JetBlue to add bag fees on cheapest tickets

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Posted: Nov 19, 2014 4:23 PM
JetBlue to add bag fees on cheapest tickets

JetBlue will add bag fees and squeeze seats a bit closer together as it tries to boost profit.

The airline said Wednesday that it will create three ticket classes beginning in the first half of 2015, and only the top two include at least one free checked bag.

Other big airlines have added fees on checked bags since 2008, when they needed money to cover rising fuel costs. In the first six months of this year, U.S. airlines raised $1.7 billion from bag fees. JetBlue's decision will leave Southwest as the only major U.S. airline to let all passengers check a bag free.

The changes seemed to please investors — shares of JetBlue Airways Corp. rose more than 4 percent. Analysts said they showed that incoming CEO Robin Hayes was sharply focused on boosting revenue and controlling costs.

But some passengers complained that JetBlue was sacrificing perks that helped the airline win customer-satisfaction awards year after year.

"Airline tickets are already expensive," said Maxwell Haddad, a real estate professional in New York and longtime JetBlue flier. Not charging for the first bag "was an extra level of kindness or service that JetBlue offered. They seemed to value customer service above and beyond other airlines."

JetBlue executives declined to give prices but said they would fluctuate with demand. They said that fewer than half of JetBlue passengers check a bag.

The airline also will add 15 seats to its Airbus A320 planes, increasing capacity to 165 from 150, and reduce average legroom to 33.1 inches between rows from 34.7 inches now. The makeover will start in late 2016, take two years and still leave more legroom than in the main cabins of bigger airlines, JetBlue executives said.

JetBlue expects that the new fare classes and bag fees will generate more than $200 million a year in operating income, the extra seats will raise another $100 million a year, and other measures will produce $150 million a year.

Hayes, who is currently president and will replace JetBlue CEO Dave Barger in February, said in an interview that other amenities such as free Wi-Fi, snacks and no overbooking mean that the airline can add bag fees and seats without driving away customers.

"I'm confident when customers get on and see the cabin and experience the product, they're going to say, 'Wow, this is actually better than what JetBlue was flying before.'"

JetBlue announced the changes as it met in New York with investors, who have been pressing the company to boost revenue and profit margins. The airline also announced that it would delay 18 Airbus jets that were scheduled for delivery from 2016 to 2018 until 2022 and 2023 to cut capital spending by more than $900 million through 2017.

Shares of the New York-based airline closed up 53 cents, or 4.1 percent, to $13.24. They hit $13.48 earlier in the session, their highest level since November 2005.

S&P Capital IQ analyst Jim Corridore said JetBlue lags other U.S. airlines in financial measures partly because it doesn't charge for bags and has fewer seats than rivals with similar planes. Wednesday's changes will help close the gap, he said.

Corridore said there was little risk that passengers will abandon JetBlue over the changes. He predicted that if JetBlue raises revenue without losing customers, it will convince Southwest to end its holdout and also charge for checking bags.

No chance, said Bob Jordan, executive vice president at Southwest. Jordan said Southwest has extensively surveyed customers to examine the possibility of dropping its perk of two checked bags for free.

"Every time we do the research, even charging for the second bag is a loser" because some passengers would not fly on Southwest, he said.

Marty St. George, senior vice president at JetBlue, said his airline also did plenty of homework, and "We did not find the same conclusion that they did."

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David Koenig can be reached at http://twitter.com/airlinewriter