was up 17 percent in Q3 year-over-year. With sales from baggage fees unlikely to rise much, opening up new avenues for purchases is key for JetBlue.

“The airline industry in the U.S. is very much like the soda business, in that it's a mature market, and market share is generally gained or lost based on people going to or leaving different airlines,” Harteveldt said, noting that Coca-Cola sales tend to grow when Pepsi’s shrinks.

“It's a finite universe for airline bookings because it's not like the U.S. is a burgeoning market,” Harteveldt continued. “We are a mature market and though our population grows, it grows incrementally. For JetBlue, they have to find ways to be competitive. Again, in fairness to the airline, it's a damned if you do, damned if you don't environment. If they don't have Basic Blue, if they don't have a basic economy fare, they lose out to airlines that have it and to ULCCs. If they do have it, there is a risk if it's not managed well, that people who might buy the core fares, would trade down. How JetBlue manages its inventory and pricing will be critically important.”

“We are broadening the appeal of each fare tier so that there is truly something for everyone,” JetBlue President & COO Joanna Geraghty says.

Lifting Airlines From A Race To The Bottom

Instead of endlessly competing for the lowest price, Harteveldt would like to see airlines find ways to encourage customers to pay more for their product.

“You don't hear employees say, ‘You know what, you can cut my salary.’ You don't hear the aircraft manufacturers saying, ‘Hey, we're running a 3-for-1 special on our airplanes if you order them today,’” Harteveldt said. “Airports aren't reducing landing fees. So I would like to see airlines provide products people like, value, and afford that would give them trade-up opportunities for something better.”

As Delta Air Lines CEO Ed Bastian has talked about representing a brand that inspires “irrational spending” akin to what moves a coffee drinker to pay more for a Starbucks beverage, JetBlue continued to build up its five-year-old MINT business-class offering, which has been popular domestically and is serving as a model for what the carrier hopes will distinguish it when it begins transatlantic flights to London in 2021.

But to Harteveldt, JetBlue’s pitch to first class-minded travelers has been lacking in some respects.

“From my perspective as an analyst, I think JetBlue is not competitive when it comes to the premium traveler,” Harteveldt said. “While JetBlue does have MINT on some of their A321 flights, they do not have a dedicated premium cabin on their A320 fleet and their non-Mint A321s. I'm not saying that JetBlue needs MINT on every plane. But I do think that they need – and would succeed – with a domestic first-class style type of cabin, two-by-two seating, additional leg room, but not the lie flat seats.

“It would help JetBlue compete for several customer segments: the corporate traveler, the independent or individual business traveler, small-to-midsize business travelers, and the premium leisure traveler, who would like a better product and even more leg room. JetBlue talks about its ‘egalitarian heritage,’ but there is no such thing as egalitarianism at the airport or the airlines. If JetBlue really believed in egalitarianism, they wouldn't have Mosaic, and they wouldn't give Mosaic customers priority boarding. They wouldn't have extra legroom seating. This is business. This isn't charity and this isn't social work.”

JetBlue's Updated Fare Families

The Rules Of Retail

To Jay Sorensen, president of the Product, Partnership and Marketing Practice at travel industry consultancy IdeaWorksCompany, Blue Basic has the potential to confuse and disappoint its customers.

For one thing, Sorensen’s own attempts to view Blue Basic flights following the carrier’s announcement were fruitless. Secondly, the no-frills offering seems to remove the airline from the niche JetBlue has assiduously carved out for itself between ULCCs and legacy carriers because Blue Basic will only be offered on certain routes at certain times.

In Sorensen’s view, that smacks of a certain capriciousness that could alienate loyal JetBlue customers.

“There are multiple things that I think are being violated here in terms of good retail practice,” Sorensen said. “The number one rule of retailing is to always have the product available on the shelves. JetBlue has introduced a couple of products and their availability by definition is limited to select markets. There’s a mysterious sort of process in which a Blue Basic fare might be the market in one area, at one moment –  and then it might not be found at all. My takeaway is that JetBlue might occasionally feel compelled by competition to offer more savings to our customers. And if it isn’t feeling competition coming after its customers, it won’t offer Blue Basic. The customer will note deals are only offered when Spirit and Frontier are a threat - is that the right message?

“That’s insulting,” Sorensen continued “I don't understand the logic of that. If you're going to have a product, you roll it out countrywide. It’s akin to Walmart announcing Black Friday specials in some stores and not in others. The black eye for JetBlue is the black eye of inconsistency.”

In a sense, brands like JetBlue that have sought to cultivate a transparent value proposition for bookings and amenities always have to guard against the expectations they’ve held up. Consumers generally have a high degree of cynicism when it comes to brands’ promises, Sorensen noted. He pointed to Southwest Airlines as a carrier that has tended to adhere to a particularly solid set of marketing principles.

“If the day ever arrives and Southwest feels compelled to start charging for bags, well then it would seem to be the death of their brand,” Sorensen said. “Does JetBlue have a better reputation than other peers? Of course. But does offering a basic economy fare damage that? Yes, by bits.”

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