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[video]JetBlue, an Airline Industry Outlier, Moves to Keep Cross-Country Fliers

Stocks in this article: AAMRQDALJBLUUAL

NEW YORK ( TheStreet) -- JetBlue (JBLU) inspires loyalty in customers and often makes things work, but it has been losing out in ultra-competitive trans-continental markets.

"In the trans-con markets there are two reasons why people book away from our service," said CEO Dave Barger, at a press conference on Monday. One is, "you don't have Wi-Fi," Barger said. The other is, "you don't have a premium product." Given the options to either "get out or get in big," he said, JetBlue selected the latter course.

The changes will begin with the introduction of a new aircraft, the Airbus A321, into its fleet. Delivery of the first A321 was scheduled for Tuesday, but has been delayed by the U.S. government shutdown. JetBlue will dedicate 11 A321s to its new trans-con service, which will begin next summer with six or seven daily flights from JetBlue's hub at New York Kennedy to Los Angeles and four or five flights to San Francisco.

The new planes, larger than the A320s the JetBlue has been flying, will enable introduction of a first-class product, which it calls "Mint," on 16 seats. Mint service will include lie-flat seats, private suites with doors and TVs with 100 channels, as well as Wi-Fi. Currently, the highest price for Mint is $999, around half of a typical first-class fare. "There is no comma in our fares," Barger said, in an interview.

Amenities for the remaining 143 seats will also be upgraded to include Wi-Fi, more comfortable seats, bigger TV screens with more channels, and a self-serve station for snacks and sodas. "The premium offering doesn't compromise the core experience," Barger said. "You can put 219 seats in the airplane, but we will have 159." In 321s without Mint, JetBlue will have 199 seats. It has 150 seats on an A320.



In the first quarter of 2013, American (AAMRQ) had nine daily flights between Kennedy and LAX, while Delta (DAL) had seven, United (UAL) six, Virgin America had five and JetBlue had four. Still, Marty St. George, JetBlue senior vice president of marketing, said, "I don't consider it tough (competition) at all. We will have the best product and the lowest fare." He called described Mint as "the biggest evolution in our product since 2000."

JetBlue has always relied on a unique formula that combines both low fares and premium service and has been called both "affordable luxury" and "cheap chic," St. George said. Just 14 years old, JetBlue has evolved into the biggest domestic carrier at both New York Kennedy and Boston Logan. It also dominates smaller airports in Fort Lauderdale, Fla., and Long Beach, Calif.

Airline experts noted that Mint is limited to about 10% of the seats on JetBlue's A321, so its impact on JetBlue's financial performance and its attraction for customers could be limited. In general, JetBlue customers are known to be exceedingly loyal to the carrier.

Imperial Capital analyst Bob McAdoo said that while adding Wi-Fi throughout the aircraft benefits JetBlue, since competitors already offer it, "the rest of the changes affect so few customers that I don't think it's material to what they do."

Aviation consultant Bob Mann said Mint "is a very extravagant domestic product, befitting JetBlue's image and intent, but the question is what is the experience going to be like for the other 99% of passengers." He noted that American will offer three-class, trans-con flights starting in March, but JetBlue's fares are likely to be less expensive.

"JetBlue has always relied heavily on the company's brand, and Mint will add more to its competitive arsenal, strengthening the brand," wrote Cowen & Co. analyst Helane Becker, in a recent report. "The addition of first class should help the airline attract business travelers who have been migrating to United and Delta."

But Becker noted that Mint "adds complexity and costs" for JetBlue and suggested that the carrier retain its focus on leisure travelers rather than spending more in an effort to attract business travelers. She retained a market perform rating. JetBlue shares closed Wednesday at $6.66, up 16% for the full year.

Mann said JetBlue's upgrades are likely to have their biggest impact on Virgin America, another carrier offering low fares and premium service. Virgin America already offers a first class product on the route, which it serves with A320s seating 149 passengers, including eight in first class. Coach pitch, or distance between seats, is 32 inches. JetBlue's A320s offer a 34-inch pitch, the highest in the U.S. airline industry.

With some first-class seats, Virgin is able to secure higher revenue per available seat mile on the route. JetBlue's A321, however, will not only allow for a first-class section but also more seats in coach, McAdoo said.

Said Mann: "If JetBlue sticks to its core value, particularly in the economy cabin, this could be a big win for them. But whether it will make them a mint, I don't know."

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

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